European Union Referendum Bill

Lord Davies of Stamford Excerpts

Tuesday 13th October 2015 Lords Chamber

[Lord Davies of Stamford (Lab)]

My Lords, I intend to address this question, as I have been very pleased to see many colleagues on both sides of the House have done today, on the basis that, although I do not like referenda very much in principle—I very much agree with the oft-quoted remarks of both Clement Attlee and Margaret Thatcher on the subject—we now face a situation in which we have a Government who have won an election and who have an electoral mandate for this referendum, and we should settle down and do our duty.

As I see it, our duty is threefold. One is to make sure that the technical arrangements for the referendum are robust and fair. Secondly, we must have the appropriate franchise—a lot of very good comments have been made in today’s debate about that, particularly in relation to the franchise being given to EU citizens resident in this country and the reduction of the age of election to 16. I hope that those points will be taken further in Committee and on Report. Thirdly, and most importantly—vitally, of course—we must have an honest, open and comprehensive debate, so that the British public can make a choice which is considered and focuses on the essential facts.

For that purpose, and in the course of the debate which started here this morning and through the afternoon in this House, it is very important indeed that any kind of error, spurious or manifest, or any kind of spurious argument—any kind of what the noble Lord, Lord Lawson, memorably called “tosh” this morning—should be exposed and challenged. Indeed, I intend to expose and challenge a certain amount of the noble Lord’s own tosh in the course of my brief remarks.

One of the essential facts that no one has ever been able to get away with ignoring, thank God, is that between 3 million and 4 million people in this country work for firms whose majority of customers are somewhere in the European single market. That is so important. The Eurosceptics have always accepted that they cannot possibly come forward credibly with policies that would involve us leaving the single market. Therefore, they have always said, “Don’t worry—we’ll leave the European Union, but we won’t leave the single market”. That needs to be probed very thoroughly indeed, because it goes to the heart of the national economic interest in the matter. A year or two ago, the Eurosceptics were saying, “That’s all right—we’ll join EFTA, or we’ll do a bespoke deal, rather like Switzerland”, which actually is not an offer. That was the sort of thing one heard from the Eurosceptics.

Then it came very much to their attention, and they could not avoid the fact, that to join EFTA or to do a Swiss-type deal would involve us being put in a position of impotence—indeed, a humiliating position—in which we had to accept all the rules of the single market as they were decided by other people, without any right or opportunity to take part in their formulation, and have to continue to pay a financial contribution to the European Union. Even the IoD, the Institute of Directors, which was a hotbed of Euroscepticism at one time, realised that that was a quite unacceptable solution for this country.

So the Eurosceptics have now started saying, as the noble Lord, Lord Lawson, said this morning, “Oh no, we won’t go down that road; we’ll do a better deal, a better deal than anybody”. If anybody says that, one’s suspicions are naturally aroused. Why would we be able to do a better deal? “Well”, we are told, “because we actually buy more from the rest of the European Union than it buys from us”. In other words, they are more dependent on us than we are on them, so we have them around the neck and they have to accept our terms. Nothing could be further from the truth; nothing could be more damaging to us going into any kind of negotiation with the rest of the European Union because it is based on complete falsehood, on a logical fallacy. Trade dependence is a function of relative dependence on exports to the countries concerned—relative exposure to those particular exports in relation to the total GDP.

Let me give an example, so that everyone can appreciate the obvious logical point. Micronesia might be buying £1 million-worth of goods every year from China and selling China only £100,000 worth of goods in the course of a year but, of course, it would have absolutely zero leverage on China. It does not matter that there would be a 9:1 relationship between exports and imports between Micronesia and China. It does not matter that Micronesia would have an enormous balance of payments deficit with China. What is important is the relative position, and we know what the relative position is. The European Union’s exports to the United Kingdom are 2.5% of EU GDP, whereas our exports to the rest of the European Union are 15% of our GDP. So it is a relationship of 6:1. We have a 600% disadvantage in this matter—no basis at all for negotiating some special deal.

Even if we could negotiate some such special deal, which I think is most unlikely, it would not solve an essential problem which is the investment problem that is critical for the future. It is no use talking about the present; we have to talk about the future. The investment problem is that anybody who is putting new capacity somewhere into the single market to service the single market as a whole must be assured that they have a host Government that have some influence with Brussels in the legislative and regulatory process. Otherwise, of course, they would be completely unrepresented, which would be completely unacceptable. We have had that message clearly from, for example, Japanese car manufacturers based in this country and American pharmaceutical companies based in this country. They need to feel that, if they are coming here, the British Government will take up their cause when required in Brussels. It is even more important in financial services, where we have such an enormous amount of foreign investment. That problem can never be resolved if we walk away from the actual membership of the European Union and its constitutional legislative structures, which is what the Eurosceptics are proposing.

It may be because they are subconsciously so aware of the weaknesses of their case that, increasingly, the Eurosceptics try to move on from a discussion of the future of the single market to one outside the single market. We heard the noble Lord, Lord Lawson, this morning say, “Oh no, much more important is what is going on outside the single market”. I took note of one of his quotes, which I hope I still have. I must try to find it because it is really quite memorable. He said, “Because of our history, we have better worldwide links”. The idea is that the solution is: even if we do not do so well in the single market, we will do even better outside it.

That is based on three mistakes. It is based on a bad business policy; it is certainly based on an economic fallacy; and, it is based on an enormous piece of ignorance—quite extraordinary ignorance. The bad business judgment is the fact that the countries he was thinking of do not regard themselves as having a special relationship with us. I have met so many Indians who have told me that they have been so disappointed, frustrated and annoyed at British businessmen going out to India and thinking that they have an inside track because of British-Indian history. As a matter of fact, most Indians do not look at the Raj at all with the kind of rose-tinted, nostalgic spectacles that many Eurosceptics seem to wear.

China is a country where one has to be extremely careful because one is too easily associated with a country which imposed the unequal treaties and which burned down the Summer Palace in 1859. People are completely insensitive to this kind of problem. These countries are run by people who are highly intelligent, very sophisticated and who are going for value for money. They make hard-nosed economic decisions. So the idea that we have some special advantage in these areas is complete and utter rubbish. It is very deceptive and dangerous for British business. This pretentiousness is quite the wrong kind of advice to give to British business. They need to be much more realistic.

The economic fallacy is even more serious; it is very serious indeed. Far from there being a trade-off between being a part of the single market and having access to the worldwide markets beyond, there is a negative trade-off. It is not a question of having more of one and less of the other; if you have more of one, you have more of the other. The whole reason for the single market was because it would create a large internal market comparable to that which Japan and the United States enjoyed and which, at the time, we did not have in Europe. The idea that the single market would produce greater specialisation, larger firms and longer production runs has worked. It has produced economies of scale and enabled firms to carry higher overheads, particularly in the critical areas of marketing and research and development which are so important for the future. This has all come about based on having an effective single market. So the last thing we want to do is to say, “We do not need a single market; we can do better outside”. The opposite is actually the case. This is a very serious fallacy that clearly needs to be exposed thoroughly in the course of this particular campaign.

On the issue of ignorance, the noble Lord, Lord Lawson, is one of the most knowledgeable and brilliant human beings I know—it is only in this area of Europe where he allows his emotions to take over and defeat his very formidable intellect—but he showed an extraordinary piece of ignorance, or at least negligence because he never mentioned it at all when he talked about the outside world, about the situation in which we trade. Apart from the United States, the world outside the single market is primarily within free trade agreements or trade and investment agreements negotiated between the EU and the markets concerned. The most recent ones were negotiated with Canada and Japan, and we are now engaged in the TTIP with the United States. If we left the European Union, the next day we would cease to be able to benefit from these trade agreements. Such agreements sometimes take, quite typically, five or six years to negotiate. They are enormously valuable. If we left them, we would immediately be at a handicap. We would immediately find ourselves paying tariffs or suffering other disabilities which our competitors in the single market were not doing. To negotiate something of our own would take years, and under no circumstances would the terms be as good because we would be offering a market of 60 million people and the EU would be offering one of 400 million. We would be the “demandeur”, so anyone could say “Ha ha! This is our price”.

This is a hopeless way forward and, if we go down this route, we will be betraying the country’s national interest. In my view, it is very important that these matters are gone into in considerable detail. If not, the British people are likely to make a decision which they would live to regret.