Brexit: Preparations and Negotiations

Lord Gadhia Excerpts

Monday 23rd July 2018 Lords Chamber

[Lord Gadhia (Non-Afl)]

My Lords, I will bring a business voice to this debate, among a sea of politicians and former civil servants. My comments build on two previous speeches in this Chamber. The first was in March 2017, immediately before Article 50 was triggered, when I described certain flaws in the Government’s negotiating strategy, particularly in the sequencing of discussions. The other was in January this year, about the inherent lack of credibility in threatening a no deal scenario, while acknowledging that it might be the unintended consequence of a breakdown in negotiations. Subsequent events have been like watching a slow motion car crash: utterly predictable but still excruciating to witness, because remedial action at an earlier stage could have averted some of the difficulties we now face.

Despite these frustrations, we should welcome the White Paper and find a way to make it work in the national interest—assuming, crucially, that it is not killed off prematurely in Brussels or Westminster. The Chequers proposal might be a grubby compromise, but it is a necessary one to deliver a softer Brexit, which the economy, parliamentary arithmetic and the Irish border require. The romantic idea of Brexit was always more alluring than the messy reality of implementing it. That is perhaps why some lament the dying of the Brexit dream. It is no surprise that it is fading rapidly, because it was always an illusion about regaining sovereignty. Modern democracies pool sovereignty so that they can secure better economic and security outcomes for their citizens than any individual country can achieve acting alone. So the argument is really about where we draw the boundaries between collaboration and self-determination. The idea of absolute parliamentary sovereignty is as outdated as the Corn Laws.

We are now entering a critical phase of the Brexit negotiations, during which the prospects for a deal could diminish dramatically and talks might even break down before being revived. It will be a turbulent six months and I will focus my comments on four specific points relevant to this next phase.

First, will the EU be open for serious discussions on the Chequers proposal, or is it simply going through the motions before killing it off and, instead, offering us CETA with a border down the Irish Sea, since the EEA alternative would require accepting freedom of movement? Michel Barnier has played the UK like a fiddle and it has been simultaneously impressive and deeply depressing to endure. It is clear that the Prime Minister is walking the tightest of tightropes, so if the EU overplays its negotiating hand, it will not take much to throw the discussions off balance.

Secondly, the weakest link in the Chequers plan is the facilitated customs arrangement. It was the target of the wrecking amendments to the customs Bill last week and is viewed sceptically by key stakeholders in Europe as unworkable. Last week I joined a cross-party visit of the Industry and Parliament Trust to Germany, where we heard first hand from the influential Federation of German Industries, or BDI. The tracking of goods could be a bureaucratic nightmare and potentially open up a smugglers’ charter. The advice going from German business to Angela Merkel does not support our customs solution.

Thirdly, the White Paper says that,

“the Withdrawal Agreement and the framework for the future relationship are inextricably linked”.

However, it is clear that the withdrawal agreement will be a binding treaty under international law, but the future framework will take the form of a political declaration. I ask the Minister—he is not in his place, but maybe through the Front Bench—precisely what legal status and interconditionality will attach to these two agreements? The new Secretary of State at DExEU has said that no payments will be made to the EU unless we get an acceptable trade deal. It is a novel legal concept to have a binding agreement with non-binding terms. Will the Minister please explain how that would work? Otherwise, Parliament is destined for a meaningful vote on a meaningless deal, since the political declaration gives us nothing more than the option to negotiate a binding treaty during the transition period.

Finally, I turn to the future of financial services, which appears to be the sacrificial lamb of the Chequers plan. In March this year, in his HSBC speech, the Chancellor acknowledged that the EU’s established third-country equivalence regime would be wholly inadequate for the scale and complexity of UK-EU financial services trade and argued for mutual recognition. He explained that the EU regime is unilateral and that access can be withdrawn at short notice. We now have a volte-face where the White Paper proposes something close to equivalence but with “expanded” scope. Exactly how significant that enhancement will be is not clear and there is very little time to pin down the precise details.

All the major financial services bodies have expressed their deep disappointment at this reversal. The inevitable consequence is that we are destined for split platforms across the UK and EU, which means the transfer of jobs and investment and, most importantly, the loss of a chunk of tax revenue from the £72 billion which the sector contributes to the Exchequer annually. If the Government are set on equivalence, they must now look at a comprehensive sector deal for financial and related professional services, much as they have done for other areas of industrial strategy, to reinforce the competitiveness of these world-leading sectors of our economy.

In conclusion, it would be churlish not to respect the quietly heroic way in which the Prime Minister is attempting a Houdini act to beat all others. The road ahead is treacherous, but I still hope for an 11th hour deal, cloaked in high drama, which is typical of how the EU resolves all major crises. There is, however, only so much uncertainty that the business community can stomach before voting with its feet and its investment cheque book. All the other alternatives for Brexit are too unpalatable and the mood of the country is to get on with it, so I hope that the great British tradition of pragmatism will prevail and the Government will persevere with their plan, as no deal would be a monumental tragedy for all sides.