Future International Trade Opportunities

Gareth Thomas Excerpts

Wednesday 1st May 2019 Westminster Hall

[Craig Tracey]

My hon. Friend is absolutely right. One of the priorities of the Department for International Trade, in co-operation with the Department for International Development, is to look at how to replicate and increase the effects of the economic partnership agreements. There are with seven in place now, and we want to extend them to 31 other countries, including African and Caribbean ones. The opportunity is certainly out there, and I agree with him wholly.

We have made a good start. The Government’s stance in the White Paper on trade was encouraging:

“When we leave the EU we will regain our independent seat at the WTO. As an independent member and one of the largest economies in the world, we will be in a position to intensify our support for robust, free and open international trade rules which work for all, and to help to rebuild global momentum for trade liberalisation.”

We are already seeing encouraging signs. According to the OECD, at the end of last year the UK’s inward investment stock was an impressive $1.89 trillion, more than double Germany’s, which stood at $920 billion. The Government have already established working groups and high-level dialogues with a range of key trade partners, including the US, Australia, China, the Gulf Co-operation Council, India, Japan and New Zealand. I commend that approach, and I know that the Department plans and will work to extend that list, continuing to increase global trading relationships.

Analysis in a report by Minnesota’s Minneapolis Fed suggests that were we to reduce trade and investment barriers with the rest of the world by 5%, we would raise UK income by between £25 billion and £30 billion per year, even taking into account possible future restrictions on trade and investment with EU. Dr Graham Gudgin, an economist at the University of Cambridge’s Centre for Business Research, states:

“A smart WTO Brexit with well-designed trade, immigration, agricultural, fishing and regulatory policies would, far from being a ‘disaster’, have an excellent chance of delivering substantial long-term net benefits.”

Exciting opportunities across a wide range of sectors are open to Government as we move forward.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

The hon. Gentleman must know that the most advanced example of trade liberalisation is actually the single market. Would it not therefore be better for Britain to remain a member of the single market?

[Craig Tracey]

The hon. Gentleman will not be surprised that I disagree. One of the issues with the single market is freedom of movement, which was an issue in the referendum, and similarly the customs union ties our freedom of policy. Being able to develop our own wider trade policies offers far more exciting possibilities to my constituents and to businesses around the country.

Speaking of my part of the country, it is good to see that, primarily as a result of Brexit, a new strategy is forming. Traditionally, parts of the midlands have tended to work separately on their trade policies, but through initiatives such as the midlands engine they are working much more closely together, with a great sense of teamwork and unity, and more joined-up thinking to deliver a wider, more focused outlook, which is to the benefit of the midlands as a whole.

I raise my main topic today as one who was an insurance broker for more than 20 years and as chair of the all-party group for insurance and financial services. I will focus my comments on this sector, because insurance has to play a leading role in our future trade success. It is fundamental to economic improvement in every one of our constituencies, and is apparently one of the UK’s most successful export industries.

I say that insurance is important in all our constituencies because overall it employs about 300,000 people and, contrary to popular belief, two thirds of those jobs are outside London. The specialist London market itself employs about 52,000 people, but again, 17,000 of those jobs are outside London. In terms of premium income, the UK market is bigger than all the markets of its major competitors—Bermuda, Singapore and Zurich—combined. This country attracts large commercial business from more than 200 territories around the world, bringing to the UK about £65 billion of premium annually. On top of that, we have a reputation for product innovation to cover new types of risk. That is important as technology grows. Some of the products recently developed in London include cyber and data-breach insurance, stand-alone terrorist cover and natural catastrophe cover.

We cannot afford to be complacent about the industry, though. Research by the London Market Group, highlighted that premium coming from emerging markets into the UK has declined and that we face significant and growing competition from overseas, especially from markets in Bermuda, Singapore and Zurich, whose Governments support regulators that actively promote their industries and insurance markets. Meanwhile, our share of mature insurance and reinsurance markets stagnates. Asia is the highest growth market globally, and the region in which the UK lost the most ground in commercial insurance between 2013 and 2015, mainly to growing regional insurance hubs such as, again, Singapore, which had an annual growth rate of 4%.

[Craig Tracey]

Although the US is one of our biggest import markets, I do not necessarily think so, because the Government have committed to maintaining high food standards. I am primarily talking about the insurance industry; I am sure the Minister can give some reassurance, but I think there is plenty of scope for us to grow imports from a whole range of countries around the world. The scope of where our imports come from seems to be very narrow.

[Gareth Thomas]

Research published in December by the Centre for European Reform suggests that if Britain leaves the single market, even with an ambitious future trade agreement with the European Union, exports of insurance and pension services from the UK would be almost 20% lower per year. Does the hon. Gentleman think that, however difficult it would be to present it to his constituents, staying in the single market might be the best way to protect a considerable number of insurance jobs in his constituency and elsewhere?

[Craig Tracey]

I do not. I have spoken to a wide range of stakeholders, including the London Market Group, Lloyd’s and the Association of British Insurers. I will make the point later that from their perspective, even free trade agreements are not necessarily the way forward.

Returning to the trend of the loss of global market share by UK commercial insurance, it is particularly important that the Government and industry consider the measures that can be introduced to reverse that trend, to encourage more trade and opportunities and, crucially, to promote the industry. It has long been argued in the insurance sector, and is something I have raised many times in this House, that our regulators should have a dual role—they should promote on the international stage. That would mirror what many of our competitors around the world already do, particularly in emerging areas.

We need domestic reform just to put us on a level footing with our competitors. UK regulators should have a regard for our international competitiveness. That means they would have to consider the impact of their decisions on the ability of UK-based financial services to compete on the international stage that we want to have access to. The sector has repeatedly made the point that progress does not necessarily rely on agreeing formal free trade agreements—they are not the be-all and end-all. The Government can make substantial progress now using some of the existing tools available to them such as financial and economic dialogues, which offer real benefits in shorter time frames. There would be an opportunity to turn them into bilateral agreements in future—the ABI highlighted that in relation to China and India in particular.

To remain internationally competitive, a future regulatory framework needs to be outcome-based. There is a view that trade should not be prevented by technical divergence between the UK and third countries if the outcome of the regulation is the same. So that we are not overtaken, it is important that Government, in partnership with organisations such as the LMG or the ABI, promote the unique benefit of access to our commercial insurance markets, given the significant economic and social benefits of expanding insurance provision and the growing protection gap challenge that many countries face.

I would like to draw the Minister’s attention to the London Makes it Possible campaign, run by the London Market Group. It is designed to promote London and the UK as the world’s pre-eminent insurance hub. It reminds countries around the world of the business range of risks we cover and is something that Government could get behind, to promote us. It has a fantastic website, where it is interesting to see some of the world-leading risks that we cover, and how our market is so different.

The expertise in this country enables us to place highly complex risks. The question is: where should we consider targeting? There are opportunities to grow the insurance trade in a number of developed and emerging markets. The ABI has identified 11 priority markets for future international trade, including China, India, Japan, South Korea, Canada, Switzerland and the United States. In addition, the LMG has identified its own target markets: the US again and the markets of the Association of Southeast Asian Nations, which have huge cyber-insurance opportunities. Latin America has one of the lowest insurance penetrations in the world, largely due to measures to shield those countries from international insurance markets. Although it is understandable why they may want to do that, those measures limit the pooling of risk and make the insurance of large-scale natural disasters next to impossible. Importantly, that puts up costs for consumers and reduces take-up.

I visited the US last year with the British-American parliamentary group, to discuss financial services post-Brexit. We went to Washington and New York to see at first hand how important our insurance industry is there. The US continues to be the London Market Group’s single biggest source of business. In 2017, Lloyd’s under- writers wrote approximately £13.5 billion of US business, contributing to a total of approximately £20 billion of London Market Group premiums. The US spend on cyber-insurance alone is expected to reach $6.2 billion by 2020. It also faces a growing need to strengthen resilience against natural disaster and to bolster federal and state insurance programmes. The three hurricanes in 2017 caused more than $217 billion-worth of damage, of which only $92 billion was covered by insurance.

The Government have already made important progress in negotiating and signing the UK-US covered agreement for reinsurance, which removes some collateral requirements and encourages regulatory dialogue between the UK and US. That is a very welcome step to developing a new post-Brexit trading relationship between the two countries. The UK is ready to take advantages of those opportunities. World-leading insurance expertise is already based in this country so it will be a critical industry for us.

--- Later in debate ---

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I congratulate the hon. Member for North Warwickshire (Craig Tracey) on what so far has been an interesting debate. I gently remind the House of the promise that the International Trade Secretary made to have signed some 43 trade deals by the end of March 2019. Not surprisingly, that has not been achieved, and we are some way from seeing those 40 so-called roll-over EU trade agreements signed. That is an indication of the complexity of trade. While, as the hon. Member for Hornchurch and Upminster (Julia Lopez) alluded to, many things can affect future trading opportunities for British businesses, the instability of not having sorted out proper trade agreements with both the European Union and other key markets is likely to inhibit the international trading opportunities for British businesses.

I raise in particular concerns about trade in services, because the vast majority of the jobs done by my constituents that directly involve international trade are related to services. The few bits of detailed thinking from independent trade experts about the impact of Brexit on trade in services highlight the huge significance of such trade between the UK and the EU, and therefore what is at risk, in terms of scale, for the UK economy from any inhibitions of trade in services.

In 2017, according to the Centre for European Reform, services accounted for some 45% of total UK exports, or almost £300 billion. The EU received 40% of those exports, the highest proportion of any UK trading partner. Research by the Centre for European Reform suggests that if Britain leaves the single market and trades services under the provisions of an ambitious free trade agreement, on an annual basis UK exports to the EU of financial services will none the less be 60% lower, UK exports of insurance and pension services will be almost 20% lower, and exports of other business services, including law, accountancy and professional services, will be 10% lower. Those are all sectors in which Britain has a significant comparative advantage, so jobs, investment and tax revenues are all at risk in the case of withdrawal from the single market.

[Angus Brendan MacNeil]

I am grateful to the hon. Gentleman for giving way on that point, which leads me to the point raised by the hon. Member for North Warwickshire (Craig Tracey). The stats he just gave lead to the 6% damage there would be to GDP. When I pointed out that we would need 30 or 40 America-style agreements, he said we can find more countries and more deals. The only problem is that the USA is a quarter of the world’s GDP, so we would need seven to 10 planets to make up for the damage the UK is inflicting on itself with Brexit.

[Gareth Thomas]

I agree; the hon. Gentleman makes a good point. Without dwelling on that point, the CER report helpfully points out that it is significantly more difficult to open services markets than goods markets to trade, because many barriers to trade are regulatory in nature. The quality and safety of a service is difficult to decide at the border.

As I pointed out in my intervention on the hon. Member for North Warwickshire, no group of countries has gone further than the European Union in making it easier to sell services produced in one country in another in a bloc, yet still barriers remain. Therefore, pulling out of the single market and negotiating a free trade agreement, however ambitious it ultimately is, would inevitably throw up new barriers to trade, particularly if we withdraw from the EU’s collective rulebook, shared institutions and cross-border enforcement regimes, as it appears the Prime Minister wants. Some of the impact of withdrawal from the single market for services could be offset with, for example, significant mutual recognition of qualifications and—more controversially—the temporary movement of people.

It is not fashionable to worry about the future of financial services—the case for further regulatory reform of the industry can easily be made—but it remains one of the few world-class industries we have in the UK, and it is clearly set to be damaged significantly, putting jobs in my constituency at risk. For that reason, I urge the House to vote for us to stay in the single market as part of a soft Brexit deal, put back to the British people in a public vote with the option, nevertheless, to remain in the EU.