Budget Resolutions

Chris Leslie Excerpts

Wednesday 22nd November 2017 Commons Chamber

[Mr Chris Leslie (Nottingham East) (Lab/Co-op)]

I always think that it is worth trying to find a few small mercies at the beginning of a Budget analysis, as the Chancellor has gone to the trouble of making an hour-long speech, so there must be a few things in it. I am glad to see some changes—or mitigating factors—with the announcement on universal credit, but it will still have a big impact on many of our constituents, as my hon. Friend the Member for Chesterfield (Toby Perkins) pointed out in his question about the impact on the severely disabled during Prime Minister’s questions.

I am glad that the Budget contains some changes that might help with housing, although Nottingham City Council is concerned that many of the funds announced will involve competitive bidding processes. It is also concerned that the relaxation of the housing revenue account cap may be for only areas of high demand, so it is not clear that it will necessarily cover cities outside London. Of course, the 70% discount on council house sales remains, so even if more stock is built, it may be quickly depleted. I am particularly disappointed that the Chancellor did not mention social care at all. It beggars belief that although there was some discussion of the NHS, the big issue of social care, which is a strategic block for many problems in the NHS, was just disregarded. We need to return to that point in the later days of this debate.

We can step back, think strategically and ask, “What is the story of this Budget?” The answer is in the stark and depressing statistics and figures in the Treasury Red Book, which show an enormous downgrade in economic growth, with dreadful figures for all the years from hereon in. We are waving goodbye to 2% growth, because growth is henceforth below those levels. There is a big downgrade in productivity—the biggest, in fact, since the OBR was created. There is also the big broken promise over the deficit, which now stretches until 2022 and beyond. We were promised on many occasions that we would have a budget surplus, but the chance for that seems long gone. Why is this the case? It is fundamentally because the dark clouds and cold winds of Brexit loom large and are already being felt.

Any analysis of our economic outlook or fiscal prospects cannot possible ignore the Brexit question. The impact on business investment is being felt because uncertainty over trade and tariffs is holding firms back from putting money into things that would otherwise help to create productivity. The lack of productivity has fed into the growth downgrade, which in turn has created a big hole in the forecasts for Treasury revenues, which we need to pay for schools, hospitals, transport schemes and all our other vital public services.

The Bank of England’s decision-maker panel’s expectations for business investment are getting worse, quarter after quarter, looking into the future. We can see the negative effect of the clouds of Brexit on business investment and productivity. Look at the impact of sterling’s devaluation compared with the exchange rate index—it is 17.5% lower than at it was at its peak in November 2015. That has hit all our constituents in their pockets to a significant degree, with the National Institute of Economic and Social Research estimating that it has cost each household around £600. It is already hitting households with reductions in the real available incomes at their disposal.

We still have no idea about a transition status and what might happen after the fabled cliff edge in March 2019. The impact of uncertainty is likely to cast a shadow for many years to come. I hope that we will get some resolution at the European Council meeting before Christmas, but that seems to be quite a tall order.

When we look at what is perhaps the biggest issue—the fiscal impact—we see that £3 billion has been committed for Brexit preparations. What a waste of resources! That money should have been invested in our health service, in our schools and in other public services. In fact, more money has been committed for Brexit preparations in 2019 than has been committed for extra resources for the NHS. If anything sums up the dysfunction of this whole scenario, it is that statistic. And of course this is all before we have even seen the massive divorce bill. The £350 million a week for the NHS that we saw on the side of the big red bus has long gone. The OBR’s forecast document says that the divorce bill could be £67 billion. That is the equivalent of two years’-worth of budget deficit rolled together, and presumably it will be added on to the national debt.

Table 1.2 on page 17 of the Treasury’s Red Book shows a triple whammy—the real kick of Brexit’s impact on our public services. It shows an enormous downgrade in revenues. It forecasts £8 billion less in receipts for 2019, £13 billion less for 2020, and £20 billion less for 2021. Those enormous figures really ought to be a wake-up call not only for the Government, but for all Members of Parliament. This fate does not need to be set in stone. The situation can still be avoided. We know that people who were involved in Vote Leave are saying, “Well, it’s all done and dusted. This is the fate of the British economy, and Brexit is going to take us over the cliff,” but there are choices that we in Britain can make. I say to my hon. Friends as much as to the Government that it is our responsibility to avoid the Brexit austerity that is likely to cast a shadow over the decade ahead. That austerity will be the responsibility of us all unless we opt to remain in the single market and the customs union in order to retain the tariff-free trade that we have with our nearest neighbours and to avoid these problems.

[Alex Chalk (Cheltenham) (Con)]

I have just looked at table 1.2 on page 17 of the Red Book, to which the hon. Gentleman referred. It shows the deficit going down from £58.3 billion to £16.8 billion, but the figures he referred to—£8.4 billion going up to £20.6 billion—relate to the receipts forecast. They do not indicate a reduction in receipts as a result of Brexit.

[Mr Leslie]

I am afraid they do show a reduction in receipts. The hon. Gentleman will see in the end column that the budget deficit for 2021 was forecast in the spring to be £16 billion, but today’s Budget now predicts that it will be £30 billion. The level of borrowing is predicted to go up significantly, largely driven by the £20 billion fall in receipts. The figures are quite clear.

The Government could choose not to take resources out of public services now. They could add to the borrowing, but that would have an impact due to extra debt interest. My suspicion, certainly with this Government, is that there will be more fiscal tightening and more austerity in the tail end of the years ahead. When we add up the money being wasted on Brexit preparations and the divorce bill, and take into account the fall in receipts because of low productivity and lower growth forecasts, which in turn are being driven by the dark cloud of Brexit, we realise that this is the real story behind the Budget. However, this need not be the fate of this country if we take certain decisions. I say to hon. Members on both sides of the House: let us not be responsible for this level of austerity in the future. We can choose a different fate, and we need to ensure that we intervene and retain our membership of the single market and customs union.

Duties of Customs

Chris Leslie Excerpts

Ways and Means resolution: House of Commons
Monday 20th November 2017 Commons Chamber

[Mel Stride]

The Bill deals with our leaving the European Union, which means, as a simple matter of law, that we will be leaving the customs union. However, it does indeed allow for a transition period in which there could be a very close customs association with the European Union.

[Mr Chris Leslie (Nottingham East) (Lab/Co-op)]

How?

[Mel Stride]

The Bill will be presented this evening. When the hon. Gentleman reads it tomorrow, he will be more enlightened as to how it can facilitate a period of transition.

--- Later in debate ---

[Mel Stride]

We will be guided by HMRC on the number of staff required, and we are working closely with it on this issue. As the hon. Gentleman will know, Jon Thompson, the head of HMRC, has suggested that between 3,000 and 5,000 staff will be needed in a day one contingency scenario, if that is where we end up, and he and HMRC are in discussions with us about both the timing of the pressing of the buttons on these issues and the costs involved. The hon. Gentleman can rest assured that HMRC will be provided with whatever resources it requires to ensure that we are ready on day one.

[Mr Leslie]

Will the Minister assure us that the Bill, which, of course we do not have but which he is saying we will be able to see—although not until we have debated this paving resolution—will contain arrangements for sanitary and phytosanitary regulatory checks at Dover and the channel tunnel entrance and exit? They are not there at present and if we were going to institute customs checks, we would similarly have to institute those regulatory checks. Has Her Majesty’s Revenue and Customs allowed for that in the budget as well?

[Mel Stride]

The hon. Gentleman makes it sound as though the fact that we do not have the Bill available right now is in some way inappropriate or not right, but he will know that this Bill is a finance Bill—a taxation Bill—and it is coming in under Ways and Means. I will introduce the Bill at the end of this debate, having the opportunity to walk the Floor accordingly and to be admired by many Members on both sides of the House when I do so. He will also be aware that HMRC is involved in our ongoing negotiations on the issues he has raised, and these things will come out of those discussions in the normal manner.

--- Later in debate ---

[Mr Chris Leslie (Nottingham East) (Lab/Co-op)]

I think that the Minister said at the outset that it is the Government’s policy to leave the customs union. It was not on the ballot paper in the referendum; it is a policy choice that the Government are taking. It is therefore the Government’s policy to exit the most efficient, tariff-free, frictionless, free trade area anywhere in the world, and what we will end up with afterwards is therefore bound to be inferior—possibly very much inferior—to the basic free trade arrangements enjoyed by most countries around the world. We could find ourselves at the mercy of basic WTO tariff arrangements, so the Bill that we are paving the way for with this Ways and Means motion comes at a crucial juncture.

I thought it was unfair that many Government Members referred to the speech of my hon. Friend the Member for Edinburgh South (Ian Murray) as Eeyore-ish. He is actually quite a positive character, who wants to do the best for trade, for business and for this country. In fact, if anything is negative, it is the legislation that the Government are proposing. The Minister was the harbinger of doom, because the Bill plans for a no-deal scenario. This set of legislative changes paves the way for circumstances in which the UK may be imposing tariffs on our nearest trading neighbours and vice versa. I cannot think of something more depressing, defeatist or premature, especially given that we have not even had the negotiations yet. In fact, I cannot think of anything much more aggressive towards the negotiation settlement that we are trying to get than the suggestion that we are going to put into legislation the ability for us to raise significant tariffs with our nearest trading partners, with whom 50% of our trade takes place.

[Richard Graham]

The hon. Gentleman is talking rationally, as always. The reason why I felt that the hon. Member for Edinburgh South (Ian Murray) was being rather Eeyore-ish is that he underestimates the impact on Scottish whisky, about which he talked quite a lot, of the far east. He needs to go and see the Johnnie Walker shops in Shanghai and Beijing. He needs to look closely at Whyte & Mackay—a failing Glaswegian whisky manufacturer now saved and re-energised by a buyer from the Philippines—to understand that the future of Scottish whisky lies as much in Asia and other far-flung places as it does in Europe.

[Mr Leslie]

That may be so, but this is not an either/or situation. This is not about selling a fantastic Scottish whisky product to China or to Europe; we should be doing both. German car manufacturers and French food producers are trading exceptionally well with the far east, while remaining a member of the customs union and of the single market. My quibble with Ministers and some Government Members is that they give an impression that this is a binary, either/or arrangement. They say, “Oh well, we can ditch our trading relationships and partnerships with our nearest neighbours, because we might eventually be able to do something with China, India, Australia or Brazil,” but we should be able to do all those things. We can do all those things simultaneously, while remaining part of the greatest free trade area of any set of nations anywhere in the world, but we are about to throw that overboard for no reason resulting from the referendum, but due to Government policy.

We all obviously hope that we can salvage that relationship within the single market and the customs unions in a short transitional period, but that will take quite a lot of negotiation and depends on several different things. It is a shame that the German Government are in an unstable situation, because I suspect that that will make things far harder. I did not vote in favour of triggering article 50 because I thought that doing so was premature. I thought we should have secured a better timetable than the one we ended up with, because of course the clock ticks down. We could end up with unforeseen diplomatic wrinkles in the process and be backed into a corner, possibly finding ourselves with an inferior transition arrangement and a snap general election that nobody anticipates, least of all Conservative Members.

Let us bear in mind what this Ways and Means motion might presage for tariffs on our different imports and exports. [Interruption.] I know the Whip, the hon. Member for Beverley and Holderness (Graham Stuart), and the Minister are listening very carefully. A 7% tariff would be introduced on ceramic products. On cars, the tariff would be 10%.

[Gareth Snell]

Will my hon. Friend give way?

[Mr Leslie]

Of course I give way to my hon. Friend, who is a great campaigner for the ceramics sector.

[Gareth Snell]

I thank my hon. Friend for raising ceramics. He will know that the best ceramics in the world are made in this country, but the Ways and Means motion, which talks so much about how we will trade around the world, talks very little about the protections that can be afforded to the ceramics industry, so that it remains one of the best producers in the world. Is he, like me, worried that with this motion the ministerial team appears to be completely devoid of any intention to help this country’s manufacturing bases?

[Mr Leslie]

That, of course, is exactly why the amendments tabled by my hon. Friend the Member for Edinburgh South should be accepted and embraced by Ministers and by Labour party Front Benchers. I am sure my hon. Friend the Member for Oxford East (Anneliese Dodds) will reflect on that. We should fear such tariffs, because they might not just be one-offs. Products can sometimes cross a border multiple times and accumulate tariffs.

There would be an 11% tariff on footwear, 20% on beverages, potentially 45% on cereals and 50% on meat products. Those are serious impediments to some major industries in the United Kingdom. We can prepare for a tariff regime, but as stated in the amendments tabled by my hon. Friend the Member for Edinburgh South, we do not wish to impose tariffs on goods traded with our nearest neighbours in the European Union. In essence, we want to replicate the customs union arrangement we currently have.

I am delighted with the amendments, and I want to ensure the House has the opportunity to voice support for them this evening. It is a shame that, in Committee on the European Union (Withdrawal) Bill, the amendments on the customs union have not been selected, so we will not get a chance to vote on customs union issues in Committee. In many ways, we now have an opportunity to do so.

[Tom Brake]

I also want the House to have the opportunity to vote on the amendments today, and I look forward to it. Has the hon. Gentleman been following the question of local content in cars? The UK could, of course, be in a very difficult position whereby the local content of the cars we manufacture would not be high enough to allow us to sell any of them abroad.

[Mr Leslie]

The question of rules of origin, of course, is the other factor in the debate about the customs union, because it is not just a question of tariffs; it is about what proportion of these products originates from within the United Kingdom and what proportion relates to components or other parts that may have come from the inventory or warehouse of the whole European Union. Currently, under just-in-time arrangements for warehousing, a car manufacturer located in the UK can avoid the need to stack up expensive inventory. It can assume that goods and parts are able to be transmitted within a matter of hours or days, which is what we risk losing if we end up with such tariffs and impediments at our borders.

[Tom Brake]

Is the hon. Gentleman aware that, apparently, the solution the UK Government are proposing to rules of origin might be to ask the European Union to allow its content to be included as part of our local content?

[Mr Leslie]

Some solutions have to be forthcoming. I have high hopes for the Minister’s winding-up speech. I do not know whether he is able to say anything about that suggestion, or about any other part of the negotiation.

Let us remember that the customs union currently allows a vehicle manufacturer to sell a car in Berlin as easily as in Birmingham or Bradford. That is the nature of the market we currently have, but it could end if we impose tariffs at the levels to which the motion paves the way.

Earlier, the right hon. Member for Carshalton and Wallington (Tom Brake) raised the border with Northern Ireland, and my hon. Friend the Member for Edinburgh South talked about how the Belfast agreement is one area where that question is crystallised most of all. I cannot think of any hon. Member who would say that there should be a hard border between Britain and Northern Ireland. If we are not to have such a border, there should not be a hard border between Northern Ireland and the Republic of Ireland. Of course there cannot be a hard border between the Republic of Ireland and the European Union, but, somehow, we are talking about instituting a hard border between the European Union and the United Kingdom. The logic of that, as the right hon. and learned Member for Rushcliffe (Mr Clarke) said earlier, completely falls to pieces. We are still waiting for that blue-sky solution, the kite flown in the recent trade White Paper. The Irish Government are now asking for written proposals from UK Ministers on those points.

These are serious questions, and a lot of it roots back to whether we will find ourselves voluntarily opting for circumstances in which we want tariffs, hard borders and rules of origin checks to be put in place. By supporting the amendments tabled by my hon. Friend the Member for Edinburgh South, the House has a way to signify that, actually, we choose a different course by choosing to retain as much as possible of the frictionless free trade and tariff-free area that we currently enjoy in the customs union.

[Lady Hermon (North Down) (Ind)]

The Prime Minister has emphasised that there will be no “physical infrastructure” on the border between Northern Ireland and the Republic of Ireland. The Secretary of State for Northern Ireland, in evidence to the Select Committee on Northern Ireland Affairs, ruled out having cameras on the border. If we are not to have cameras or physical infrastructure on a frictionless, seamless border, how exactly does the hon. Member for Nottingham East (Mr Leslie) foresee the Government being able to collect customs duties on imports between Northern Ireland and the Republic of Ireland?

[Mr Leslie]

There is absolutely no logic to the Government’s position right now. Again, none of this was on the ballot paper in the referendum. That is important to remember because people are assuming that, somehow, this is a natural consequence of the referendum result. It is not. We could choose to negotiate to remain in the customs union. By doing so, of course, not only would we have that fantastic free trade access for 50% of our imports and exports, as at present, but we would retain our access to the 57 free trade agreements with non-EU countries that we have by virtue of our membership of the European Union and customs union—that is another 12% of our trade. Added together, knocking on two thirds of our trade is, in many ways, dependent on our current relationship with the customs union.

I look forward to the speech of my hon. Friend the Member for Oxford East from the Labour Front Bench. I say to her and to our Front-Bench colleagues that we cannot just sweep away the question of the customs union. It is positive that the Labour party is saying we want to stay in the customs union for the transition period, and it is positive we are saying that, after Brexit, we want to get as close as we can to a customs union, but I urge Labour Front Benchers to go that little bit further.

It is nonsense to suggest that there is such a thing as a jobs-first Brexit, which is as nonsensical as saying that we could have a books-first library closure. It just does not work. If we end up going down this route, exiting the customs union and the single market, jobs will be lost. We have already seen 900 jobs go in the European Medicines Agency today from the UK to Amsterdam; we are talking about highly skilled, highly valuable activity. I am appalled that we are in that circumstance, and it is just the tip of the iceberg. I therefore urge my colleagues to support the excellent amendments from my hon. Friend the Member for Edinburgh South.

--- Later in debate ---

[Anneliese Dodds]

I am grateful to my hon. Friend for her helpful intervention. As she will know, the Labour position is that we want to leave all possibilities open. We think that is an appropriate approach to take. [Interruption.] I see Government Members laughing at that. We are in a negotiation where it is surely absolutely essential that we put Britain’s interest first and that means not taking options off the table. Sadly, the Government did that very early on and caused an enormous amount of bad will from our other EU partners, which we regret enormously. They should not have done that.

If the worst does happen and the Government lead us—through their lack of application and, frankly, the internecine squabbles on the Government Benches—to leave the EU without a trade deal, the rules of the WTO leave us no option but to trade with our European partners on the same basis as we trade with all countries with which we have no free trade agreement. This is the most favoured nation principle at the heart of the WTO: that there must be no arbitrary discrimination between trading partners of a similar developmental status, unless those countries have negotiated a free trade agreement that meets the WTO’s definitional requirements.

If we were to adopt amendments that allow the UK Government to set customs duties on imports and exports from every other country in the world but not our European neighbours, in the case of a chaotic no-deal situation we would be faced with two unpalatable options. First, we could disregard the most favoured nation rule, in which case we would be exposed to virtually limitless potential dispute challenges from all other WTO members. The second option is abiding by the most favoured nation rule, but that would mean having to trade with all other countries on the same basis as we traded with the EU—namely, as the amendments would have it, without tariffs or quotas. Some Conservative Members and groups, such as the so-called Economists for Free Trade, would wish for such an outcome—a unilateral abolition of tariffs and all other trade barriers—freely admitting that such a scenario would see the end of manufacturing in the UK, as well as the end of agricultural production and the concomitant loss of millions of jobs.

[Mr Leslie]

I hear very much my hon. Friend’s argument, but would she acknowledge that this is a paving Ways and Means motion seeking, at this snapshot in time, to circumscribe the scope of the Bill to ensure that we can replicate the current customs union? Should we have, at some hypothetical point in the future, that crashing-out scenario, Parliament could address that at that point, and so at present the amendments from my hon. Friend the Member for Edinburgh South (Ian Murray) are absolutely pertinent to the message we need to send to the Government.

[Anneliese Dodds]

I am grateful to my hon. Friend for his question, but the problem is that the Government’s stated intention with these motions—they have said it time and again—[Interruption.] May I finish my point? They have said time and again that these motions are about our future relationship with the EU. I am afraid that they do not see them as part of a negotiation that might change. I would hope that generally the Government would be far more open about their negotiating position—

Oral Answers to Questions

Chris Leslie Excerpts

Tuesday 24th October 2017 Commons Chamber

[Mr Hammond]

My hon. Friend is absolutely right to say that we have the lowest unemployment rate for four decades, and that is a remarkable achievement. The British economy has performed with remarkable resilience since June 2016. Last year, we had the second highest growth rate in the G7. The British economy is fundamentally strong and resilient. Yes, we have some short-term uncertainty, but underneath that is a strong and resilient economy ready to go forward and reap the benefits that are available in the future.

[Mr Chris Leslie (Nottingham East) (Lab/Co-op)]

A fortnight ago, at the International Monetary Fund, the Chancellor was talking about the fiscal and unemployment consequences if a transition deal on Brexit is not achieved by the first quarter of next year. He was right then, so what is he doing to help secure a specific transition agreement in that first quarter of next year?

[Mr Hammond]

We are preparing for all outcomes in our negotiations with the European Union, but the Government’s objective is to reach a deal. As the Prime Minister made clear in her Florence speech, as part of that deal we want to agree an implementation period, during which businesses and Governments can prepare for the new relationship, and we want to agree the principles of that period as soon as possible. Last week, at the European Council, the 27 agreed to start internal preparatory discussions on guidelines in relation to an implementation period. Together with the broad support for the idea in Parliament, this should give British businesses confidence that we are going to provide them with the certainty they require.

Oral Answers to Questions

Chris Leslie Excerpts

Tuesday 18th July 2017 Commons Chamber

[Mr Hammond]

My hon. Friend is right to express concern about the vulnerability created by the high level of debt. As the OBR made clear last week, that debt means that if the economy were to face an external shock, we would not be in a position to respond in the way that we would ideally like. That is why we have to get debt down, and the only way to get debt down is to get the deficit down. That means responsible fiscal policy, not the kind of rubbish we hear from Labour Front Benchers.

[Mr Chris Leslie (Nottingham East) (Lab/Co-op)]

Was it not clear from the OBR report last week that it is a hard Brexit that presents the biggest threat to our national finances? Just a 0.1% decrease in productivity could lead, over 50 years, to a 50% increase in the ratio of debt to GDP. If the reports are true that the Chancellor is prepared to champion a longer transition from the single market for the UK, such welcome news might secure a lot of support on both sides of the House.

[Mr Hammond]

I welcome the hon. Gentleman’s contribution. On an issue as important to our nation’s future as our exit from the European Union, I welcome any opportunity to build consensus across the House and the nation. He is right to draw attention to what the OBR said. Even a very small decline in our productivity performance would add huge amounts to the debt and would reduce, by significant amounts, our projected growth in GDP. That is why it is so important that we now act responsibly in maintaining fiscal discipline and ensuring that we reduce our debt over time.

Class 4 National Insurance Contributions

Chris Leslie Excerpts

Wednesday 15th March 2017 Commons Chamber

[Mr Speaker]

Order. I remind the House that colleagues who arrived in the Chamber after the start of the statement should not stand or expect to be called. That is a very long-standing convention of the House.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

This is obviously an acutely embarrassing episode for the Chancellor, but will he not acknowledge that it is also quite embarrassing for those of his colleagues, including the Prime Minister, whom he sent out there to defend this breaking of the manifesto commitment? Has he already apologised to the Prime Minister and to his colleagues, or will he take this opportunity to say sorry to them from the Dispatch Box?

[Mr Hammond]

I find it a bit extraordinary that that should be the hon. Gentleman’s intervention. He, after all, is the one who said that Labour would fund its £500 billion plans by doubling income tax, doubling national insurance, doubling council tax and doubling VAT. He is the one who sounded the alarm on the Opposition side.

Look, I have had extensive conversations with colleagues since the Budget, over the weekend, and in the Lobby last night and on Monday. I have had lots of discussions with the Prime Minister over the last few days, as the hon. Gentleman would expect. As he would also expect, I am not about to give the House the full detail of those private conversations.

Autumn Statement

Chris Leslie Excerpts

Wednesday 23rd November 2016 Commons Chamber

[Mr Hammond]

I am grateful to the Chairman of the Treasury Committee for his remarks and for the Committee’s work on a single fiscal event—it is much appreciated and the right way for us to go. On his specific question, students are included, as he knows, in the 100,000 or tens of thousands target, and my right hon. Friend the Home Secretary is looking at how best to manage student flows in the interests of what, as he says, is an important industry in this country.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

A few months ago, the Foreign Secretary promised the general public that we would by now have an extra £350 million a week for the national health service. Strangely, however, the Chancellor has just announced that growth is falling and business investment is collapsing and that there will be an extra £110 billion of borrowing over the forecast period when compared with March. I do not see any of his leave-campaigner colleagues on the Front Bench, but has he received an apology yet from the Foreign Secretary or any of them?

[Mr Hammond]

I am not responsible for remarks that may or may not have been made during political campaigns. The British people made a decision to leave the European Union, and we must respect that decision. If we are to make a success of this process and if we are going to ensure the success of the British economy in the future, we must move on and not repeat this sterile debate over and over again. We must focus our attention on building an economy that is match-fit for the future and that will enable us to deliver high living standards as we make our way in the world.

Leaving the EU: Financial Services

Chris Leslie Excerpts

Thursday 3rd November 2016 Commons Chamber

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Let me begin by welcoming the ruling that Parliament should be sovereign in this area as in others. That does not mean that Brexit will not proceed; as was pointed out by my hon. Friend the Member for Leicester West (Liz Kendall), we have a duty to honour the will of the British people. However, as elected representatives, we also have a duty to ensure that article 50 is triggered in the right way and at the right time, safeguarding the best interests of this country. The referendum was clear about the act of triggering article 50, but it was silent on when that should happen and with what safeguards. I think that it is important for us in Parliament to stand up, as we are today, and, rather than leaving these issues to the Crown prerogative and to Ministers, to do our duty when it comes to this particular question.

I do not believe that there can be many other sectors as large as the financial services sector. It produces 12% of our economic output and millions of jobs: in Nottingham alone, 500 firms deal in financial services. Many Members have drawn attention to the significance of the sector, whose scale is very obvious. However, I think that there is some confusion among Conservative Members, particularly the hon. Member for Stone (Sir William Cash). The hon. Gentleman seemed to be saying, “Oh well, we can leave the European Union and it will all be fine. We will just muddle through. We will find our way to a sort of happy equilibrium where everything will be fine.” He is wrong, because the other 27 countries in Europe are massive markets for our industries and for those who are employed in the financial services sector in this country. The hon. Gentleman and others need to realise that it is not just a question of leaving the EU and then facing tariffs of 10% or 20%; it is a question of whether we will have a legal right to trade in those products at all with those other 27 countries.

[Sir William Cash]

Will the hon. Gentleman give way?

[Chris Leslie]

I do not have time to give way to the hon. Gentleman. Well, I may do so if I am tempted. The clock stopped after he spoke, and it felt like the 19th century.

Let me read out to the hon. Gentleman a list of the products that will be banned after April 2019, the time at which we would be out of the European Union. It will no longer be possible to trade in these services with the other 27 countries unless we secure a transitional arrangement or some solution from the Government.

There will be no deposit taking, regulated commercial lending services, trade finance, finance leasing, regulated receivables financing such as factoring, derivatives, hedging services, credit card services, payment services, consumer credit, mortgage lending, equity and debt capital markets, fixed income secondary market trading, regulated foreign exchange spot and forward trading, securitisation, regulated commodities trading, or clearing and executing brokerage. It will be illegal for British-based firms to trade into those 27 countries after April 2019 unless the Government manage to secure a decent deal.

The challenge to the Minister, who has already heard it from many Members on both sides of the House, is yes, to focus on the right solutions—automatic access rights to the single market must be our goal—but before we reach that stage, in January or February, he must start to ensure that we have some evidence on the transitional arrangement talks. A transitional arrangement must begin before we trigger article 50, in the reporting season, so that banks and other financial institutions can plan ahead. If the Government do not give a clear commitment to seeking a transitional arrangement, we will find that those financial institutions have a “stick or twist” option. Do they stay and risk it, hoping that something will crop up after 2019, or do they twist, leave the UK and try to locate elsewhere? That is too much of a gamble. It should not be so binary. I hope that Ministers will think very seriously about doing the right thing for the sector and those who are employed in it.

Oral Answers to Questions

Chris Leslie Excerpts

Tuesday 25th October 2016 Commons Chamber

[Mr Hammond]

Nottinghamshire is, indeed, a part of the country that I know well and have a great deal of affection for. The Government are completely seized of the need for infrastructure investment to support the productivity performance of our economy. My right hon. Friend the Transport Secretary will look at the priority to be afforded to different specific projects and will make statements in due course.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Given that the east and west midlands together could generate significant growth for our economy if they got the right road, rail and skills infrastructure, and given that today is Nottingham in Parliament day, will the Chancellor acknowledge that the autumn statement should bring forward those ambitions for the midlands engine?

[Mr Hammond]

The Government are committed to the midlands engine. The hon. Gentleman is absolutely right to say that the midlands conurbation overall has a weight of population and economic activity that allows it to be a rival to the hub of London and the south-east. As I said to my right hon. Friend the Member for Broxtowe (Anna Soubry), announcements about specific projects will be made in due course by the relevant Minister.

Sale of Annuities

Chris Leslie Excerpts

Wednesday 19th October 2016 Commons Chamber

[Simon Kirby]

We are looking at an economy that works for everyone, including those pensioners on low incomes. The Treasury will be considering this very carefully, but my hon. Friend will have to wait until the autumn statement to hear how we are best placed to deal with this. However, those people are absolutely at the centre of our attention, and we will do all we can to help.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Of course, guarding against mis-selling is important, but does this announcement not represent two new problems? It is a problem, first, for those hundreds of thousands of pensioners who have been marched up the hill only to be marched back down again, and left uncertain about their financial options, but, secondly, for those other generations of potential savers who are baffled by pensions generally and who will find this mixed message—this chopping and changing—on flexibilities even more of a reason to feel sour towards the attractiveness of pensions? We have a savings crisis in this country, and the Government need far more consistency and a clearer policy.

[Simon Kirby]

None of us wants to see people being baffled, and none of us wants to see uncertainty, but at the end of the day we are surely better off making the right decision, which protects vulnerable consumers, rather than carrying on regardless. The hon. Gentleman is right that we all have a responsibility to educate and inform people throughout their lives about the importance of savings and pensions, and that is something the Government fully intend to continue doing.

Financial Services: EU Markets

Chris Leslie Excerpts

Thursday 15th September 2016 Commons Chamber

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Twelve per cent. of our country’s economic output derives from financial services. We have over 2 million jobs in the financial services sector, mostly outside the capital city. In Nottingham alone, companies such as Experian, Capital One and Ikano, and over 500 other firms, operate in the financial services sector. Crucially, it generates £60 billion of revenue for the Treasury—money that, in turn, pays for schools, policing, and the NHS. We have more exports of financial services, and more financial services headquarters, than any other country. In short, Britain excels at financial and related professional services: not just banking but insurance, accountancy, legal services, asset management, and much more besides. We all rely on the future success of this sector.

We cannot forget, of course, that the banking crisis shook confidence in the sector—not just among traders and businesses themselves but among the public—and taxpayers were left to pick up the pieces. Since 2008, the UK has seen its markets hit, with fewer IPOs—initial public offerings—and stiff competition internationally. This is far from a static sector, and there are so many opportunities for the UK in a positive sense, from fintech and from innovation flowing from sharing economy developments. Yet the competitors are circling, with big growth in Asian financial centres and New York expanding very quickly into investment management. Now the sector faces a virtually existential challenge: how to exit from the European Union without undermining this important cornerstone of our economy.

Some parts of the financial services sector will be more affected than others. Domestic retail banking may be marginally affected, but for some in the wholesale sector, leaving the single market would not mean tariffs rising by 10% or 40%, but ending their right to sell products in such markets completely. I wanted to raise this issue with Treasury Ministers, and I wrote to them in advance of this debate to ask specifically about five points of particular concern.

The first point, which may seem blindingly obvious, is that we need to retain the UK as the global financial centre. It is essential that we do nothing to undermine the UK in that leading role. That may seem an obvious request to make to Ministers, but it is worth getting them to put on the record a commitment to maintaining our country’s front-runner status. Will the Government commit to maintaining our breadth of specialisation in this unique cluster of services? An erosion in the economies of scale or in our concentration of skills and services would be detrimental to the wider economy at large. That is the first commitment I am looking for from the Government.

The second point it is vital to talk about is alignment. Are the Government aiming to maintain as much of our existing access to the single market and European economic area as possible, or will they look to adopt a lower regulation, lower tax approach relative to the countries in the rest of the European Union? This is a crucial point because maintaining an equivalent and comparable regulatory framework with the rest of the EU will help us to retain crucial access to those markets. If Britain takes the divergent path, we not only risk having market access restricted, but increase the hazard for our taxpayers, who need robust regulation to protect them from any future financial disaster. I therefore urge the Minister not to listen to, for example, the noble Lord Lawson, who wrote in the Financial Times—last week, I think—that

“the benefit of intelligent deregulation…which we demonstrated in the 1980s…offers the prospect of the greatest economic gain.”

I do not believe that the Government should follow that path, and I hope the Minister will resist such siren voices.

If we allow Brexit to cloud our judgment or take it as a chance to forget the catastrophic impact of excessive risk taking, opaque products and reckless behaviour, we will be taking a big step backwards and unlearning the lessons of the financial crisis. Britain was the driving force behind the creation of the global Financial Stability Board after the G20 in 2009, after the financial crisis hit, and Ministers should reiterate a commitment to linking in to its principles and ensuring worldwide compliance for those transacting business in the UK. I believe this is a crucial political choice, as well as one about access to markets. There is a happy coincidence in that choosing the right path for robust regulation will help to maintain the best access for trade. Maintaining rights to passported sales depends on retaining equivalent standards, so I want the Minister to recommit to this broad set of standards, which exist for a reason, and which Britain was at the forefront of creating.

The third question on which I want to press the Minister is about stability. Keeping rights to trade must be a permanent situation. Some people just shrug and say that there are lots of directives—MiFID 2, CRD4—and other EU rules, such as AIFMD, meaning that third countries outside the European Union have rights to trade if they have “equivalent” regulation. However, not all parts of the sector have equivalent rights, so such directives do not cover all parts of the sector; many of the rights are still quite theoretical, because they have not yet been put into practice in lots of cases; and what the European Commission grants, it can very easily take away.

Will the Minister therefore acknowledge that a stable, long-term settlement for access to EU markets is essential, and that leaving others the power unilaterally to disallow equivalence, perhaps with only a few weeks’ notice, would represent a great risk for business? The Treasury should ensure that the passporting of financial services or equivalence arrangements cannot be terminated without consultation and several years’ notice. Our membership of the European Economic Area or a bilateral treaty between the UK and the EU must be based on a long-term commitment to mutual recognition. Ministers should acknowledge the reciprocal nature of these markets. Just as we seek long-term commitments from the EU, many European organisations are looking for long-term access to the UK because of our position as a financial centre of excellence right on the doorstep of the rest of the EU.

My fourth question relates to sectors in which we currently excel, such as clearing and settlement—an area that is crucial to the fabric of connectivity in the networks of financial transactions across the world. I urge the Minister to acknowledge that it is essential that the UK continues to have rights for euro-denominated clearing, because of its importance in creating the wider environment and infrastructure that are so valuable to other financial services, be they underwriting, syndicating, trading, execution venues or banking.

Last year, the Treasury successfully fought off the attempt by the European Central Bank at the European Court of Justice to limit rights in the clearing of euros outside the eurozone, but I suspect that that issue will rear its head again. There is a danger that the UK and the EU will lose out entirely if the wholesale market decides to up sticks and go to New York, which has the right infrastructure to present a competitive opportunity for many in that sector. Maintaining the UK’s rights to euro-denominated clearing is therefore important.

My fifth question is about the orderly transition that we need to have whatever the new arrangements are. I have raised this with the Secretary of State for Exiting the European Union and it is important that the Treasury commits to it again. I hope the Government will agree that we must have parallel negotiations on our new trading and regulatory relationships during the Brexit process and reject the notion of sequential dialogue. The need for an orderly transition to new arrangements means that although we have to talk about the divorce process—Brexit—and how we leave, we must simultaneously talk about what our new relationships and rules will be. There is a case for making it clear that if we are to trigger article 50, there should be a condition on the concept of parallelism to ensure that we can have the discussions simultaneously.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

My hon. Friend is outlining a lot of concerns that have been raised by my constituents in Hampstead and Kilburn. The Office for National Statistics found that 1,000 of my constituents are employed in financial and insurance services. During this divorce, as he puts it, their daily commute is riddled with uncertainty, because of the possibility of relocation or, much worse, redundancy. Does he agree that securing our vital passporting rights is crucial in ensuring that my constituents gain back control of their own future?

[Chris Leslie]

Absolutely. My hon. Friend represents many people who work in this sector, as do all right hon. and hon. Members in the Chamber, because this is something that affects not just the City of London, but all parts of the country.

In respect of transition, I worry very much about what some people call the “boiling the frog” syndrome. After the referendum, people said, “There wasn’t a cliff edge. What’s the problem?” This is a process that will take many years and we might see a steady decline in our opportunities and our economy; it will not necessarily happen in one go overnight. However, there are serious cliff-edge worries, particularly if we do not have parallel discussions during the transition. I hope that we can secure regulatory co-operation with countries in the EU and continue with the current arrangements, as far as is possible, during the transition. That should be the Government’s objective.

There are other issues that I would have raised with the Minister if there had been time. For example, the UK is a centre for investment management activities, which require worldwide access and, crucially, regulatory co-operation. Many funds are located in jurisdictions around the world, but at present they can delegate many of the actual tasks of fund management into the UK. Continuing those rights to delegation is very important in an area where long-term guarantees are needed.

There is also a very big question regarding what would happen if those who work in the sector and are currently able to move to and work in the UK, which is part of our appeal, faced restricted access. A conclusion needs to be reached soon on the rules for skilled employment movement between the UK and the rest of the EU. That is an important piece of that jigsaw. Other EU countries also face reform of the general concept of free movement, and a skills-based approach may be an option for common agreement.

Britain must not fashion itself as a new, low regulation, offshore haven. Our history—trust, the rule of law, the perfect location, our word is our bond, specialist services and professionalism—is our best selling point. We need to opt for the path that wins businesses through high-skilled, high-calibre and well-regulated products, and not be tempted by diluting important protections and chasing the mirage of undercutting.

Ministers have a crucial choice to make, and it will certainly divide those on the right of the political spectrum. That is one of the key issues on which I want to press Ministers. I urge the Treasury to choose the path that remembers the lessons of the financial crisis and that, as a happy consequence, also gives us access to EU markets and business opportunities, in the best interests of jobs and growth across the UK, not only in the City of London, but in other great cities, such as Nottingham.

[The Economic Secretary to the Treasury (Simon Kirby)]

May I start by thanking the hon. Member for Nottingham East (Chris Leslie) for highlighting the importance of passporting in financial services and for securing this debate? He has made a reasonable case and I thank him for his thoughtful and vital questions. He will not be disappointed to hear that I fully attend to answer all of them, although not necessarily in the order that he asked them. Indeed, if he wishes to raise any other issues, I am always willing to sit down and discuss them with him.

This is a very important issue, not just for the City, but for ordinary people who work in the sector and its related professions up and down the country. Many of those services are provided by more than 2 million people in this country, and they pay a lot of tax. I am very happy to commit to doing all I can to maintain the UK’s global financial status. That is clearly very important. The issue also matters to many more of the British electorate who benefit from the £66 billion of tax revenues that financial services provide each year, and the role that they play in financing businesses up and down the UK and around the world.

I share the hon. Gentleman’s view that the financial services industry brings considerable benefits to the UK economy as a whole, and we want to retain them as we forge our new relationship with the EU. In general terms, the financial services passport means that firms authorised in one member state or in part of the European economic area are able freely to passport their services across the whole of the EU. Alongside the passport, other rules affect how firms operate outside the EU, interact with it and have access to the European market. Those are collectively called equivalence regimes, whereby the EU assesses whether foreign rules are broadly compatible with its own and can be used instead as the basis to provide services to and across the EU.

I make those points as part of achieving a shared understanding of what matters when we talk about passporting and access to the single market, whether on the basis of a pure passport or an equivalent mechanism, to ensure market access to the EU. That is necessary for us to consider together the options available to the UK when it enters its negotiations, and to recognise that there are various precedents for accessing the EU market on which we can and should draw.

It is worth dwelling on why we shall seek the best possible deal for financial services in the EU negotiations. Under current arrangements, based on the UK’s membership of the EU, UK firms hold over 5,000 different financial services passports across various sectors and activities. They are not all actively used, but it is clear that a significant number of UK-based firms depend on access to the European market today, offering global services to a global client base at least in part via the EU passport. Around a third of UK services’ exports are in financial services, of which about a third are to the EU—about 11%.

For larger internationally active financial institutions, access to the EU is critical to their business model. I have certainly met a few of them in my new role to date. Even those with a large UK client base might find themselves needing to offer a European and a global service to their UK clients. Many of these are major employers across the UK as a whole. For them, the whole of the UK is important; the City is important, but financial services span the length and breadth of the country.

The UK is home to a genuinely international financial centre, resulting in a £55 billion trade surplus in financial services last year. This global hub means that the City is, put simply, greater than the sum of its individual parts. It has a critical mass. It relies substantially on the clustering of expertise in one place and the presence of a number of firms that are highly dependent on one another and inter-connected. Financial services provide capital-efficiency to the real economy because of this market concentration.

To illustrate my point, I note here the concern raised by the right hon. Gentleman about euro-denominated clearing—the ability to net very complex networks of trades in different currencies against one another saves the market billions in capital each year. The London stock exchange believes it has saved global clients around $25 billion-worth of regulatory capital. That is not a small sum. In short, European firms looking to raise finance for investment and growth rely on the UK’s deep capital markets. If this market is allowed or encouraged to fragment, the result is likely to be a reduction in businesses’ ability to secure investment right across the spectrum.

It is also important to financial stability to ensure that we and our European partners understand the effects of possible business restructurings, so we can continue to ensure that the sector is properly regulated and supervised. Getting this wrong is in the interest neither of the UK nor the EU. I hope that that reassures the right hon. Gentleman, who raised the importance of the UK’s specialist cluster. There are benefits—not only to the UK, but to Europe—of the City remaining a cluster of expertise that can serve the EU. Financial services is highly interconnected activity that depends on economies of scale.

I agree with the right hon. Gentleman—actually, I am not sure whether the hon. Member for Nottingham East is honourable or right honourable.

[Chris Leslie]

Honourable.

[Simon Kirby]

It is only a matter of time, I am sure.

I agree with the hon. Gentleman that we will need to look carefully at the structures needed to ensure regulatory cohesion and stable, long-term access to EU markets, which I believe is in both the UK’s and the EU’s interests. The EU benefits from the deep pockets of the UK’s financial centre status, and the UK benefits from access to the EU in acting as its financial centre. High quality and consistent regulation is an essential underpinning of a stable, competitive, global financial sector.

In conclusion, I want to reassure the House that we are working as hard as we can to consider the opportunities ahead, to safeguard UK financial services for the long term not just the short term. We understand the importance of market access, transition and continuity—points that the hon. Gentleman raised—and we also understand that access to skilled workers internationally will be essential to this sector.

Lastly, I want to reassure those looking perhaps from around the world that we are the same outward-looking, globally minded, big-thinking country we always have been.

Question put and agreed to.