Leaving the EU: No-deal Alternatives

Antoinette Sandbach Excerpts

Wednesday 21st February 2018 Westminster Hall

[Antoinette Sandbach (Eddisbury) (Con)]

I beg to move,

That this House has considered alternatives to a no-deal outcome in negotiations with the EU.

It is a pleasure to serve under your chairmanship, Mr Sharma.

Up until now we have focused on the binary choice between the Government successfully achieving a good Brexit deal or a departure on the terms of the World Trade Organisation that almost nobody wants. That stands in stark contrast to the promises of senior leavers prior to the referendum. We were promised that Britain would have access to the single market and told that the idea that our trade would suffer is silly. Now we face leaving the single market and, in the worst-case scenario, on WTO terms. We were promised that there would be no change to the border between Northern Ireland and the Republic. Now we see that there are huge uncertainties about the issue of the Irish borders, with a few hon. Members even going so far as to criticise the Good Friday agreement.

We were promised that an EU trade deal would be the easiest in human history. Now we see just how ambitious that claim was. This is why I am calling this debate: we were promised a smooth and simple exit from the EU, and instead we have complexity and the risk of chaos. It is even more important now in light of the leaked letter from a small minority of my colleagues. These hard-line Brexiteers have a very strange view of what WTO rules or terms would mean. This is in marked contrast to the views of the vast majority of my colleagues, who would prefer to assess all the options available.

First, I would like to outline why a no-deal or WTO-terms Brexit would be quite so chaotic. A WTO-terms hard Brexit is greeted by some of my colleagues with considerable sangfroid. My right hon. Friend the Member for Wokingham (John Redwood) told the “Today” programme last year that

“we will do just fine”

if we leave on WTO terms. He was joined earlier this week by my right hon. Friend the Member for Clwyd West (Mr Jones), whom I see in his place, who told the Daily Express:

“I’m entirely happy to continue trading with the EU on WTO terms.”

I am afraid that I and many others are not entirely happy with this. Some 43% of UK trade is with the EU and I am not willing to see that prosperity put in jeopardy. It would be economically catastrophic to simply walk away from the negotiating table, crashing out.

Crashing out with no deal would lead to a reduction in EU trade of between 40% and 60%. That translates into between 4.8% and 7.2% of GDP. The impact of new tariffs on our trade would be hugely damaging. Around 45% of UK exports of goods and 54% of UK imports of goods would become newly subject to tariffs. While the simple average tariff is 5.1%, in some sectors this can be much higher: for dairy products—a key sector for my constituency— it is 39%; for preparations of meat and fish it is 40%; and for cars it is 10%. Tariffs would drive up prices for ordinary consumers. A Credit Suisse report last year said that food prices could rise by 8%, with UK dairy warning of a staggering 51% increase in the cost of Cheddar. Credit Suisse also said that car prices could rise 15% and predicted a 20% drop in sales as a consequence.

Non-tariff barriers would also have a significant impact on industries where the supply chain is deeply integrated across borders. A KPMG study for the Dutch Government cites a number of concerns. It estimates the costs of customs formalities to be between €78 and €126 per shipment. These costs would likely be passed on to consumers in addition to tariff costs. They also have concerns about the capacities of ports, both here and on the continent, stating:

“Even brief delays will probably lead to long queues at terminals in the Netherlands and the UK.”

This is not just a matter of physical capacity either, as we will need to ensure that our workforce develops customs expertise that has not previously been necessary. There are also questions about the capability and capacity of regulatory authorities. A National Audit Office report last year estimated:

“The number of decisions that have to be made over whether to permit people and goods to cross the border could increase significantly (potentially 230% and 360% respectively).”

I will make one final point about the border. There has been a recent push to suggest that an EU-UK hard border in Northern Ireland would not be an issue, as technology would solve every problem. These advocates cite the US-Canada border as an exemplar. I cannot agree. I refer colleagues to the evidence heard by the Business, Energy and Industrial Strategy Committee in which Dan Mobley of Diageo said explicitly:

“It is not completely frictionless.”

If the Government are convinced that this is an approach that can work and meet the need for a frictionless border, I would press Ministers to publish detailed plans of how it would work. Overall it is easy to see why the Treasury estimates that the cost of a WTO-terms Brexit would be around 8% of GDP over the next 15 years. It is also easy to see why it is important that we assess the alternatives to this disastrous course of action.

[Nigel Huddleston (Mid Worcestershire) (Con)]

I congratulate my hon. Friend on securing this debate. Does she share my concern about not only the potential of tariffs, but the fact that the WTO is unsatisfactory in many other ways? For example, it is simply non-existent or silent on swathes of industry, including the aviation sector. It is either WTO or nothing, but in the aviation sector, for example, there is not a default to WTO. That is the same in several other industry sectors and that is causing alarm and concern for business.

[Antoinette Sandbach]

I absolutely share my hon. Friend’s concerns. There are concerns in relation to intellectual property and the vast majority of our service industry, which is a huge contributor to our balance of trade. He is quite right to outline the deep flaws that a WTO Brexit would bring.

The most preferable option in terms of a Government deal is the Government successfully completing their negotiation with the EU and securing the “deep and special partnership”. I support the Government’s work and the comments by the Brexit Secretary in his speech yesterday that we need to ensure a broad base of mutual recognition of standards. Without those, we would risk many of the drawbacks that we would face under a no-deal Brexit, especially with regard to the non-tariff barriers that are in fact the biggest concern for our economy. However, I press the Government to ensure that the service sectors are included in the deal that they strike. Services make up nearly 80% of our economy. Service industries such as legal services, insurance services, consultancy services, the music industry and the aviation industry contribute to our balance of payments surplus in service trade with the EU. A failure to strike a deal could cost us about 75,000 jobs and £10 billion in tax revenue.

Some hon. Members may think that simply remaining in the EU is an option. Rather than pressing for this currently unachievable choice, I would encourage hon. Members to see if we can deliver a Brexit that removes us from ever closer union and the political institutions of the EU, while seeking to maintain our prosperity and our trade links, which brings me on to my final option. This final option is the one that, aside from the Government’s plan, would be the best for Britain. Re-joining the European economic area/European Free Trade Association would be a bold step towards preserving our prosperity and provide many answers to the questions that are currently vexing Ministers.

EEA-EFTA would give us access to its free trade agreements spanning 27 countries. EFTA has free trade agreements with, among others, Turkey, Canada, Columbia, Mexico, Egypt and Israel. There are ongoing negotiations with India, Indonesia and Vietnam. These agreements, as well as EEA membership, would give a market of over 900 million customers for our products and services.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I congratulate my hon. Friend on securing this important debate. Is she proposing EFTA-EEA membership as a transition or a permanent safe harbour?

[Antoinette Sandbach]

I am proposing a permanent safe harbour. If we went into EEA-EFTA, we would have an opportunity to shape and influence that trade body going forward. It delivers what many of my constituents originally voted for in the 1970s, an economic free trade area, but its great benefit and advantage is that it removes us from the ever closer union, which is what many of my constituents who voted leave were concerned about.

[Heidi Allen (South Cambridgeshire) (Con)]

Will my hon. Friend give way?

--- Later in debate ---

[Antoinette Sandbach]

I will give way to my hon. Friend the Member for South Cambridgeshire (Heidi Allen), and then to my hon. Friend the Member for Carlisle (John Stevenson).

[Heidi Allen]

At the end of the day we have to try to find some peace on both sides of this argument. This could be the common market. It could, in some ways, be what many people who voted leave were hoping that we would go back to, and it could actually be the best compromise for everybody.

[Antoinette Sandbach]

I completely support and endorse my hon. Friend’s comments.

[John Stevenson]

My hon. Friend the Member for South Cambridgeshire (Heidi Allen) raised my question. In the referendum our country was divided between 52% and 48%. Does my hon. Friend the Member for Eddisbury (Antoinette Sandbach) agree that the EFTA solution potentially unifies those two groups?

[Antoinette Sandbach]

I certainly do. It delivers what many people voted for, which was to leave the political institutions of the European Union while continuing our prosperity and building on our common links with the European Union. It would enable us to be in that common market that so many people originally voted for, with all the benefits that it entails for our businesses and constituents.

[Mr Dominic Grieve (Beaconsfield) (Con)]

My hon. Friend makes a powerful and compelling argument. Does she agree that we cannot ignore the fact that we are now 20 months down the road from the referendum? Whatever people might have voted for in the referendum, the reality of our current negotiating position will have to dictate the public’s acceptance of what we are eventually able to deliver. To simply live in the past as to what people’s views were in the middle of 2016 is to fly in the face of the reality of the evolving picture at a European level and what we can in practice achieve that is best for our country.

[Antoinette Sandbach]

I am grateful for my right hon. and learned Friend’s intervention. He calls to mind the comments of Bismarck, who said that

“politics is the art of the possible.”

It is my view that this is a possible and realistic achievement. It should be the Government’s plan B. We should be looking at this option as a realistic alternative. I cannot understand why, when we talk about a no-deal Brexit, we discuss only WTO rules and this eminently sensible, common-sense option, which would help to preserve economic prosperity in this country but deliver leaving the EU’s political institutions, is not treated with more seriousness by the Government.

My right hon. and learned Friend has rightly made the point that we are 20 months into the negotiations. We need to ensure that our plan B is credible and deliverable in a way that does not damage this country’s future, our shared values or the prosperity with the EU that has delivered for us over our 40 years of membership. The EFTA option gives us a huge opportunity not to throw the baby out with the bathwater, which nobody voted for.

[Mr David Jones (Clwyd West) (Con)]

As my hon. Friend knows, membership of EFTA-EEA connotes membership of the single market, which was rejected by the British people when they voted to leave the European Union. Is it her proposal that membership of EEA-EFTA also be put to the British people in a referendum?

[Antoinette Sandbach]

I am interested by my right hon. Friend’s comments. The quote that I referred to at the beginning of my speech—

“Britain will have access to the Single Market”—

came from the Vote Leave paper, “‘Leave’ looks like...”. So I would argue that the British public were promised that we would stay in the single market by Vote Leave.

[Vicky Ford (Chelmsford) (Con)]

I recall listening to the wonderful BBC’s “Today” programme on the eve of the referendum and the leading Brexiteer Daniel Hannan MEP describing the EEA as an economic free trade area that stretched from Iceland to Turkey, and how possible it would be for the UK to consider staying part of that even if Britain voted leave. Does my hon. Friend recall that type of message?

[Antoinette Sandbach]

I certainly do recall that type of message. It was one of the big messages that was being sent out: our prosperity would not be threatened, we would be able to stay in the single market and we would have the “exact same benefits” as before.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

I am intrigued because I thought the whole basis of my hon. Friend’s very fear-based analysis of Brexit is that the EU wants to stick tariffs on trade between the UK and the EU. Which leader around the European Union has said that they want to put tariffs on trade between the UK and the EU?

[Antoinette Sandbach]

The consequences of a WTO—

[Mr Jenkin]

Not one!

[Antoinette Sandbach]

No. The consequences of a WTO Brexit mean that we fall back on rules that require the imposition of tariffs, unless we waive them as a most favoured nation status for all other countries. That would then expose our manufacturing, farming and other industries to competitors with far lower standards than us, some of which have far cheaper labour costs, when we have very high quality products in this country. That is the consequence of WTO terms.

[Stephen Kinnock (Aberavon) (Lab)]

I congratulate the hon. Lady on securing this debate. One of the common misconceptions is that the EEA and the single market are exactly the same thing. That is not the case. There is no common fisheries policy and no common agricultural policy. The writ of the European Court of Justice does not run to the full EEA; there is the EFTA arbitration court. Articles 112 and 113 of the EEA agreement allow for safeguard clauses suspending things such as free movement of labour. So it is important that in this debate we clarify that the European economic area and the single market are not synonymous.

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[Antoinette Sandbach]

I entirely concur with the hon. Gentleman. My hon. Friend the Member for Wimbledon (Stephen Hammond) is in his place, and in a previous debate he eloquently outlined the benefits of and difference between EEA-EFTA membership and full membership of the European Union.

[Mr Grieve]

Does my hon. Friend agree that there seems to be a misconception about the nature of the European Union? Listening to the intervention made by my hon. Friend the Member for Harwich and North Essex (Mr Jenkin), I picked up the idea that the EU is some sort of sovereign entity. But it is not; it is an international treaty organisation, and therefore to ask it to change its rules base to accommodate the kind of access that was wanted, but which comes without subscribing to the rules, will be impossible in practice.

[Antoinette Sandbach]

I fear that my right hon. and learned Friend may be right, but I am very happy to give the Government the benefit of the doubt in their negotiations and to seek to achieve the aims that they aspire to. However, I am outlining the consequences of a no-deal, and if the Government are unable to achieve their aims, EEA-EFTA membership should be the plan B, alternative option, which the Government need to give greater consideration to.

[Heidi Allen]

It seems to me that whatever side of the argument the public started on, what they want from Parliament more than anything is to find a way through this and to secure the best outcome. That involves compromise, which my hon. Friend’s suggestion of EFTA-EEA could be. On behalf of the country, as Parliament we should get behind the Prime Minister and offer that as a solution. No side gets absolutely what they want, but that is the nature of democracy. It is about compromise.

[Antoinette Sandbach]

I entirely agree with my hon. Friend. My personal view is that I would much rather remain in the European Union. That is what I voted for and believe in, but in seeking to honour the result of the referendum, we need to look at this credible and deliverable option that removes us from ever-closer union. As my hon. Friend the Member for Wimbledon outlined in his debate two weeks ago, this option has significant advantages in terms of taking us out of the jurisdiction of the European Court of Justice and delivering on many of the issues that concerned the UK public.

I was talking about the potential access to 900 million consumers for our products, which I would say is an optimistic, not a fear-based outlook. When compared to EU membership, EEA-EFTA membership is significantly cheaper. In 2015, Norway’s net contribution was €115 per person, compared to €214 per person from the UK.

An EEA-EFTA agreement would protect our services industry, as it would give us continued access to the common market. The impact on our GDP and trade would be barely a quarter of that of a WTO-terms departure, which would cause a drop in trade of between 40% and 60%. EEA-EFTA would substantially reduce that.

Some hon. Members insist that EFTA membership would not respect the referendum result, but I disagree. The referendum told us that we should leave, but not how. If we value prosperity above ideology, and pragmatism above all, there is a clear case for an EEA-EFTA-style agreement. We would be free of the risk of ever-closer union; the organisation is clear that it is strictly an economic grouping. We would be rid of the prospect of ever having to join the euro. EEA-EFTA decisions require the agreement of all members rather than the votes of a qualified majority, so the risk to sovereignty would be reduced. Disputes would be resolved through the EFTA court, not the European Court of Justice. We would be free to set our own agriculture and fisheries policies.

My hon. Friend the Member for South Suffolk (James Cartlidge) put my argument in its most succinct form:

“if EFTA-EEA is such a bad idea, why are its four constituent countries among the richest and most successful on the face of the planet?”—[Official Report, 7 February 2018; Vol. 635, c. 560WH.]

None of my proposals regarding EEA-EFTA are incompatible with the Government’s ambition. In the previous debate about EFTA, the Under-Secretary of State for Exiting the European Union, my hon. Friend the Member for Worcester (Mr Walker) said that the Government seek

“a partnership that in many ways goes beyond the EFTA arrangements we have discussed.”—[Official Report, 7 February 2018; Vol. 635, c. 569WH.]

I would welcome such an end point and I am sure many colleagues would too. All we seek is the reassurance that if the Government fail in that laudable aim, we will fall back on an EEA-EFTA arrangement, rather than no arrangement at all.

[Several hon. Members rose—]

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[Suella Fernandes]

As I will come on to, the Government do not think that the EFTA-EEA option meets the objectives that my hon. Friend sets out, because it falls short of what we are seeking in our new arrangement with the EU on many fronts. I will elaborate on that in a few moments.

The first alternative to a no-deal scenario, and the Government’s preferred outcome, is a new settlement with the EU, as set out by the Prime Minister in her Lancaster House and Florence speeches. As she explained, we seek

“a new framework that allows for a close economic partnership”

between the two parties and that honours the instruction of the British people to take back control of our laws, borders and money.

As an existing member state, we share fundamental beliefs in fair competition, consumer rights and strong regulatory standards. Our position as the EU’s largest trading partner means that finding a meaningful deal along those lines is in both our interests. As my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) pointed out, the current trade deficit between the UK and the EU means that tariff-free trade benefits not only UK businesses and citizens, but EU businesses and employees who benefit from cross-channel commerce.

[Antoinette Sandbach]

Will the Minister explain what the Government’s approach is towards the service sector and non-tariff barriers?

[Suella Fernandes]

As my hon. Friend rightly pointed out, 80% of the UK economy is based on services, so it is important that we seek an agreement that will further enhance the possibility for our services to be exchanged, and for collaboration to continue. Reducing non-tariff barriers is, of course, a priority in any agreement that we seek with the EU, and is something I believe would be possible.

We will agree a comprehensive economic partnership, underpinned by high standards and a practical approach to regulation, that ensures continued trade and prosperity between the UK and the EU, based on mutual recognition. Again, the Secretary of State set that out in his speech yesterday. That partnership will aim for as frictionless as possible trade between the parties and will ensure access to each other’s markets, so that our consumers and businesses can benefit.

On security, the Prime Minister said last week that we are proposing a new partnership on future security, law enforcement and criminal justice co-operation—a strategic agreement treaty that will allow us to work together with the EU to promote our shared interests globally. That new partnership is ambitious and will not only reflect our history and the practical benefits of co-operation in tackling shared threats, but demonstrate the UK’s genuine commitment to maintaining a secure and prosperous Europe.

We are not pursuing EEA membership or aiming simply to copy the Canada-EU free trade agreement. The Norway option is not for the UK. We seek a collaboration on trade and security. We want to enable control over migration, autonomy over our laws and regulations, and the freedom to implement our own independent trade policy with the rest of the world. Only the deal that this Government are aiming for strikes that balance, which is why that is the best outcome for the UK and the EU.

As part of the deal between the EU and the UK, we are seeking a strictly time-limited implementation period.

[Antoinette Sandbach]

The Minister seeks to rule out a Norway option as not satisfactory. Will she also rule out a WTO option?

[Suella Fernandes]

We are not working towards a no-deal scenario, if that is what my hon. Friend is implying. As I have set out just now, we want an agreement based on tariff-free access, reducing our non-tariff barriers and with the ability to strike our own free trade agreements, but it is clear that we are a founding member of the WTO and plan to take up our seat at that organisation in due course.

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[Antoinette Sandbach]

I thank all right hon. and hon. Members who have contributed to the debate today.

Question put and agreed to.

Resolved,

That this House has considered alternatives to a no-deal outcome in negotiations with the EU.