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

Baroness Ludford Excerpts

Tuesday 16th January 2018 Lords Chamber

[Viscount Ridley (Con)]

My Lords, I have to say I got the impression on reading this report that the committee mostly started with its conclusions. I do not imagine there was a lot of changing of minds, or indeed challenging of minds.

I will focus on the assertions in the report that:

“It is difficult, if not impossible, to envisage a worse outcome for the United Kingdom”,


than no deal, and that,

“the Government’s assertion that ‘no deal is better than a bad deal’ was not helpful”.

With respect to the latter claim, I point out that saying the opposite, during the early months of 2016, was what was not helpful. It is now clear that the failure of the renegotiation prior to the referendum was guaranteed by the Government’s insistence that they would recommend a remain vote however little the EU conceded. So we should have said, “Change or go” at that point. In any case, I find it far from impossible to envisage a worse outcome than no deal if no deal means no free trade agreement. A deal in which we agree to giving Brussels continuing control over our borders, our money and our laws indefinitely without any say, so that we are effectively stuck inside the EU for ever but with no say and no rebate, would be worse than no deal.

No deal means no free trade agreement, and it is not the same as “walking away” and failing to settle administrative issues such as mutual recognition agreements on goods and aircraft landing rights. No one is advocating that, and it is not going to happen, because under international trade law, discrimination is illegal. EU denial of “equivalence” to our banks when the same is granted to US banks would be illegal. Customs formalities and mutual standard recognition have to be provided seamlessly by both sides under WTO rules; any failure to do this is, again, illegal. Say what you like about the EU, but it is not about to start breaking the law on that scale.

The report cites evidence of problems at customs and ports if there is no deal. However, it ignores the evidence given by Jon Thompson, the head of HMRC, to both the Public Accounts Committee and the EU Committee in the Commons that 99.5% of non-EU imports are not physically inspected. Mr Thompson could not be goaded by members of the committee into the kind of doom-mongering that we have heard this evening about what would happen at ports.

If we were to fall back on WTO terms, then, according to no less an authority than the director-general of the World Trade Organization himself, Roberto Azevedo, speaking last November to Liam Halligan of the Telegraph,

“it’s not the end of the world if the UK trades under WTO rules with the EU … About half of the UK’s trade is already on WTO terms—with the US, China and several large emerging nations where the EU doesn’t have trade agreements”.

He concluded:

“If you don’t have a fully functioning FTA with the EU, there could be rigidities and costs”,


introduced into that trading relationship,

“but it’s not like trade … is going to stop. There will be an impact, but … it is perfectly manageable”.

The committee report says that,

“no deal would also have a damaging impact on the EU”.

This is the understatement of the century and it is a pity the report did not explore this in great detail. As others have said, it is baffling. According to Professor Patrick Minford’s calculations, under no deal, the EU loses around £500 billion in net present value. That is because, first, it loses our financial support during the implementation period; secondly, the tariff revenue levied by us would be effectively paid by EU producers, who must keep their UK prices in line with world competition to sell anything here; and thirdly, we would conclude free trade deals with the rest of the world earlier than otherwise. In contrast, according to Professor Minford’s calculations, the UK would gain around £650 billion in net present value from this outcome, mainly through lowering the external tariff—a point largely ignored in the report.

You can dispute these actual numbers, but it is hard to argue with the general point that this would hurt them more than it hurts us. Claims to the contrary are almost always based on models that fail to assume current government policy; for example, that we will agree free trade agreements with non-EU countries that account for 60% of our global trade. Despite 60 years of trying, Brussels has failed to sign free trade agreements with China, Brazil, India and America. Many of its 50 or so trade deals are with tiny entities such as Jersey and the Isle of Man. Again, Mr Azevedo, the director-general of the WTO, explains why this is:

“Trade deals are difficult but there is an additional complicating factor for the EU, which is agriculture … Once you start negotiating with a big agricultural exporter, they want market access—and, for the EU, that’s a sensitive sector, both politically and economically”.

[Baroness Ludford (LD)]

Is it not the case that an EU agreement with India was prevented by the UK’s objection to issuing more visas for Indian workers?

[Viscount Ridley]

It is still at the early stage of negotiation. It is a long process and the agreement with India is nowhere near ready.

Do not get me wrong. Of course I think we should strive for a good trade deal with the EU. If we fail, it will not be for lack of trying on our part. But look across the table. Mr Juncker and Mr Barnier refuse even to talk about a trade deal until March, showing no urgency on behalf of the people and businesses of the European Union. We are in a very odd situation here. The party that needs the deal most wants it least. Punishing the UK seems to be a higher priority for Mr Juncker than looking after the interests of the EU 27 economies and people. How do you negotiate a deal with the other side when it is interested not in what is best for its side but only in causing pain?

--- Later in debate ---

[Baroness Ludford (LD)]

My Lords, this very good report blasts out of the water the notion that no deal could be anything other than a disaster. As Michel Barnier told the committee, we would go back 44 years, and we would do it precipitously. Maybe Doctor Who or Sherlock Holmes could do it, but not the businesses and citizens of this country. It would be a terrible, shuddering shock.

Reports from the Treasury and Foreign Affairs Committees in the other place share the gloomy prognosis of a no-deal scenario. The noble Viscount, Lord Ridley, who is not in his place, claims there is a difference between a chaotic no deal and an orderly one, but that latter is surely a contradiction in terms. No deal means disorder. As the Foreign Affairs Committee of the other place said,

“a complete breakdown in negotiations represents a very destructive outcome leading to mutually assured damage for the EU and the UK”.

So it is not just our own Select Committee that has these fears.

As my noble friend Lord Wallace of Saltaire said, it often seems as if the Brexiteer ultras ardently desire no deal. Indeed, John Longworth of Leave Means Leave told the committee, it,

“may well be the very best deal”.

That would be the purest, starkest expression of their liberation theology. With one bound we are free—free to plummet to the bottom of the cliff. But their fantasy dogma is totally divorced from the real interests of the people of this country—their prosperity, security and ability to travel and connect.

The report well documents the costs and horrific disruption of an abrupt, chaotic Brexit, with many specific examples. People stand to lose their jobs, see their food bills shoot up and find their lives badly affected in myriad ways.

The CBI also highlighted a very important point. While the UK might have enshrined EU law domestically, through retained status under the European Union (Withdrawal) Bill, that does not deliver the reciprocal recognition—whether for aviation agreements, car specifications or data standards—that is so vital. The noble Lord, Lord True, completely overlooked this. When Michel Barnier told the committee that there would be consequences in multiple areas, from the capacity of British planes to land in Europe to that of dogs and cats to cross the channel, it was surely this reciprocity that he had in mind.

The other vital point, overlooked either deliberately or ignorantly by the hard Brexiteers who gaily envisage that falling off the EU cliff edge means the warm embrace of the WTO, is that 80% of our economy is dependent on services, which are hardly touched by WTO commitments. In any case, we know that that parachutage into the WTO is complicated by the certainty that other WTO member states would seek to reopen tariff rate quotas. If we withdraw, we will also no longer benefit from 40 free-trade agreements from March 2019. Even if transition means that we are applying EU single market and customs union rules domestically, we will be a third country outside the EU, as the Commission has pointed out. However, we will continue to apply EU external tariffs by virtue of continuing in the customs union in transition. So our car manufacturers would face an 8% tariff in trying to export to South Korea, but South Korean exporters would continue to benefit from tariff-free preferential access to our market. The solution, of course, is to extend the Article 50 timeframe.

The harmful consequences would not just be economic, or in industry sectors such as transport, freight, medicines, chemicals, the digital economy, cars, financial services, food and agriculture and universities, alarming as those are. There would, as the noble Lord, Lord Blair, has just pointed out, be serious damage to this country’s security through an abrupt wrenching of the UK out of co-operation on counterterrorism, policing and law enforcement—including data exchange—foreign policy, judicial networks and nuclear co-operation. Indeed, just this morning the EU Justice Sub-Committee heard the opinion of the president of the EFTA Court. He believed that there was no way we could continue in the European arrest warrant if we did not accept the continuing jurisdiction of the Luxembourg court and EU law. So much for a Conservative Party which wants to be tough on crime.

With no deal, an entire web of deeply helpful facilities would fall away: from pet passports to roaming discounts to health insurance—a whole load of things that people take for granted at the moment. It is a mystery how it came as a surprise and a cause of indignation to the DExEU Secretary that Michel Barnier and his team were planning for the possibility of no deal. After all, the no-deal mantra—or threat, or promise—has been a sort of whack-a-mole in the last year, since the Lancaster House speech when the Prime Minister asserted that no deal is better than a bad deal. This got repeated in the Conservative manifesto in June, then seemed to be killed off in Florence. However, the Prime Minister invoked it again in questions after the Florence speech last September, as did David Davis in evidence before the Brexit committee of the other place in October, when he asserted that no deal is an option and made it clear that he thought it was a good ploy for negotiating leverage.

In the report that the House is discussing, our committee concluded that, notwithstanding the shift in tone since the election, the threat of no deal remains an important component of the Government’s negotiating strategy. It appears; it disappears; it keeps coming back. So why were the Government indignant when they were hoist by their own petard? Michel Barnier’s letter to UK businesses saying that EU trade marks will no longer have effect in the UK as from the withdrawal date just stated the blinking obvious but made the DExEU Secretary go ballistic. Just as No. 10 briefed the press last Monday to expect a “Minister for no deal”, we learned that David Davis had complained to the Prime Minister that Barnier had taken that bluster seriously and was indeed preparing for an abrupt exit.

I read in a tweet today that Manfred Weber, the leader of the largest group in the European Parliament, the European People’s Party, to which the Conservatives once belonged, said:

“The British government has been complaining a lot recently. It seems to realise only now that Brexit will actually have an impact. My message to London is: please don’t complain any more, just deliver”.


The fact is that the no-deal posturing is not an effective negotiating strategy—far from it: it just undermines trust. It is part of an irresponsible and incompetent performance by this Government over the last 18 months, as my noble friend Lord Teverson described.

I say to those who reproach the committee for not analysing the impact on other countries that that might have been rather presumptuous. I say to the noble Lord, Lord Bew, that the committee produced a report in December 2016 on UK-Irish relations, which included a section on the economic implications for Ireland. That it did so rather early after the referendum demonstrated the importance it places on the Irish relationship.

Most sensible commentators now believe that a transition period is essential as there will be no future deal in place in nine months’ time. However, as the report notes, and the noble Lord, Lord Butler, took up, the Government have,

“yet to acknowledge the legal complexity”,

of a transition period. Can the Minister tell us whether the Government believe that Article 50 provides a secure legal basis for the continued application of EU rules after withdrawal in a standstill transition period, or, indeed, as that morphs into an implementation or adaptation period if a final deal is secured during transition? If not Article 50, what? Or do the Government believe, as the report discusses, that only an extension of Article 50, or a post-dated withdrawal agreement, under both of which scenarios we would stay in the EU during transition, would deliver legal certainty? We have a right to know what legal advice the Government have on these matters, as well as on the revocation of Article 50.

We on these Benches want Parliament to “take back control” of both the process and the substance of Brexit, subject to a final say for the people. I thus commend the amendment tabled by my colleagues in the other place, with cross-party support, to the EU (Withdrawal) Bill, which provides that if Parliament rejects either a deal or a no deal, the Government should be required to either exit from Brexit or seek an extension to the Article 50 deadline such that negotiations can continue. I hope that amendment succeeds but, if it does not, I hope we might take it up here.

I conclude by disagreeing, if I may, with the noble Lord, Lord True, who loves these Benches so much that he keeps referring to us. The final say for the people on the deal is not a second, rerun referendum; it is the confirmatory stage in a purchase—is this what you really wanted or bargained for?—like a house purchase subject to survey. It is what Jacob Rees-Mogg once wanted —a two-stage process—and it is what Nigel Farage wants now. As Nick Clegg said, “I agree with Nigel”.

--- Later in debate ---

[Lord Callanan]

No. As the noble Baroness understands very well, we can agree the principle of the period of implementation by March and we will then go on to the further agreements on the various issues that we have set out.

The noble Lords, Lord Whitty, Lord Butler and Lord Kerr, and the noble Baronesses, Lady Falkner and Lady Ludford, all asked about the legal basis of the implementation period and raised questions over that legal basis. Such an implementation period would be agreed under the Article 50 process, and would be enshrined in the withdrawal agreement, and implemented in this House under the withdrawal agreement and implementation Bill. The EU has been clear on this in its Article 50 guidelines and draft negotiating directive, and the UK Government agree with this approach. The desired implementation period will allow a period of smooth transition to the terms of a new relationship.

The report claims that the implementation period could be used as a mechanism to extend the negotiation period beyond March 2019. The noble Baroness, Lady Falkner, also suggested a method to extend the negotiation period using Article 50. On 29 March 2017, the Prime Minister notified the EU—

[Baroness Ludford]

On the legal basis for the transition, surely when the Commission says that it thinks that Article 50 is the legal basis, it is talking about a standstill transition. Is it really agreeing with the Government that it would be the legal basis for the implementation of a trade deal, which would be based on another article in the treaty? Is the Minister asserting that the Commission agrees that Article 50 could be the legal basis for a genuine implementation period for a future deal—a roll-in of a future deal?

[Lord Callanan]

Clearly, the noble Baroness will understand that I cannot comment on what legal advice the Commission has received. But as I said, the Commission has agreed with us that the implementation period can be implemented under Article 50. We agree with that position.

On 29 March 2017, the Prime Minister notified the EU of the UK’s decision to withdraw under Article 50, following consideration of the issue in both Houses of Parliament. As a matter of policy our notification will not be withdrawn. The British people voted to leave the EU and we will deliver on their instruction. There can be no attempts to remain inside the EU and no attempt to rejoin it. I emphasise for the benefit of the noble Lord, Lord Kerr, and others, that we will leave the EU on 29 March 2019, after which we will no longer be a member state. That is a matter of law under the Article 50 process.

My noble friend Lord Hamilton asked me what provisions we were making for no deal even though that is not the outcome we seek. As well as the EU withdrawal Bill, which will ensure that we have a fully functioning statute book on the day that we leave, the Government are already bringing forward other legislation as required. Our Trade Bill will give the UK a foundation for an independent trade strategy. We will create a world-class international sanctions regime through the Sanctions and Anti-Money Laundering Bill and we will deliver an effective customs regime through the customs Bill. Our Nuclear Safeguards Bill will ensure that we can deliver a domestic nuclear safeguards regime. This legislation will support the future of the UK in a wide variety of outcomes, including one where we leave the EU without a negotiated outcome.

Alongside bringing forward necessary legislation, we will be procuring new systems and recruiting new staff where necessary to ensure that we deliver a smooth exit, regardless of the outcome of negotiations.