Brexit: Deal or No Deal (European Union Committee Report)

Lord Hannay of Chiswick Excerpts

Tuesday 16th January 2018 Lords Chamber

[Viscount Ridley]

It is still at the early stage of negotiation. It is a long process and the agreement with India is nowhere near ready.

Do not get me wrong. Of course I think we should strive for a good trade deal with the EU. If we fail, it will not be for lack of trying on our part. But look across the table. Mr Juncker and Mr Barnier refuse even to talk about a trade deal until March, showing no urgency on behalf of the people and businesses of the European Union. We are in a very odd situation here. The party that needs the deal most wants it least. Punishing the UK seems to be a higher priority for Mr Juncker than looking after the interests of the EU 27 economies and people. How do you negotiate a deal with the other side when it is interested not in what is best for its side but only in causing pain?

[Lord Hannay of Chiswick (CB)]

Can the noble Viscount possibly contemplate that the party which he says needs a deal more than we do may have a different view on that matter?

[Viscount Ridley]

That is my point. Their view is that the politics must override the economic interests of the people in their countries.

Anyway, in those circumstances, of course we must prepare for no deal.

--- Later in debate ---

[Lord Hannay of Chiswick]

My Lords, I too join those who have paid tribute to this report, which is one of the most recent of a long string of very valuable reports on the implications of Brexit. I also pay tribute to my noble friend Lord Jay, who I think has done a wonderful job. I was present at some of the debates on his reports when he was standing in as chair of that committee.

However, this report is one of the most valuable because it takes head on a basic tenet of the Government’s negotiating strategy ever since the Prime Minister promulgated it at Lancaster House almost a year ago to this day—that no deal was better than a bad deal. That the Secretary of State for DExEU has apparently —so I read in the press—expressed surprise and indignation that the European Union should take that outcome seriously after the Prime Minister took the trouble of ramming it down the throats of all 27 ambassadors of the member states at Lancaster House I find pretty laughable. Or do we perhaps no longer expect ambassadors to take what the Prime Minister says seriously?

The proposition that “no deal is better than a bad deal” has become one of those largely meaningless mantras, along with “Brexit means Brexit”, which the Government have produced as a substitute for telling Parliament what their substantive negotiating objectives and strategy really are. It has become the battle cry of those who fundamentally believe in Brexit at any cost. That is why I think we have to look very carefully at the conclusions of this report, which so cogently explain how damaging such an outcome would be—the worst possible one for the country in the short, medium and long term. I repeat here the conclusion that has been mentioned by so many others that it is difficult, if not impossible,

“to envisage a worse outcome for the United Kingdom.”

I hope that that is understood and accepted, instead of this mantra being treated as a flirtatious sally towards the European Union, which clearly is not quivering in fear each time it is mentioned.

It is my hope that this report will help give the quietus to this self-harming approach. It is my hope but it is not my expectation, because the “no deal is better than a bad deal” mantra is the Rasputin of the Brexit negotiations. You can feed it cyanide cakes, you can pump it full of bullets and you can hold it under the ice, and yet it still emerges gibbering from the ordeal to exercise a fatal fascination for the true believers in Brexit.

Quite recently, I heard one of those true believers—the noble Lord, Lord Howard of Lympne, a Member of the House who is not in his place today—tell the BBC’s “Today” programme, with all the certainty of somebody reading off the tablets of Moses, that if you are not prepared and seen to be prepared to walk away from a negotiation, you would inevitably be worsted in it. Leaving aside the wisdom of bluffing in circumstances in which, as this report makes clear, we have the weaker hand in a no-deal situation, I do not think that the noble Lord’s iron rule of negotiation is either true or suited to the present circumstances. Was that the object that we were prepared to work away when we negotiated the establishment of the United Nations or the Atlantic alliance, or the long string of negotiations that have brought freer and fairer trade including the Kennedy round, the Tokyo round and the Uruguay round, or the commitment to combat climate change, in which the noble Lord, Lord Howard, and I played some small part in Rio in 1992? We are, after all, talking about a new partnership with our nearest neighbours, with whom not only do we do almost half our trade but with whom we share a large range of common values and interests. Would not it be more sensible to say that failure is not an option that we are prepared to contemplate? Would not that be better than advocating billions of pounds to preparing for failure?

Moreover, it seems to me largely overlooked at this moment just how different the post-March 2018 phase of the negotiations is likely to be from the negotiations that were completed on phase 1 before Christmas. Those divorce negotiations, particularly those relating to the financial settlement, were always going to be a bit acrimonious and confrontational—that is the way it is with divorce proceedings—but surely the next phase needs to be undertaken in a spirit of mutual benefit if it is to have any chance of success. And there is plenty of mutual benefit around: in continuing to co-operate on the whole range of foreign and security policies; in working together on scientific research and innovation; in facing together the threats and challenges from international crime and terrorism; and, of course, in continuing to trade in the frictionless manner to which we have grown accustomed over more than 40 years of EU membership. To be fair, the Government do talk the talk on a lot of this, but, as the noble Lord, Lord Teverson, said, at least on the trade aspects they do not walk the walk. They spend an inordinate amount of time drawing red lines and listing all the approaches that we are not prepared to contemplate, which seems to be pretty much anything that the EU has ever negotiated with anyone else. Is it really wise to be so negatively prescriptive before we have even sat down at the negotiating table on these trade issues? I doubt it. Surely the approach to trade negotiations should be one with a much more open mind, to see what could be achieved for what.

Meanwhile, time marches on, and it is essential that the standstill or transition arrangements are settled, at least in their broad outlines, by the end of March if it is at all possible. I was encouraged by two little words in the Prime Minister’s Statement that was repeated in this House following the conclusion of phase 1 in Brussels. She said that during the standstill period—she did not call it that; she has an aversion to that word, I think—matters would remain “as now”. That should enable rapid progress to be made in Brussels, but it will need careful presentation and explanation to the Government’s more zealous Brexit supporters, who are going to find a good deal of it pretty distasteful. There is little sign of that explanation so far.

We need some provision in the standstill arrangements for what happens if it turns out that all we have done is postpone the cliff edge from 2019 to early 2021. We may then find ourselves going over it and subjugating business to two wrenching transitions rather than one. That would be bad news. I suggest that some flexibility on the duration of that standstill—some ability by common accord to extend the period—ought to be one of our objectives.

There is an awful lot at stake, and I am looking forward to hearing the Minister’s reply. I am not suggesting that he do anything as silly as tell us that of course there will not be a no-deal situation—there are circumstances in which that could happen. However, I would like to hear him say that under no circumstances will this Government seek to make that part of their objective.

[Viscount Trenchard (Con)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Hannay of Chiswick. Although I find his wit and eloquence most persuasive, I am afraid that I do not agree with much of the substance of what he said. Rather, I agree more with my noble friend Lord Ridley. I also can easily conceive of a deal that would be worse for this country than no deal. I believe that Mr Barnier has even talked about some examples of a worse deal.

I take issue also with the point about German industry, which was mentioned by the noble Lord, Lord Liddle, and others. The trade union representative on the supervisory board of Rolls-Royce’s German subsidiary expressed great concern that the German Government would not put enough pressure on the EU to reach a sensible trade deal with the UK to provide continued good access to the UK market.

The report’s conclusion that the Government should review the options for securing a time-limited extension of the UK’s EU membership is flawed. It plays into the hands of the EU negotiators, who wish us to continue to pay inexorably increasing contributions and eventually to agree to a deal under which we are bound to maintain full alignment with EU regulations. The report exaggerates the damage that will be done to our economy if there is no deal and understates the potential upside of recovering our freedom to set our own rules, besides the obvious financial savings. Take financial services: we would have introduced much of the new post-financial crisis regulation anyway, but not all of it. AIFMD has undoubtedly cost the City a number of jobs and substantial earnings. Why do we never hear about the cost in jobs and tax revenue that the City would have earned if we had not been overruled almost every time we disagreed with a proposed EU directive or regulation?

New European regulation in recent years has arguably been more about harmonisation and centralisation of control than anything else.

[Lord Hannay of Chiswick]

I should be most grateful if the noble Viscount would tell me whether he was familiar with the fact that the first banking regulation passed after the single market was enacted was passed with the great help of the British Commissioner, the late Lord Brittan, and the Council, and involved voting down the Germans.

--- Later in debate ---

[Lord Callanan]

Clearly, the noble Baroness will understand that I cannot comment on what legal advice the Commission has received. But as I said, the Commission has agreed with us that the implementation period can be implemented under Article 50. We agree with that position.

On 29 March 2017, the Prime Minister notified the EU of the UK’s decision to withdraw under Article 50, following consideration of the issue in both Houses of Parliament. As a matter of policy our notification will not be withdrawn. The British people voted to leave the EU and we will deliver on their instruction. There can be no attempts to remain inside the EU and no attempt to rejoin it. I emphasise for the benefit of the noble Lord, Lord Kerr, and others, that we will leave the EU on 29 March 2019, after which we will no longer be a member state. That is a matter of law under the Article 50 process.

My noble friend Lord Hamilton asked me what provisions we were making for no deal even though that is not the outcome we seek. As well as the EU withdrawal Bill, which will ensure that we have a fully functioning statute book on the day that we leave, the Government are already bringing forward other legislation as required. Our Trade Bill will give the UK a foundation for an independent trade strategy. We will create a world-class international sanctions regime through the Sanctions and Anti-Money Laundering Bill and we will deliver an effective customs regime through the customs Bill. Our Nuclear Safeguards Bill will ensure that we can deliver a domestic nuclear safeguards regime. This legislation will support the future of the UK in a wide variety of outcomes, including one where we leave the EU without a negotiated outcome.

Alongside bringing forward necessary legislation, we will be procuring new systems and recruiting new staff where necessary to ensure that we deliver a smooth exit, regardless of the outcome of negotiations.

[Lord Hannay of Chiswick]

In the Minister’s enumeration of the legislative programme, he seems to have lost one or two rather important parts: the agriculture Bill, the fisheries Bill and the immigration Bill. Where have they gone?

[Lord Callanan]

It was not an exhaustive list, rather a few examples. I think that the noble Lord will find that those Bills will be coming through.

My noble friend Lady Wheatcroft asked whether we have a Minister responsible for no deal. The answer is yes. Steve Baker is the Minister responsible for our preparedness in all circumstances, including those of no deal. My noble friend Lord Trenchard and others asked about financial services. We will be seeking a bold and ambitious free trade agreement between the UK and the European Union. This should be of greater scope and ambition than any such agreement before so that it covers the financial sectors of both the UK and EU economies; financial services is one of those sectors. This will require detailed technical talks, but as the UK is an existing EU member state at the moment, we have identical regulatory frameworks and standards which already match those of the EU. Both sides have said that they want to protect financial stability and we remain committed to reaching the best possible outcome for the sector and indeed for the UK as a whole in our negotiations.

My noble friend Lord Trenchard also asked how confident we are that we can attract trade deals. Leaving the EU offers us an opportunity to forge a new role for ourselves in the world to negotiate our own trade agreements and to be a positive and powerful force for free trade. Since 2005 the UK’s non-EU trade has grown from less than 48% of UK exports to 57% in 2016. The noble Lord, Lord Taylor, asked about the appointment of more trade envoys. The Prime Minister has made it clear that one of the benefits of leaving the EU is the ability to develop our relationships with countries outside the EU in new ways, including through our own trade negotiations. The PM’s trade envoys engage with emerging markets where substantial trade and investment opportunities have been identified by the Government. There are currently nine African Commonwealth countries covered by the programme.

My noble friend Lord Cavendish and others referred to the phrase “nothing is agreed until everything is agreed”, but I have already covered that. The noble Lord, Lord Bew, talked about the very important issue of the Northern Ireland border. As I have mentioned, we have already reached an agreement on a number of the critical separation issues, this matter being one of them. In the event of a no-deal scenario, the Government would continue to adhere fully to the Good Friday agreement, its successors and the institutions that they have established. The Government are committed to protecting north-south co-operation and to avoiding a hard border on the island of Ireland in all circumstances.

The noble Lord, Lord Blair, raised the important issue of security, and I am grateful to him for the opportunity we had to talk through these matters personally before Christmas. We are confident that a future security partnership between the UK and the EU is in the interests of both sides. The UK’s current participation in EU law enforcement and criminal justice measures is based on our membership of the EU. Our relationship with the EU will change as a result of leaving, but we remain committed to ongoing co-operation now and after we leave. However, rather than go into a lot more detail on this, as the noble Lord suggested, I am happy to write to him on the points he raised.

I conclude by reiterating what I said at the beginning of my speech. We are seeking a deep and special partnership with the EU in the second phase of the negotiations and we neither want nor are expecting a no-deal scenario. However, it is the duty of a responsible Government, which we are, to prepare for all possible outcomes, and that is what we are doing across government. We are working to formally publish our response to the committee’s report as soon as possible.

I am immensely grateful to all noble Lords for their contributions over the course of what has been a fascinating debate. We will continue to meet our commitments to keep Parliament fully informed on the UK’s exit from the EU, and I am sure that this House will continue to play a valuable role in the work of the Government to secure a deal that works for everyone.