Brexit: The Future of Financial Regulation and Supervision (European Union Committee Report)

Lord Liddle Excerpts

Wednesday 6th June 2018 Lords Chamber

[Lord Liddle (Lab)]

My Lords, this is another excellent report from one of our EU sub-committees. It owes a lot to the quality of the clerks, and the quality of the chair and other members of the committee. However, I want to make one central point about the report which greatly worries me. I think it takes for granted the Government’s present commitment to withdraw from the single market and not to seek membership of the European Economic Area. For the City, that will have pretty awful consequences. I do not really agree with the noble Lord, Lord De Mauley, on that.

Let me make three broad points. First, services are our economic future. This is where we have a trade surplus and are very strong. The City has benefited enormously from being the financial centre of the European single market. I am very worried about the way that the debate is going on Brexit. As evidenced by the piece by the noble Lord, Lord Wolfson, in the Financial Times on Monday, the argument is, “Let’s have regulatory alignment in goods but let’s go our own way in services”. This could do grave damage to the service sector in Britain, which I regard as a key part of our economic future. When we had the report on non-financial services, virtually all the people from all the different parts of the service sector—from broadcasting, the law, accounting and architecture—said that the three fundamentals of the single market were fundamental to their business model. They are: the freedom of establishment, which we lose when we leave; the mutual recognition of qualifications, which we may just about manage to hold on to; and, most important of all, free movement of labour, which is absolutely fundamental to service businesses including the City.

My second main point is about the hope that we can negotiate a mutual recognition arrangement through a free trade agreement, which is basically what we will be doing if we are not in the single market. The idea that this is possible is very misplaced. I can tell your Lordships about it in EU terms. I worked in the Commission for three years and the EU will see us as a third country. You cannot have mutual recognition with a third country but that is the position we are putting ourselves in. That is not the EU being dogmatic and difficult but a question of where we have chosen to put ourselves. Think about mutual recognition and the contribution it made to the start of the deepening of the single market—for example, in the Cassis de Dijon decision. That was because people were in a common regulatory area governed by a single court, the European Court of Justice. How can you have a system of mutual recognition when you have a separate system of adjudication, apart from the European system? That is the fundamental logical flaw in this position.

My third point is that I have grave doubts about the position that the Bank of England is taking: that there are no circumstances in which, in financial services, Britain could be a rule taker. This could be very damaging to our national interest in the long run because it implies that if we are not to be part of the EEA, we will go our own way and there will be gradual divergence between the City and the EU. The very fragmentation of the financial services market that we are trying to avoid will actually start to take place. That is based on a misjudgment about how much influence Britain could have as a member of the EEA in various areas. True, we would not have a vote but I believe that we would have influence. We would certainly have influence on questions of free movement and I think that we would also have influence over the future of the City which, if we remained in the EEA, would be seen by our continental partners as a vital asset to them. Once we leave, that mutuality of interest disappears. I have very serious concerns about the way that this whole debate is going.