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

Viscount Trenchard Excerpts

Tuesday 16th January 2018 Lords Chamber

[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 ---

[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.

UK and EU Relations

Viscount Trenchard Excerpts

Tuesday 12th September 2017 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, I, too, thank my noble friend the Minister for introducing this debate today. I have read—well, at least skim read—the position papers and future partnership papers published by the Government explaining where we stand on several aspects of our negotiations. While many of the papers are lacking in detail, they clearly show the Government’s sincere intention to build a mutually beneficial deep and special partnership with the European Union after our withdrawal. Does the Minister agree that the Government could perhaps show more enthusiasm and explain more clearly their vision for the UK post Brexit?

As for the exit bill, we should surely include those sums which we should properly continue to pay for our membership of Horizon 2020, the Erasmus exchange programme and others. In addition, there is a strong argument that we should continue to pay our share towards projects in the current spending round which are already approved. It seems clear that we should not be expected to agree our leaving bill with the EU without at the same time agreeing at least the broader outlines of our future relationship. As recognised by my noble friend Lady Neville-Rolfe, the noble Lord, Lord Kerr of Kinlochard, apparently understood the logic of that linkage in his sensible drafting of Article 50. The Irish Taoiseach has also said that it is common sense that the future of the Northern Irish border cannot be settled until the shape of our post-Brexit trading relationship with the EU emerges.

Can the Minister say any more about future customs arrangements beyond what is written in the partnership paper and what she said in her opening speech? The Government have put forward two options: a highly streamlined customs arrangement and a new customs partnership with the EU. Which of the two is favoured by the Government and which would provide the UK with the greater freedom to pursue its independent trade policy objectives?

Can the Minister also say any more about the transition or implementation period during which it is intended that trade with the EU 27 should continue on the same basis as now? Does she agree that temporary membership of the customs union, EEA and even EFTA would all inhibit our ability to engage in discussions with third countries with which we may be able to agree very beneficial trade deals when we are free to do so? Third countries cannot seriously engage in negotiations unless they know where the UK will be in two years. Therefore, it is important that there should not be measures in the transition which take the opportunities for the UK after Brexit off the table. It is important that, during the interim period, the UK should be seen as sufficiently in control of its regulatory choices that it can be a proper partner capable of agreeing and implementing measures on technical barriers to trade and services regulation.

Among such countries is Japan, to which the Prime Minister recently made a successful visit. The Japanese are happy that the Government recognise the special nature of our partnership with that country, which accounts for over £40 billion of accumulated foreign direct investment and whose companies directly employ over 140,000 people in this country. In a recent conversation, the CEO of one of the largest Japanese investors in the UK told me that he wanted to be sure that the UK could quickly implement a free trade agreement post-Brexit with Japan. So I do not think it is only Germany, France and other EU exporters that are asking their Governments to ask European Commission negotiators not to pursue their political objectives ahead of a mutually beneficial free trade agreement. Third-country Governments such as Japan’s also have good reasons to do the same thing, so I believe it is likely that the EU will decide to show more flexibility than it has done so far. It does not make any sense for the EU to continue to pursue a punishment deal, which, as my right honourable friend the Chancellor said on “The Andrew Marr Show”, would be even worse than no deal.

I regret the intention of the noble Baroness, Lady Smith, to divide the House this evening. It is clear that the Labour Party’s position on Brexit has changed from what it was at the time of the general election, and is now more closely aligned with the views of Sir Keir Starmer than those of Jeremy Corbyn.

I attended the launch of a useful report by the International Regulatory Strategy Group, which is supported by TheCityUK and the City of London Corporation. The report is entitled ‘The Great Repeal Bill’: Domesticating EU Law. I agree with the report’s recommendation that the Government should not use the repeal Bill to make policy changes, but it is clear that the Government’s intention is to take technical powers under the Bill to ensure that EU law works after transposition into English law.

In another place, there has been much talk of Henry VIII powers, but those who object to the repeal Bill should recognise that it cancels at a stroke the application of the acquis—a massive collection of Henry VIII powers taken, sometimes by stealth, from Parliament over the years—and that its object is to restore powers to the other place and your Lordships’ House.

[Baroness Goldie (Con)]

My Lords, may I respectfully remind everyone that the advisory time limit for Back-Benchers is five minutes? We were doing rather well, but there has been a bit of a straggle off the path. I invite your Lordships’ co-operation for the sake of the subsequent speakers, who will be waiting patiently over a considerable period of time if we begin to stray significantly from the five-minute allocation.