Brexit: Appointment of Joint Committee

Viscount Trenchard Excerpts

Wednesday 3rd July 2019 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, I respect the opinion of all noble Lords who have spoken so far in this debate but, holding a different opinion from the majority in this House, I would like to put forward some other points.

I believe that the Government were right to try to negotiate a sensible withdrawal agreement that would allow us to recover our freedom as a global trading nation with an independent trade policy yet continue to trade as smoothly and easily as possible with the EU. I absolutely cannot understand why the Government’s negotiators believed that they had to accept the EU’s demand to agree the terms of withdrawal separately before starting to negotiate the basis of our future relationship. The separation of negotiations into two parts played completely into the hands of the EU’s negotiators. We had a very strong case for refusing to separate the negotiations in this way, as Article 50 clearly states that,

“the Union shall negotiate and conclude an agreement”,

with the departing member state,

“setting out the arrangements for its withdrawal, taking account of the framework for its future relationship”.

As the noble Lord, Lord King of Lothbury, has said,

“There are arguments for remaining in the EU and arguments for leaving. But there is no case whatever for giving up the benefits of remaining without obtaining the benefits of leaving”.


I agree with him that it makes no sense to try to find a framework for our future relationship that effectively keeps us half in. Should your Lordships’ House agree with the proposal of the noble Baroness, Lady Smith, to appoint a Joint Committee, would it not be logical for such a committee also to consider the costs and implications for the United Kingdom of staying in the EU or of seeking a third extension to the Article 50 period? Many people are asking, “Why haven’t we left already?”, irrespective of whether they voted leave or remain in 2016. The uncertainty created by our failure to leave according to the expected schedule has resulted in extra costs and uncertainties for business.

In 2018, our net contribution to the EU after rebate and after £4.3 billion of public sector receipts amounted to £8.9 billion. However, moves are afoot to abolish all rebates for the next EU multiannual financial framework for 2021-27. If this were to happen and if the UK, in spite of the referendum vote, were to remain a member of the EU, our contributions, net of public sector receipts, would be likely to be in excess of £13 billion or some £250 million a week.

It is a fact that small companies have found it increasingly expensive to comply with all the EU regulation that has been transposed into domestic law over the last few years. It is true that much of this has been initiated by the UK, but where we have opposed elements of EU regulation, we have always been overruled, especially with the extension of qualified majority voting in recent years. In the financial sector, many smaller asset management companies have been forced to merge or incorporate elsewhere to avoid AIFMD or MiFID II. The proposed Joint Committee should look at the loss of revenue and jobs caused by cumbersome and expensive EU regulation and at the cost of further delaying the date when we can begin, carefully and selectively, to abolish or change regulations which damage our markets and our industry.

Another benefit of leaving with a better deal or, in extremis, without a deal, is that we would no longer be bound by chapter 4 of part 5 of the draft withdrawal agreement, which deals with the European Investment Bank. It seems extraordinary that we have agreed to accept only the return of our paid-in subscribed capital, amounting to some €3.5 billion. It is logical that we should also be entitled to receive our 16.1% share of the retained earnings. Adding this amount, the net tangible assets attributable to our stake amount to €11.1 billion, more than three times what we have agreed to accept. Worse, the repayment of our paid-in capital is to take place over 12 years, until December 2030, without payment of any dividends or interest. Furthermore, there has already been a marked decline in the funding of UK projects since the referendum, from €7 billion in 2016 to less than €1 billion in 2018. To cap it all, the UK is to remain liable for its 16.1% share of the uncalled but committed capital in respect of the EIB’s financial operations at the time of withdrawal. That could amount to a call of up to a further €35.7 billion. As a member of the EU Financial Affairs Sub-Committee—although the report was completed prior to my appointment—I trust that your Lordships’ House will have an opportunity to debate our report, published on 31 January, before the House rises for the Summer Recess.

Lastly, I suggest that the proposed Joint Committee should also look at the potential costs to the UK of a major eurozone failure, such as envisaged in the recent worrying report by Bob Lyddon for Global Britain. Seven member states have debt to GDP ratios in excess of 90%, making it most unlikely that they can comply with the 60% limit set by the EU fiscal stability treaty by 2030. Italy’s is the highest, at 132%, and it is not politically acceptable for the Italian Government even to try to comply. It is very likely that investors will recognise that the recovery and stability of the eurozone system is an illusion, concealing as much as €1 trillion of overvaluation of assets in the euro system. A new eurozone crisis could well be triggered as early as the end of next year, for example, if Moody’s were to downgrade Italy’s credit rating by one notch from its current level of Baa3. In that event, the ECB might be compelled to recapitalise the euro system for up to this amount and there are only six eurozone member states whose central banks are capable of contributing to a reset. It is inevitable that, again, the non-eurozone countries would be called upon to contribute, of which there are only three solvent candidates. Of these, only the Bank of England is sizeable and, based on its “capital key” of 13.7%, could be called upon to make a contribution to the order of €230 billion. If our finances remain accessible to the EU, we will not be able to escape the risk of an enormous hit of this sort of size unless we leave with a better deal or, if necessary, no deal.

It is not my preferred option that we should leave with no deal, but in some respects the costs and risks of leaving under the withdrawal agreement are arguably much higher. We must be prepared to leave with no deal to persuade our EU interlocutors that they should put economic common sense above their political interests and agree to negotiate a fair deal, which will protect trade, jobs and the economies of both the UK and the EU 27. I welcome the publication last week, by the alternative arrangements commission of Prosperity UK, of an interim report which offers several clear ways of solving the Irish border problem. I believe that, with good will on both sides, the EU’s negotiators will recognise that they can, and must, work hard to agree a new deal that is equitable and sensible, and which will provide the basis for a sustainable, positive, long-term relationship between the UK and the EU.