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

Debate between Viscount Trenchard and Lord Wallace of Saltaire

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.

Queen's Speech

Debate between Viscount Trenchard and Lord Wallace of Saltaire

Wednesday 26th May 2010 Lords Chamber

[Viscount Trenchard]

My Lords, I join other noble Lords in congratulating my noble friends Lord Howell of Guildford and Lord Astor of Hever on their very welcome appointments. I also congratulate my noble friend Lord Ferrers and my new noble friend Lady Falkner of Margravine on their excellent speeches yesterday in moving an humble Address.

Not only here but across the developed world, markets are extremely fragile and confidence is shattered. In these circumstances, it is surely a good thing that my right honourable friend David Cameron and my new right honourable friend Nick Clegg have so quickly been able to agree a common programme to tackle the extremely serious structural budget deficit and spiralling national debt that was built up over 13 years of Labour government. I had not realised that my new noble friends on the Liberal Democrat Benches had also recognised that government has become much too large and overarching and must urgently be slimmed down, thereby releasing scarce resources for investment in what we all hope will be a resurgent private sector.

I do not believe that the manifesto of any of the three main political parties adequately recognises the severity of the public sector cuts that will have to be made. Now that the election is behind us, I am confident that our new coalition Government will face up to the Herculean task that they face. I am heartened that the noble Baroness, Lady Royall, said yesterday that the Opposition will, where appropriate, seek to co-operate, help and support. We shall see.

I must declare an interest: I am employed by Mizuho International plc, a subsidiary of the Mizuho Financial Group of Japan. I am thus doubly unpopular, being both a banker and a politician. But I believe that politicians are trying to pin too much of the blame for the financial crisis on the banks. I understand that the taxpayer is already in the money as far as the shareholding in RBS is concerned and that, if investors can recover a modicum of confidence in the stock market, the prospects are that Lloyds Banking Group will also show a healthy profit.

Corporation tax revenues from the City of London alone have in the past covered our defence budget by 150 per cent. Of course, we need to create the conditions where our manufacturing industry can also thrive, but this will not be assisted by the adoption of policies intended to rebalance our economy away from financial services. There is already evidence that the new powers recently given to the FSA are excessive and harmful. I believe that it is essential that the FSA should show more restraint in the use of those powers. I hope that the Government will review them and consider whether they are appropriate or not as they prepare the draft legislation to reform financial services regulation. I am happy that the FSA has been reprieved and that it must submit to oversight by the Bank of England in respect of micro-prudential regulation.

Much more serious than the question of how far the FSA is subordinated to the Bank of England is the shocking realisation of the fact that it no longer has any power to make any new regulation. Our regulators are, or will shortly be, the European Banking Authority and the other two EU-level regulators. It is also shocking to realise that EU Finance Ministers and the European Parliament have both adopted versions of the alternative investment fund managers directive demonstrating that they now have the power to regulate our alternative fund management industry, which includes UK investment trusts and property funds—indeed, everything which is not a UCITS. That has serious negative ramifications for the City’s future prosperity and I trust that the Government will not let matters rest there.

It is my privilege, utterly unmeritorious, to enjoy the appointment of honorary Air Commodore of 600 (City of London) Squadron Royal Auxiliary Air Force. In the past, I served in the Territorial Army for 10 years. The Reserve Forces provide excellent value for money. I hope that the forthcoming Strategic Defence Review will consider the possibility of increasing further the contribution to our defence effort made by the Reserve Forces. They can also make a tremendous contribution to the Government’s intention to create a big society, and to encourage individual and social responsibility.

I was happy to learn that defence programmes have been protected from the £6.2 billion efficiency savings, because the Ministry of Defence has not benefited from the previous Government’s profligacy in the way that some other government departments have. We are very good at defence and universally recognised as such. It is one of the reasons we punch above our weight as a nation and our economic recovery depends on maintaining our position in our areas of excellence. I warmly welcome the Government’s commitment to support fully our excellent Armed Forces—support which they both need and deserve.

I sometimes wonder why so many of our senior FCO mandarins are somewhat deprecating about our ability to continue to exert influence for good around the world through our embassies or acting alone, as well as co-operating with others. I lived in Japan for more than 11 years and have been closely involved in the establishment of financial businesses in China and Korea. In these endeavours I know how greatly I have been helped by the background of the UK’s strong bilateral relations with those countries and the effective presence of our high quality diplomats on the ground. I do not agree with those who think that we can exercise influence around the world today only by combining our diplomatic representation with that of our European partners through the EAS. I regret that the FCO’s budget is to be severely cut back at the same time as spending by the EU on diplomatic representation is being massively increased. This is unhelpful to the perception of the United Kingdom and the promotion of British interests abroad.

The gracious Speech contained a commitment,

“to spend nought point seven per cent of gross national income in development aid from 2013”.

I found this a surprisingly precise commitment compared with other spending cuts. It caused me to wonder why DfID is maintained as a separate department of state. I remember when it was headed by a Minister of State and was operated as a division of the FCO. I notice that it enjoyed an increase of funding in real terms of 12 per cent in 2008-09, whereas the FCO was forced to accept cuts of 11 per cent.

I wholly agree that we should, even in these straitened times, continue to provide development aid to genuinely poor countries, but I would ask Her Majesty’s Government to examine what savings could be achieved from downsizing DfID and merging it into the FCO, which should also ensure that its disbursements are more closely aligned with our national interest. If this were done, perhaps we might find that we could afford even more than,

“nought point seven per cent”,

of GDP for international aid.

Finally, I want to refer to the references to constitutional reform in the gracious Speech. I do not think that the people will thank the Government if much time is spent on debating these matters in contrast to the time that Parliament must commit to solving the acute economic and fiscal problems that the country faces. I welcome the sensible decision to reverse the previous Government’s misguided decision to carve the hearts out of Devon and Norfolk.

I regret the commitment to a referendum on AV and, in particular, the pressure being applied by my new noble friends to bring forward to 2011 the date for such a referendum. I have not liked the AV system since I was not elected to the executive of the Cambridge University Students’ Union in 1972 despite receiving more first preference votes than another one, or perhaps two, candidates who were elected. I believe that most people have only a very superficial understanding of the merits and demerits of various different voting systems. I think that matters such as this should rightly be decided by Parliament. It was so much more appropriate that there should have been a referendum on the Lisbon treaty than that there should be one on AV. It is no surprise that the gracious Speech informed us that proposals will be brought forward for a reformed second House that is wholly or mainly elected on the basis of proportional representation.

Japan replaced its partly appointed and partly hereditary second Chamber with a second directly elected House. I believe that it would be a serious mistake if we were to do the same thing. Another place represents the people and we should never compromise its sole right to do so. We in this House are summoned to advise the monarch—that means the Government. Our role is to scrutinise legislation, to use your Lordships’ undoubted expertise to improve it and to ask another place to reconsider when we believe that is in the national interest. Ultimately, we must defer to those in another place because they are the people’s representatives and we are not.

[Lord Wallace of Saltaire]

My Lords, perhaps I may remind noble Lords that the recommendation from the Chief Whip at the beginning of the debate was that we should keep to seven minutes. Having myself in the past often spoken one or two minutes longer than I should have done, I say this diffidently. But if we want to finish by 10 o’clock, we need to hit seven minutes or certainly no more than eight minutes.