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European Union (Withdrawal) Bill Debate
Full Debate: Read Full DebateBaroness Falkner of Margravine
Main Page: Baroness Falkner of Margravine (Crossbench - Life peer)Department Debates - View all Baroness Falkner of Margravine's debates with the Department for Exiting the European Union
(6 years, 6 months ago)
Lords ChamberMy Lords, it is a pleasure to follow so many excellent speeches on this historic Bill, but it is a Bill that I nevertheless wholeheartedly wish was not before us. But it is, and it is our duty to play our part in ensuring that withdrawal from the EU is as orderly as possible.
I agree with most noble Lords that the Bill is flawed. I have reservations about several aspects, including on the scope of ministerial power and the appropriateness of empowering the Executive to such a degree, particularly in the light of devolution. Moreover, I share some concerns about the level of parliamentary scrutiny needed, and at what level. Speaking as chair of this House’s EU Sub- Committee on Financial Affairs, I will seek clarification from the Government as to how they envisage different levels of EU law and regulatory guidance being implemented in the UK. In this area, detailed parliamentary scrutiny may or may not be appropriate, depending on the level of decision we seek to transpose in our quest for regulatory alignment—something that we should surely seek to do where it is appropriate.
However, it is the amendment proposed by my noble friend Lord Adonis that I wish to address. I think of him as my noble friend because some 25 years ago, I delivered leaflets on his behalf when he was a candidate for the Liberal Democrats, so we go back a long time. I have enormous respect for him as a historian, a senior Member of this House and a thought leader on many of the thorniest issues that our country faces. I admire the passion with which he has engaged his campaign for a third referendum, but I wonder to what extent he has reflected on developments on the other side of the English Channel.
For the EU, while Brexit may have been a distraction, it is continuing a business-as-usual model, which is why we have seen such unity. Its priority is rightly to secure the financial stability of the eurozone, and work is continuing apace in that regard. The completion of the eurozone project, the banking union and the capital markets union has significant implications for the UK’s financial services sector. Moreover, ambitions for an EU Finance Minister and a eurozone monetary fund, and Mr Macron’s vision for a separate eurozone parliamentary caucus, present different challenges for our sovereignty and clout in the EU were we to remain.
The EU budget is also undergoing change. The High Level Group on Own Resources, led by Mr Mario Monti, to whom my committee spoke during his deliberations, has now reported. Among its recommendations are new ways to raise direct EU resources, such as a:
“Reformed VAT-own resource … corporate income tax-based own resource, financial transaction tax or other financial activities’ tax”.
It suggested measures relating to the energy union, and to environment, climate and transport policies, including a CO2 levy, proceeds from the European emission trade system, and an electricity tax, a motor fuel levy and other measures. I set this scene just to remind ourselves that the EU we think we might stay in will not be the EU we were in prior to 23 June 2016. Crucially, the important decisions on the budget, the future of rebates, the future of the eurozone and changes to parliamentary accountability are taking place now and will do so in the period before mid- 2019, when a new Commission and Parliament will commence. Therefore, leaving aside the question of whether we should have another referendum, to which I am opposed, I argue that the opportunity for one is now behind us.
If I correctly understand the amendment of the noble Lord, Lord Adonis, he seeks a referendum on the terms of the withdrawal agreement. I have two principal thoughts regarding that, as other noble Lords have also supported the view that we need a referendum on the withdrawal agreement. The first is that, if the withdrawal agreement is negotiated by October or November this year—as we have been told by Mr David Davis—the referendum presumably would be after that option is agreed or rejected by both Houses of Parliament, or rejected or agreed by the Commons, which has supremacy. In effect, therefore, the decision to hold a referendum will be legislated for in late 2018 or early 2019, with a referendum impossible till late spring 2019. The Electoral Commission requires six months from a decision till polling day. On that time line, the proposed referendum will be held after we have legally left, or are in transition under a different status, and we would have to reapply to join the EU.
If so, even if the noble Lord, Lord Adonis, then secures a yes vote—and I am pleased to see him back in his place now—we will almost certainly re-enter on different terms than those that pertained before 29 March, 2016, when we triggered Article 50. The UK rebate, the Schengen opt-out, the 35 or so JHA opt-outs and opt-ins, and, most importantly, the hard-fought renegotiation will all be off the table. The only other basis for us to remain in during the referendum period in 2020 would be if we did not withdraw and negotiated an extension to the Article 50 period, as permissible under Article 50. This would prevent the UK from striking any trade deals during the extended period, which is material.
While this is a possibility, we would only prolong uncertainty, and the change in Europe that I have described in 2019 would surely mean that there would be no final decision on the UK’s status for a further two, three or four years. All this while, businesses will have made decisions to relocate, investment will have fallen further and legal uncertainty will have been prolonged even further. The result would be a prolonged period of drip-drip decisions being made by businesses and institutions, which could only achieve a very diminished result for the UK, whether it were in or out. On that basis, I have come to the conclusion that we have to do the best that we can with withdrawal. I will expend my energy in making it a success to whatever extent I can, starting with this Bill.
European Union (Withdrawal) Bill Debate
Full Debate: Read Full DebateBaroness Falkner of Margravine
Main Page: Baroness Falkner of Margravine (Crossbench - Life peer)Department Debates - View all Baroness Falkner of Margravine's debates with the Department for Exiting the European Union
(6 years, 5 months ago)
Lords ChamberMy Lords, I am conscious of the hour and shall try to be as brief as I can with what I am sorry to tell your Lordships is a rather technical proposed new clause. Therefore, what I have to say may be slightly tedious, but the new clause is intended to be helpful to the Government.
The new clause suggests a way in which the UK and the EU 27 working together—however improbable that may appear at times—could resolve some of the issues around the provision of financial services from the UK to the EU 27 and, perhaps as importantly, from the EU 27 into the UK. It is not a fully worked out scheme and could not be at this stage. To be capable of adoption, it would require agreement in the Brexit negotiations. It is, however, pretty much in line with the Prime Minister’s proposals in her speech at Mansion House on 2 March and the Chancellor’s in his speech on 7 March, so it might just be an acceptable way forward.
The importance of the financial services sector to the UK economy and the significance of the Brexit process to the sector are well understood by your Lordships. What is often called the City is not just London, with its leading position as a financial centre; it is important to the UK as a whole. Of the 2.2 million people who work in financial and related professional services in the UK, 1.5 million work outside London.
My new clause proposes a mechanism by which this very important sector might operate to best advantage in the UK and in the EU 27 after the UK’s withdrawal from the EU. I would like to be able to claim that this proposal is all my own work but, in reality, it is based on work undertaken by the International Regulatory Strategy Group, a practitioner-led group drawn from across the UK-based financial services sector, co-sponsored by the City of London Corporation and TheCityUK.
The new clause is based on the principle of mutual market access rather than the EU’s third country equivalence regime. To quote the Chancellor in his speech last Wednesday,
“that regime would be wholly inadequate for the scale and complexity of UK-EU financial services trade”.
The basis of the proposed new clause is the requirement to produce a report on market access set out in subsection (1). Currently, cross-border access for firms is given by passporting, as it is known, under the single market directives. A supplier of financial services obtains authorisation in the form of a licence from the regulator in its home country and that will then allow it to operate in any other member state without needing to obtain a separate licence from the regulator in that state.
Inevitably, passporting will disappear when the UK leaves the EU. The proposed new clause requires a report to be produced detailing the arrangement which might take its place, to enable trade to continue without the need for local licensing. Essentially, the arrangement seeks to confer mutual market access between the EU 27 and the UK without local licensing based on the terms of a free trade agreement.
This is, admittedly, ambitious, but needs to be seen in the context of the current arrangement of complete alignment and passporting. If a licence-free arrangement cannot be fully agreed, the requirement for a licence for international trading should be applied only where strictly necessary. The overarching objective to allow this arrangement to work would be, to quote the Prime Minister’s Mansion House speech, based on,
“the ability to access each other’s markets, based on … maintaining the same regulatory outcomes over time”.
Proposed subsection (2) sets out what needs to be achieved to make this aspiration reality.
I should make it clear that these paragraphs do not require that the regulatory requirements are the same. Rather, the objective is to frame the criteria for mutual market access as being that the UK’s and EU 27’s requirements are sufficiently aligned to enable the desired regulatory outcomes to be achieved. Of course, the financial regulations in both the UK and the EU 27 will change over time—and at times, quite dramatically. Resolving this problem is covered in subsection (2)(e), which covers the need to set up a forum for regulatory alignment, a joint UK-EU 27 body whose functions are set out in subsection (3). This forum would have a big role in sorting out the problems arising from regulatory divergence. The joint UK-EU 27 forum would facilitate proactive and co-operative engagement between the UK and EU 27 to resolve the problems.
I could expand further on the detail and, of course, I have not attempted to cover in this proposed new clause the consequential issues, such as arbitration and enforcement mechanisms. That alone is a subject on its own and bears on the arrangements for the independent institutional structure which replaces the ECJ’s oversight. I hope, however, that what I have set out would provide a collaborative, objective framework that is reciprocal and mutually agreed, and could be relied on by business. Indeed, it may be a framework which could also be adapted to business sectors beyond financial services. I beg to move.
My Lords, my name is attached to the amendment but I will, indeed, be brief. The noble Lord, Lord Carrington of Fulham, said that he tabled the proposed new clause to be helpful to the Government. That may well be his motivation; it is not entirely mine. I attached my name to the amendment to bring severely needed clarity to a few of the really important aspects of financial services regulation and supervision that we need now, rather than waiting until the end of the transition period.
In doing so, I declare that I chair the EU Financial Affairs Sub-Committee. I am also a member of the EU Select Committee, though I speak in a personal capacity. My committee recently wrote a report on financial regulation and supervision. It came home to us, in a very stark fashion, how little of the architecture of financial regulation and supervision will be clear to enable firms and businesses to do the planning they need to do. This essentially touches on two or three areas. The first is the continuity of the legal position of contracts and the legal position that affects businesses in terms of laws passed during the transition period, when the UK would be in full regulatory alignment with EU law.
Another aspect of concern to us was the extent of supervisory co-operation between the EU and the UK. The noble Lord, Lord Carrington, said he believes that the proposed new clause will reflect the views of the Prime Minister and the Chancellor in his recent HSBC speech. I agree that it will probably reflect those views, but I do not think it recognises that, in the European Commission’s draft negotiating guidelines or the European Parliament’s new paper, the idea of having provisions for financial services is dealt with either extremely skimpily or not at all. The amendment is perhaps somewhat optimistic, but nevertheless I want to hear from the Government; in that sense, my attachment of my name to the amendment is just to probe them.
Coming back to continuity of contracts, our inquiry was told by Stephen Jones from UK Finance that there were approximately,
“10,000 pages of EU originated financial services rules”.
The City of London Corporation told us that it sought, as a matter of urgency “clarity, stability and certainty”. I notice that the Chancellor raised those issues and said that he thought we could get that. However, the challenge of the technical detail of EU regulation has not been addressed by what the Government have told us as yet. One example of that is the Lamfalussy framework, which we looked at. We were told by the then Minister, Stephen Barclay—it is a sign of some concern that we do not get a Treasury Minister who deals with financial services in post long enough to have any continuity in the relationship; Mr Barclay is now gone and I think Mr Glen, who has other things going on at the moment with Salisbury and so on, has replaced him—that it would by a straightforward process. Levels 1 and 2 would be dealt with by primary legislation and levels 3 and 4 would be handed over to the regulators as part as the rulebook.
However, as we looked into this more closely, we did not think that it reflected what will happen in reality. I quote Simon Gleeson of Clifford Chance; he did not see even level 1 as straightforward. In our report, he said:
“When we translate that into UK law, if we simply copy Europe … we will be moving into our primary legislation stuff that properly belongs in regulators’ rulebooks … If we take a bunch of regulatory material that, almost by its nature, should be reasonably dynamic, and hard-bake it into statutory instruments, we are creating a monstrous procedural problem for ourselves in how we regulate the market”.
Inoperables are another issue. One of those is “in-flight” legislation, which I just referred to and is partly transposed—let us assume—during the transition period. However, much of EU financial services regulation takes four or five years to come into effect. Noble Lords may recall that MiFID II started in 2012 but came into effect only in January 2018. It seemed clear to us that we needed guidance and further direction on how the remaining parts of that in-flight legislation would come into EU law once we had actually left. My final example of that concerns the position of EU businesses in the UK. The Chancellor has said again that the Government will bring forward legislation to enable EEA firms and firms in the UK to obtain temporary permission, for a limited period. We need greater clarity on that.
It is a late hour so I will not labour this point, but there is a great deal of uncertainty on how the legal application of financial services regulations would work. On a recent visit to Brussels, the European Union Select Committee had the privilege of a discussion with Mr Barnier and Mr Verhofstadt. I notice that there is a great deal of emphasis in this clause on the IRSG’s proposals for a joint EU-UK alignment in respect of financial services that would take the form of a forum. I probed both of those people about the level of regulatory co-operation we could expect in the future, post withdrawal. We were not encouraged by their response, which was rather lukewarm. I do not think this proposal will get very far, but that does not mean that the Government can avoid setting out their intentions and how they envisage the strong regulatory alignment that they seek playing out in practice.
In his recent speech, the Chancellor acknowledged concerns about the legal framework for the regulation and supervision of financial services. The Commission’s draft guidelines on the withdrawal agreement foresee a large and continuing role for the European Court of Justice in adjudicating, in some cases for the whole of the foreseeable future. Although this may just be an opening shot in the negotiation, the defining of the EU positions makes it even more important that we force the Government’s rather reluctant hand, to make them spell out their thoughts on the conduct of business for financial services at the time of exit and beyond.
My Lords, I am most grateful to all noble Lords who have participated in this debate. We have had an interesting short debate which has highlighted some of the problems which the City of London is going to face. I will pick up on one point. I rather agree with my noble friend Lord Trenchard that the City will survive whatever happens and that there are workarounds for most of the problems that the City will face when operating inside Europe. What we are actually talking about is how to make those problems less difficult to resolve rather than attempting to find a solution to an intractable problem.
Having said that, I am grateful to my noble friend the Minister for his comments. He understands fully the issues that the City will face and I look forward to him having successful negotiations with the EU Commission. If its representatives have any sense at all, they will accept that they have as much to gain from a successful result to these negotiations as does the UK. On that note, I shall withdraw the amendment.
Before we dispense with the amendment I have a brief question for the Minister. If I have understood him correctly, he has just said that when the negotiations are complete, the Government would set out and clarify their position. Can he tell me what he means by “when the negotiations are complete”? Is he talking about the negotiations on the withdrawal agreement—in other words, by the end of this year—or the agreement on the FTA, in which case we will not know the parameters of the Government’s thinking until very much later when we are into the transition agreement itself? There I would have to agree with my noble friend Lady Kramer that essentially, businesses will have made up their mind and taken the necessary actions, not least because the regulators require them to carry out their contingency planning.
I think I mean both. We will update the House on the position at the end of the negotiations on the withdrawal agreement, on the agreement on the future FTA, and if I can add a third criterion to that, of course on the negotiations for the implementation period, for which we hope to be able to provide an update in the very near future. All those factors are important in the provision of financial services. If we get the implementation period agreed in the near future, which we hope and expect, that will provide a slightly longer period for businesses to establish the appropriate stability, but it is hoped that as we get to the end of the year we will have the withdrawal agreement. We expect that to provide the details of the framework for future co-operation. I will be very happy to update noble Lords at all of these stages.
European Union (Withdrawal) Bill Debate
Full Debate: Read Full DebateBaroness Falkner of Margravine
Main Page: Baroness Falkner of Margravine (Crossbench - Life peer)Department Debates - View all Baroness Falkner of Margravine's debates with the Department for Exiting the European Union
(6 years, 4 months ago)
Lords ChamberMy Lords, I make a small contribution, having been at the birth of the Bill—if one can be a midwife to a Bill. I always saw the purpose of the Bill as delivering the orderly withdrawal of this country from the European Union and ensuring that we have a coherent statute book on the day we leave. I do not want to detain your Lordships, but as I said at Second Reading and as I still believe, it is imperative that we get the balance right between the powers of the Executive and parliamentary sovereignty. As the noble Lord, Lord Lisvane, so rightly said and others have commented, if we take the view that the referendum vote was about Parliament taking back control, it hardly seems right that excessive control be given to Ministers of the Crown.
I had many misgivings about this issue, and I am most grateful to noble Lords, including the noble Lord, Lord Lisvane, for sparing the time to talk to me about it. I have considered it. Your Lordships need to consider it in the round—the round being all the other limitations that currently exist on Ministers—and, most importantly, the amendment my noble friend the Minister is making to this point, which I believe addresses many of the concerns. All I ask your Lordships at this point is to consider this: are the Government acting in a reasonable way to ensure they have the powers necessary to deliver a smooth and orderly Brexit? That is the simple question in my mind. I believe that the Minister has moved enough and that he should be given our support. I completely understand the views of the noble Lord, Lord Lisvane, and my noble friend Lord Cormack on this point. I fear we just differ now on how far the Government have moved.
My Lords, I chair the EU Financial Affairs Sub-Committee of this House. We have been having a lot of conversations with regulators about appropriateness, as the noble Lord, Lord Bridges, has rightly pointed out. But words matter. The distinction in legal terms between “appropriate” and “necessary” is quite profound if you are a regulator—both EU and UK regulators—that has a duty to put in place a workable legal framework. While I completely agree with most of what the noble Lord, Lord Lisvane, said, and I understand that he rightly wishes to bring power back to Parliament, there are instances where regulators need to adapt and to have legal certainty to adapt.
I will give the House one small example. I should say that I am speaking for myself as the chair of the committee because the committee has not come to a settled view on this, having had discussions very recently. But we are told that the amendment would lead to increased litigation and therefore legal uncertainty in relation to the meaning of “necessary”. This would impact a large number of different areas of financial services regulation. It may be hard to argue that it is strictly “necessary” to extend protections but if, for example, you take securities collateral held within the EU, absent an FTA—if we have to revert to WTO rules—we would need to treat collateral held by UK firms in EU systems in the same way as collateral held by UK firms in systems outside the EU. If you took away discretion from the Minister and you had to define this as “necessary”, you may have to restrict the protection to collateral held in UK systems only. That would put UK firms at a disadvantage.
Finally—this is slightly technical—redenominating values and thresholds from euros to sterling may be appropriate in a UK regime because most UK firms’ balance sheets are denominated in sterling. However, it could be argued that it is not “necessary” to do so ahead of the UK’s exit from the EU. Litigation would take time while the courts determined whether the Minister had acted under “necessary” or “appropriate”, but in financial crises time is not something regulators have at their disposal. I just ask noble Lords to bear that in mind. I have not come to a definitive view myself but it is important to put that on the record.
My Lords, I serve as the legal assessor to regulatory panels and in the course of that, we have to address the meaning of the word “necessary”. The panels that I work with, as a general proposition, have no difficulty in identifying the meaning of that word. It is also used as useful protection for people because it is a higher threshold than “appropriate”, “desirable” or a range of other words that are used. I say to the noble Baroness that in my experience as a regulator, “necessary” does not constitute a difficulty along the lines that she has suggested.
I completely accept the long experience that the noble Viscount, Lord Hailsham, has. I referred specifically to time in case there is a financial crisis. That is when regulators have to resolve institutions fairly quickly in co-operation with one another. That is a danger that we face at this point—10 years into the last one.
My Lords, I want to emphasise and back up what my noble friend Lord Lisvane has said. In essence, this “necessary” versus “appropriate” is about taking back control for Parliament. Since the referendum, we have seen the Government trying to bypass Parliament time and again. Starting with Article 50, Parliament was bypassed until that had to be taken to court. Going back to the Strathclyde review in 2015, we were told very clearly that it is a convention that this House does not challenge statutory instruments. So by agreeing to this “necessary” we are saying that they can be used but only if necessary.
The Government argue that they need the flexibility if it is appropriate to tidy things up. Who is taking the decision on whether something is appropriate? Today it is Theresa May as Prime Minister. Tomorrow it may be Jacob Rees-Mogg, Boris Johnson or Jeremy Corbyn. This is about the Government, the judiciary, the legislature and, without a written constitution, the very delicate balance that needs to be respected. We need to protect that, which is why we need this amendment; otherwise, we will keep hearing threats from Jacob Rees-Mogg saying that we are burning down this House. That is the wrong way to go. This is not about Henry VIII powers or the Government getting power; it is about power coming back to Parliament and actually giving power to the people.