Brexit: Domestic and International

Lord Farmer Excerpts

Thursday 27th October 2016 Lords Chamber

[Lord Farmer (Con)]

My Lords, I also begin by congratulating my noble friend Lord Gadhia on an excellent maiden speech. I also mention his great contribution in getting the Indian community engaged in the British political system.

Having started on the London Metal Exchange in 1963 I have been involved in metals trading for more than 50 years. At present, I have every intention of continuing. I am therefore grateful to my noble friend Lord Leigh for securing this debate on the impact of Brexit on trade and particularly the promotion of global free trade. We are in danger of reverting to an unattractive and counterproductive negativity, talking ourselves down and doing our great British brand a disservice. Of course Brexit has brought with it a new source of uncertainty, and business thrives on stability, but it is important to be clear-eyed about what lay behind and optimistic about what lies ahead.

Shortly before the referendum I wrote that as an island nation we have always depended on our trading and market skills and how continued membership of the European Union posed a direct risk to our unrivalled concentration of markets and trading expertise. The market in which I am most involved, the London Metal Exchange or LME, is the global pricing mechanism for base metals and has, since it was founded in 1870, provided substantial invisible exports for this country. I was concerned that European regulators were endangering the sophisticated systems and culture undergirding London markets’ success. Our international reputation for trading ethically and innovatively has made Britain very attractive for investors. Yet, regulators in Brussels, issuing ever more top-down directives, effectively sidelined personal responsibility, creativity and innovative flair.

The LME, which operated smoothly and without disruption during the financial crisis, is governed by rules designed and developed over the last 150 years that are, as a result, well suited to its markets. However, these were in danger of being swept away by EU laws such as the Markets in Financial Instruments Directive II. MiFID II, as it is known, actively deters people from taking on risk in markets and betrays the assumption of those at a remove from trading that risk should be avoided. Yet risk is what gives markets liquidity. It needs good controls, but risk is a good thing.

This trend towards overregulation made it increasingly likely that the now Hong Kong-owned LME would sooner or later have been forced to relocate to Hong Kong or to another major Chinese city. The irony is that as a global exchange the LME was not affected by the single market, yet was subject to the EU’s strictures, which were endangering its continued operation in London.

Now free to take back control of our regulation, we need to have a healthy dose of national confidence and self-belief on the grounds that other countries will want to trade freely with Britain, the world’s fifth-biggest economy, especially if, like the EU, they are already doing so. In this interconnected world, our trade with Europe, which has a surplus of nearly £70 billion with us, is an indispensable source of jobs and wealth for their economies.

However, I wish to make another point. We are also free to help other countries create wealth through free trade. Harvard Professor and author of The Wealth and Poverty of Nations, David Landes, emphasises that the task of rich countries like ours,

“in our own interest as well as theirs, is to help the poor become healthier and wealthier. If we do not”,

he says,

“they will seek to take what they cannot make; and if they cannot earn by exporting commodities, they will export people. In short, wealth is an irresistible magnet”.

Written nearly two decades ago, he is prophetically summing up what happens when trade is not free. The European Union has to ask itself to what extent its protectionism is responsible for so many economic migrants willing to take perilous journeys across the Mediterranean and turning up on her shores with no certainty of a good outcome even if they survive the passage.

Our exit from the European Union creates a vital opportunity to make arrangements with just-about emerging economies that would previously have been at the back of the queue for trade deals with nations such as ours. Surely this would enable them to hold on to more of those citizens who want to better themselves instead of losing them to uncertain tides, flimsy boats and people smugglers.

Will the Minister provide a little more detail of what my right honourable friend in the other place, the Secretary of State for International Development, is planning in terms of free trade with poorer countries as part of her welcome drive to ensure that every penny of the aid budget is well spent? We need to ensure that the rising tide of what I believe will be our post-Brexit prosperity lifts as many boats as possible.