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

Debate between Lord Wallace of Saltaire and Viscount Trenchard

Tuesday 16th January 2018 Lords Chamber

[Viscount Trenchard]

I fully take on board the noble Lord’s point but it is a different point. I said that we would have introduced much of the regulation that has been introduced anyway. I was rather drawing attention to examples of regulations that I think were wrong and where we were overruled.

MiFID II is another case in point and is currently causing massive cost increases and damage to many asset management companies, particularly smaller ones. I do not like the terms “hard Brexit” and “soft Brexit” but I firmly believe we need a Brexit that allows us fully to resume our status as an independent nation on the world stage and a positive influence for free trade within the WTO and other international institutions. This will not be a Brexit that seeks to maintain absolute regulatory alignment with the EU in any principal sector. We start from the position of full alignment but if other potential trading partners around the world believe we have neither the freedom nor the will to diverge to any significant extent, it will mean that we have no credibility as a potential trade partner, either for third countries or for other international trade associations such as the Trans-Pacific Partnership or NAFTA.

If we were to agree to a Brexit that guarantees full alignment with EU rules, there is no point in leaving the EU since we would be prevented from taking advantage of any of the opportunities that leaving offers. As the people have decided to leave, let us leave on a basis that maximises the opportunities for our future prosperity. If the EU decides to insist on a deal whose price is too high, in terms of either payment for divorce or a continuing requirement to adhere completely to European rules—and the only reason it would wish to do that would be if it put political objectives first and decided to punish us for leaving pour encourager les autres—it would be in our interests to leave without a deal.

As noted by the committee, Barnabas Reynolds of Shearman and Sterling believes that a no-deal outcome might even enhance the gravitational pull of the City of London’s markets. I do not believe that Oliver Wyman’s analysis that up to 35,000 jobs in the financial services sector are at risk in the event of a no-deal Brexit is taken seriously in the City. Rather, some firms that have already decided to move some people to France, Germany or Holland have done so prematurely and unnecessarily. I therefore ask my noble friend the Minister whether he agrees that it would be helpful if the Government talked more—and talked more positively —about the future of our own markets and how attractive and open they will be, to both our EU partners and the wider world, and how keen we are to establish mutually beneficial free trade agreements with other partners as well as the EU. At present, the perception is that the Government’s top priority is to maintain access to Europe’s markets on the same basis as now. I do not believe that access is in any real danger, even under WTO rules. The bright future for our own markets is the most exciting aspect of Brexit and it would be helpful if the Government talked more about that and provided more leadership to the City. The City of London and the Metropolis of Tokyo entered into a memorandum of understanding last December to work together to deepen further the exchange and collaboration in financial services. It would be helpful if we could hear similar sentiments expressed by Mr Barnier and his colleagues in Brussels. Will my noble friend confirm that the Government agree that future regulation of trade in financial services between the UK and the EU could best be conducted within a framework of dual regulatory co-ordination and mutual recognition of standards, as advocated by the Legatum Institute and others?

Obviously we should continue to work closely with our European neighbours where it is in our mutual interest to do so. I believe 17 non-EU countries participate in the Horizon 2020 science programme. I expect we will wish to continue with this and others, such as the Erasmus educational exchange programme.

It is manifestly in the interests of the EU and the UK to enter into a free trade agreement that enables the current level of trade in goods and services to continue, and to continue to grow. It should by no means be impossible for our negotiators to agree this if both sides put economic good sense ahead of political objectives. However, if the EU is not prepared to agree to such a deal and to agree the basic framework of our future relationship over the next few months, we need to be ready to leave without a deal. After all, Article 50 stipulates that the terms of withdrawal should be negotiated taking account of our future relationship with the EU.

Anyone with any experience of negotiations knows that the most important points are usually agreed at the 11th hour and that there is no incentive to agree important points before that. Therefore, the Prime Minister’s preferred option of an implementation period is greatly preferable to a transition period where we do not even know the broad framework of the end state. I look forward to hearing the views of other noble Lords.

[Lord Wallace of Saltaire]

The noble Viscount repeats what the noble Viscount, Lord Ridley, said: we should demand that the EU puts economics ahead of politics in its approach to these negotiations. Is he sure that what the Brexiteers are doing is putting economics first and politics second? Or are we asking the European Union to behave differently from us?

[Viscount Trenchard]

I am very sure that I am putting economics ahead of politics. When I worked in Brussels for our financial services industry, I very much regretted that I found that in the Parliament and other institutions many people on the European side put politics ahead of economics.