Brexit: UK-EU Relations (EUC Report)

Earl of Kinnoull Excerpts

Monday 2nd July 2018 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, what a pleasure it is to follow the noble Lord, Lord Monks, and his incisive wit, as we heard in a very clear speech. I declare my interests as set out in the register of the House, in particular as a member of the EU Select Committee and, for reasons that will become clear later in my remarks, in respect of the insurance industry as well. I congratulate our chairman, the noble Lord, Lord Boswell, who has overseen the production of more than 30 reports, all unanimous, since the referendum. He continues to keep our spirits high in these very busy times. He made a very powerful speech, which I hope will be widely read in many countries. I should mention that we are very lucky to have 24 dedicated and immensely skilled staff, led by our principal clerk, Chris Johnson, who is deputising as clerk this evening as well, and our committee clerk, Stuart Stoner, who I see is also with us. I pay very warm tribute to them all.

I shall make just three points this evening, and in one context. My context is simple. The lives of 500 million people will be affected by what is agreed between the parties in this negotiation. Damage inflicted by one party on another will inevitably be reciprocated somehow or other, as indeed we are about to discover in the seemingly forthcoming world trade rumpus. Those who are party to the negotiations must therefore have regard to what works for all 500 million and not just their 65 million or their 440 million. As we said in our summary,

“this means using the language of partnership, and accepting that compromises will be necessary”.

Indeed, many others have alluded to that. As the noble Lord, Lord Jay, alluded to, and I say again, the UK and the rest of Europe are historically, geographically, economically and culturally intertwined. We are each other’s ultimate repeat order customers and agreement reached must not leave a bad taste for one or other party. I note that in commercial life I have never known an act of generosity go unrewarded and I very much hope that the negotiating teams have had that experience to guide them.

My three points concern the EU agencies for security and, curiously, reinsurance. Turning to the EU agencies, I note that there are 37 of these today, 36 of which the UK is a member of. At the time of writing our report there was considerable confusion as to what exactly we had asked for and what the responses had been. The European Maritime Safety Agency has Iceland and Norway as full members. The European Aviation Safety Agency has Iceland, Norway, Liechtenstein and Switzerland as full members. Looked at through the lens of the interests of 500 million people, should the UK not be a member of at least these two agencies? Have we asked to be members of these agencies? What response have we had from the EU negotiators? Similar cases can be made for a large number of other agencies. I very much hope that the White Paper will be clear about our ask where agencies are concerned. In that, I very much echo the noble Lord, Lord Whitty.

Turning to security, I was alarmed and hugely disappointed to read the front page of the Times on Friday 29 June, which suggested that EU negotiators will not allow the UK access to three vital systems; presumably there will be a similar lack of access to UK databases with this type of information on them for EU countries. The EU negotiators are citing legal framework problems. The three systems are the Schengen Information System, which shares information on criminals, missing persons and persons under surveillance; the European Criminal Records Information System, which allows police from one country to check if a suspect has committed a crime in another; and Prüm, the new EU-wide DNA database. Again, looked at through the lens of the 500 million and in a world of heightened terror problems, is it not crystal clear that a different approach is urgently needed?

It is not as though the EU has not found a way in the past. In 2017 two British MEPs, Labour’s David Martin and Alyn Smith of the SNP, published a European Parliament report called Variable Geometry Within the EU, which explains in 31 clear pages all the many ways in which the EU has flexed itself to cater for oddities. I dare say that in each case the EU as a whole was satisfied that the accommodations were in the interests of all concerned. This approach is needed again here. Therefore, I ask the Minister to confirm that we are seeking mutual access to these three information systems and—not that I do not believe the front page of the Times—what the current EU negotiation stance is.

My final point concerns non-life reinsurance. Insurance allows the western world to function. Every aspect of personal or commercial life is the subject of the pooling of risk that is insurance. Under Solvency II, the EU led the world in creating the modern way of regulating insurers, a key strand of which is determining how much capital they require to trade. Insurers’ capital is made up of permanent capital—shareholders’ equity—and temporary capital that they source from reinsurers as reinsurance. In the EU the temporary capital counts only if it is from an EU reinsurer or one based in an equivalent jurisdiction.

The largest reinsurance market in the world is in Bermuda and it is thus not surprising that it was granted equivalence for the start of Solvency II. Not to have done so would have hugely damaged the insurance industry throughout the EU. EU insurers in the aggregate would have been far short of the required capital under Solvency II, and whatever corrective strategy they chose to take would have caused problems for large numbers of personal and commercial clients. The second largest reinsurance market is London. The same considerations apply. Again, looked at through the lens of the 500 million, the granting of equivalence where reinsurance is concerned would seem very much in everybody’s interests. Can the Minister confirm that the equivalence position is being talked about and tell us the EU negotiators’ current position?

In closing, I note that the common theme that runs through our report is the need for a collaborative approach and a can-do attitude. The report calls it,

“the language of partnership, and accepting that compromises will be necessary”—

the lens of the 500 million people. That is a challenge that those who gather at Chequers later this week have the opportunity to take up. I very much hope that they do.