Withdrawal Agreement: Economic Analyses

Joan Ryan Excerpts

Thursday 13th December 2018 Westminster Hall

[Joan Ryan (in the Chair)]

We begin with the Select Committee statement. Nicky Morgan will speak on the publication of the 25th report of the Treasury Committee, “The UK’s economic relationship with the European Union: The Government’s and Bank of England’s Withdrawal Agreement analyses”, HC 1819, for up to 10 minutes, during which no interventions may be taken. At the conclusion of the statement, I will call Members to put questions on the subject of the statement and call Nicky Morgan to respond to those in turn. Members can expect to be called only once, and questions should be brief. I call the Chair of the Treasury Committee.

[Nicky Morgan (Loughborough) (Con)]

It is a pleasure to speak under your chairmanship, Ms Ryan. I thank the Backbench Business Committee for the opportunity to make a statement to the Chamber on the 25th report of the Treasury Committee on the economic impact of the withdrawal agreement and political declaration, and on the Bank of England’s analysis. I place on record my thanks to the Treasury Committee’s staff, my fellow members of the Committee, the witnesses who appeared before us, and all those who submitted written evidence—all of whom played a vital part in producing the report with great speed.

Over the summer, I wrote to the Chancellor, the Governor of the Bank of England and the Financial Conduct Authority on behalf of the Treasury Committee and asked them to produce and publish analysis of the economic impact of the Brexit withdrawal agreement and of the future framework, once it had been negotiated by the Government with the EU. The purpose of securing those analyses was to ensure that Parliament’s meaningful vote on the withdrawal agreement, whenever that may be, is properly informed. Like many other Select Committees, the Treasury Committee has spent the last few weeks poring over the details to ensure that all right hon. and hon. Members walk through the voting Lobbies with the best possible evidence.

When the analysis we requested was published a couple of weeks ago, there were accusations of “Project Fear Mark 2”. Some ramped up the rhetoric even further, with cries of “Project Hysteria”. Let me clear: the analysis of the withdrawal agreement published by the Treasury, the Bank of England and the FCA was requested by the Treasury Committee for Parliament. The timing of the publication was driven by us to ensure that there was enough time for evidence sessions on the analysis ahead of the vote as we then expected it. Any personal criticism of the Chancellor, the Governor of the Bank of England, our regulators or witnesses, all of whom were responding to parliamentary requests, is wholly unfair and does not aid constructive discussion of the issues—and they are important issues. The analysis that the Treasury Committee received helped it greatly in producing its report on the Brexit deal, which was published and sent to all Members of Parliament on Tuesday morning.

Although Committees can be divided along ideological, party and, more recently, Brexit lines, consensus is always sought. There are 11 Members of Parliament on the Treasury Committee, and I am sure that there are at least 12 different views on Brexit, but this report, like the other 24 reports that we have published since I became Chair 17 months ago, was unanimously agreed. That shows that while the House, and indeed the country, appears more divided than ever, compromise can be achieved. As I have told the House before, all hon. Members will have to compromise if we are to find a way through Brexit.

The firm aim of the report was not to recommend how Members of Parliament should vote, but to ensure that they are as informed as possible and as aware as possible of all the relevant evidence when it comes to choosing a Division Lobby. Unfortunately, the Government made this difficult to achieve. They provided economic analysis of the UK leaving the EU under five different scenarios. The White Paper scenario, which is akin to the Chequers proposal, represents the most optimistic reading of the political declaration, rather than a more realistic scenario. It does not represent the central or most likely outcome under the political declaration, and therefore cannot inform Parliament’s meaningful vote.

In the report, the Treasury Committee expresses its disappointment that the evidence provided by the Treasury does not analyse the backstop. The Treasury also failed to include any short-term analysis, including on public finances and on regional and sectoral job losses or gains. Members of Parliament, as representatives of their constituencies, will understand how important that regional analysis is now and in the future.

Specifically on the Government’s decision not to model the backstop, the Committee concluded that that was a mistake. The Governor of the Bank of England told us

“on average for a trade deal from start to finish, it is something in the order of four years”,

but we know that previous EU negotiations have taken longer—for example, the trade agreement between the EU and Canada took eight years. Even if the implementation period is extended for one or two years beyond December 2020, it is feasible that the UK could enter the backstop, which, as we know, is politically contentious, given what we have already heard in the withdrawal agreement debate. Despite it being neither the UK’s nor the EU’s preferred position, the Government should have modelled the backstop.

We as the Treasury Committee would not be doing our duty to the House of Commons if we did not look at the effects of the withdrawal agreement on the financial services sector. In each of the five modelled scenarios, the sector will contribute less to the UK economy, but we know that it is a critical taxpayer, as well as being part of presenting a face of global Britain on the world stage. The Financial Conduct Authority expressed its concern that the UK would be a rule taker during an implementation period. In assessing the financial services sector’s ability to withstand a no-deal Brexit, the Governor provided reassurance that the Bank of England is

“sleeping soundly at night, because the core of the financial sector is in the position that it needs to be in for the tough scenario.”

While the Governor’s sleeping patterns may provide some succour to MPs, it is clear that a vacuum of information exists. There is a dearth of analysis that shows how the economy will transition to a new trading relationship. There is also a lack of modelling on the future framework between the UK and the EU.

However, Parliament may wish to draw from the range of scenarios that have been modelled, in order to assess the economic impact of the draft withdrawal agreement and political declaration. The scenarios range from 0.6% less GDP under the Chequers plan than would otherwise have been the case, to 7.7% less GDP in a no-deal scenario.

Select Committees play an increasingly important role in the life of this Parliament, particularly given its make-up and the nature of the Brexit issue that it faces. I was very clear, and I would like to thank the Committee’s members again for their support, in saying that we wanted to make sure that analysis and evidence were put before MPs. As I said, we wanted to do that not to tell them how to vote—we are all grown-ups and should be able to make decisions on behalf of our constituents as their representatives—but to make sure that the information was out there.

We know what happened earlier this week, which is that the meaningful vote was suspended and postponed. It will come back before the House at some point—maybe not until the new year. I suggest to the Minister here today—the Exchequer Secretary to the Treasury—that that gives time for some of the issues that are identified in our report to be potentially remedied, or for more evidence to be given to the Committee, which we will report to the House, as we have done before.

In conclusion, whenever this vote comes back to the House, I hope, on behalf of the Treasury Committee, that all Members of Parliament will find time amid the turkey, crackers and festive wrappings to read our report before that Division bell rings.