European Union (Notification of Withdrawal) Bill

Baroness Kramer Excerpts

2nd reading (Hansard): House of Lords
Tuesday 21st February 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, the noble Lord, Lord Lamont, said that he is very sympathetic to EU nationals in this country. However, he is perfectly happy for them to be used as a bargaining chip. Frankly, I do not think that is consistent with the view of this House or with British values.

Given the pressure of time, I will focus on the importance of giving people a second vote—that is, not a second vote on the original deal but a second vote that is a first vote on the final terms of exit from the European Union. I concur with those who have said that the June referendum gave the Government a mandate for Brexit but did not give them a mandate to choose the most extreme form of economic separation from the EU. It has been Theresa May’s choice and that of her Ministers to opt for a hard Brexit, leaving both the single market and the customs union.

I want to look at the impact of that decision by the May Government on just one sector of our economy—the financial services sector. This sector makes up 7% of the UK’s GDP, pays more than £75 billion a year to the Treasury and provides over 2 million jobs, most of them outside London. It is one of the few industries in which we are a global leader, clearing over 95% of the world’s $600 trillion a day in interest rate swaps, leading not just in traditional areas such as foreign exchange and specialist insurance, but also at the cutting edge of fintech. We damage financial services at our peril.

However, Theresa May and this Government have decided to walk out of the structures that underpin this sector. In reality, this industry is as enmeshed across the EU as a piece of crochet work. Under the May agenda, the UK will leave not only MiFID with its passporting freedoms, impacting Barclays, the American banks and many of the small players which want to grow, but also a whole raft of enabling arrangements from e-commerce used by crowdfunders across the EU and delegation powers that are essential to locating asset management in the UK, to access to skills, entrepreneurs and investment. That is why, salami slice by salami slice, financial institutions, big and small, are quietly rethinking their business models, negotiating leases, applying for licences and working on staff flexibility. They are making sure that they can operate outside the UK the businesses they have previously based wholly or overwhelmingly inside the UK. They are looking at front offices first—I hope the Treasury notes that that is where the big deals are booked and where the big tax revenue pay-off occurs—but where a front office moves, a back office is always at risk of following.

I commend the financial institutions that have chosen to speak out, such as the London Clearing House, which has been quite open that its clients are demanding that it moves transactions to New York, taking its ecosystem and over 100,000 jobs with it. The insurer Lloyd’s has been regretful but clear that it must have a major EU hub. Even little fintechs are considering second headquarters. For many in the industry, decision time is approaching. Given how long it takes to set up new operations, they need answers on what the UK-EU relationship will be—indeed, they need to know what the UK relationship with global regulators will be—not in two years’ time but in six months or less. I fear that by that point negotiations with the EU will barely have started, never mind finished.

The Government dismiss all these concerns by saying that the EU needs us more than we need it. However, I point out that where Frankfurt, Luxembourg and Dublin are unable to take business from the UK, New York will. Once out of the EU, the only advantage that the UK has over the US in European terms is a time difference. The specialist skills of London are already being transferred to New York. That is well under way.

The Government’s answer is that they will replace MiFID and the other regulatory structures that we have with the EU with forms of mutual recognition or joint supervision through equivalency agreements—bespoke, untried, long-term equivalency agreements, dozens of them of extraordinary complexity. Unfortunately, what once looked like a possible solution, though hard to achieve in the timeframe, now seems likely to founder on the Government’s insistence that they will not in any way engage with the European Court of Justice to adjudicate, even on a joint basis, the rules of agreements.

At this point, when we are being asked to consider triggering Article 50, the Government can tell us for certain only that a large part of one of our key industries, a major contributor to jobs, taxes and exports, is at risk. It has been put at risk not by Brexit but by the Government’s hard Brexit decisions and red lines. No one in this House or in the other place knows where in the range of outcomes the actual, final negotiated deal will fall. Will we remain one of the two great global financial centres of the world? Will we lose major activities such as clearing? Will we be reduced to just a substantial financial centre? If we do not know the answers for this sector, we do not know what the outcome will be for the economy as a whole.

I fully understand that for the Government the economy is low on the EU agenda compared to reducing immigration and removing any jurisdiction from the ECJ. I am pretty sure, however, that those are not the priorities of the British people. So let the people see the final Brexit deal, consider its consequences and decide on it. In two years we will have facts and reasonable clarity, not just speculation. Surely then is the time for the British people to have the final word.