European Union (Withdrawal) Act

John Baron Excerpts

Thursday 6th December 2018 Commons Chamber

[Mr Hammond]

The way to do that is to support the proposal that the Prime Minister has presented to the House, which represents a compromise, ensuring that we leave the EU and respect the referendum decision of the British people, but do so in a way designed to minimise any negative impact on our economy and maximise the opportunities for this country in the future.

[Mr John Baron (Basildon and Billericay) (Con)]

I totally concur with what my right hon. Friend said about divided nations, but may I urge him to be cautious about relying too heavily on economic forecasts? We all remember the Treasury, the Bank of England and the International Monetary Fund predicting economic woe by Christmas 2016 if we voted to leave, with talk of 500,000 extra unemployed, a do-it-yourself economic disaster and so on. It got so bad that in the end the Bank of England had to publicly apologise for getting it so wrong. Can we just make sure we keep things in perspective with regard to these economic forecasts?

[Mr Hammond]

I am grateful to my hon. Friend, because he gives me the opportunity to clarify for the House that these are not economic forecasts; they are modelled scenarios for what might happen in different circumstances. Like all economic modelling, they depend to an enormous extent on the assumptions that are made. The assumptions in this paper are transparent and the assumptions that the Bank of England made are also clear. My hon. Friend has made his point about the modelling that was done in 2016. I can only speak for the Treasury and tell him that a huge amount of work has been done since 2016 to update and upgrade the Treasury’s long-term model. That computable general equilibrium model is the one that has been used.

[Mr Baron]

The one thing that I would suggest to the Chancellor is that the problem with these forecasts is that they do not anticipate a response from the Government to a given set of scenarios. That is one reason why the forecasts in 2016 were so wrong.

[Mr Hammond]

My hon. Friend is right. Of course, this work seeks to do something quite different: it looks at five different potential scenarios and ranks them in terms of the impact that they would have. I readily concede that it is more important to look at the ranking than the absolute numbers or ranges of numbers attached to them.

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[Stewart Hosie]

I have been absolutely clear that these figures are against the baseline. That is absolutely correct. These are figures where GDP is lower than would otherwise have been the case.

The language of the political declaration is about negotiating a future relationship. If we set aside the way in which that has been dressed up as some kind of exceptionalism that we are going to have the best deal ever, we are in essence talking about no more or no less than the vague intention to start to negotiate what the Government hope will be a preferential free trade agreement. However, the vulnerability of our economy to Brexit cannot be adequately mitigated through a UK-EU free trade agreement. That is, in essence, all we are talking about. For example, the EU FTA with Canada does include some limited provision for some degree of third country validation that is aligned with EU regulations, to facilitate the trade in goods, but it falls substantially short of securing access to the European single market that the UK or any European Economic Area member country currently enjoys. We argue that continued membership of the European single market and the customs union is vital to ensure that the UK economy continues to benefit from those current fundamental trading arrangements.

If memory serves, there was a previous assessment by NIESR that demonstrated that retaining single market membership could avoid a 60%—yes, 60%—decline in goods and services exports to the EEA by comparison with an arrangement based on WTO rules. I would also add at this point that the current arrangements do not simply facilitate trade with the EU directly. Membership of the EU has, for example, enabled Scotland to benefit from EU FTAs with more than 50 trading partners, so that by 2015 Scotland exported £3.6 billion to countries with which the EU has a free trade agreement. That trade accounted for 13% of Scotland’s international exports. In addition, although this is harder to quantify, many of the products exported from Scotland to the rest of the UK—this goes the other way as well—will form finished goods destined for the rest of the single market or countries with which the EU has an FTA. I will come back to that point, because it is important.

Of course, the rather non-exhaustive list of reasons why trade is likely to fall and drive down GDP growth, includes the increased cost of bureaucracy; uncertainty about the nature of customs arrangements; additional regulatory burdens; non-tariff barriers, which in some cases are the most significant; uncertainty about the legal basis upon which certain transactions may be carried out; and so on. Now, it is likely that some of those issue will be resolved—I have no doubt about that—but not all, not quickly and not without a cost to businesses and the economy.

If we look briefly at one or two of the ways in which the political agreement intends to take us forward, we can demonstrate how uncertain that is. On customs—this is in paragraph 27 of the political agreement—the UK has suggested a facilitated customs arrangement, or “facilitative” as it is described. But that is broadly similar to the maximum facilitation already described as fundamentally unworkable by the EU. On tariffs—this is in paragraph 23—what is said is fine in principle, but if we do not achieve that or if there is no deal, we are left with a situation where some people who support a harder Brexit are suggesting we set all our tariffs to zero and thus increase trade. However, were that to happen—this was confirmed yesterday in terms of the backstop—there is no guarantee that it would be reciprocated and it may well lead to the dumping of goods here from countries with massively lower labour costs, undermining business, jobs and prosperity here. Absolutely nothing is certain. In a sense, we are not taking a decision on an agreement; we are taking a decision on a wish list in a political statement, some or all of which may come to naught.

I have already gone through what is said in the political agreement about labour, and we are already seeing staff shortages, particularly in the rural economy. UK farms take in about 60,000 workers a year on a seasonal basis. The UK Government’s present proposal is for an evaluation scheme of 2,500 people. That does not cut the mustard. It may be that this matter is resolved in two or three years and that this issue is resolved quite successfully, but the damage will be done by then; the crops will have rotted in the fields.

I think that somebody said earlier, “This is all terribly bad news; it is all Project Fear—is there any reason for optimism?” Frankly, I do not think that there is. I do not believe that an FTA could adequately mitigate the damage that Brexit will cause. The Government’s own assessment says that an end to free movement plus an FTA would result in a decline of around 6.7% of GDP.

It was argued in the UK Government’s Global Britain strategy that we would offset a decline in trade with the EU from being outside the single market by exporting to more countries. However, fully replacing the value of EU trade will be challenging, as illustrated by the trade flows from the emerging BRICS economies—Brazil, Russia, India, China and South Africa. I will use the Scottish figures to demonstrate that briefly. Those nations account for £2.1 billion, or 7%, of Scotland’s exports. By comparison, the EU accounts for £12.3 billion, or 43%, so even a small proportionate loss in trade, or lost growth in trade with the EU would require a dramatic increase in trade—over 30%—with those countries. We would all love to see that happen across the whole UK, but I suggest that that is highly unlikely.

If the UK signed agreements with the 10 biggest non-EEA countries, including the USA, China, and Canada—a process that could take many years—that would cover only 37% of Scotland’s current exports, compared with the 43% that goes to the EU. Some of the trade simply could not be substituted. If one is selling low-margin or perishable goods to the EU that are refrigerated in a wagon overnight, it simply cannot be substituted by shipping the same stuff to Australia, Japan or China. It simply does not work like that.

Finally on trade, it is also worth pointing out that despite the Government’s optimistic assumptions, even signing a substantial number of trade deals would result in an increase in trade of less than one quarter of 1% of GDP compared with the situation today—that was confirmed yesterday—if we successfully negotiate trade deals with the US, Australia, New Zealand, Malaysia, Brunei, China, India, Brazil, Argentina, Paraguay and Uruguay, the UAE, Saudi Arabia, Oman, Kuwait and Bahrain. That is an awful lot of risk for very little potential gain.

I want to talk about two other areas briefly. The first is foreign direct investment, now a key feature of the contemporary global economy and one from which the UK and Scotland derive considerable benefits. We have seen a substantial number of jobs in Scotland owned by EU companies that have invested here over the decades precisely to have access to the European market. There is no certainty that that would stay, and in the future much of it would go.

The second point that I wish to raise is productivity. The Bank of England assessment in the past week cites academic evidence that shows how tariffs may force the reallocation of

“production toward less efficient domestic producers, lowering aggregate productivity”—

So, even if there is substitution, as many argue, it is likely to lower aggregate productivity.

[Mr Baron]

Will the hon. Gentleman give way?

[Stewart Hosie]

I will, one final time.

[Mr Baron]

I appreciate the hon. Gentleman’s generosity. All the evidence shows that inward investment is about relative advantage. It is about lower corporation tax rates and flexible labour markets. It is about a skilled workforce and our universities. Tariffs of 3% to 5% are not as important as other factors, and I suggest that he look at the record inward investment that we have seen in this country since the referendum result, to prove that point.

[Stewart Hosie]

The hon. Gentleman is right in one regard: tariffs are important—in some areas, very important—but the non-tariff barriers, as I said earlier, may be more significant. We are already seeing skilled labour leave and not come back. We are already hearing that our universities, which he mentioned, are now worried because their academic working together with Europe is no longer there. The relative advantage of an English-speaking country with access to the EU market was there for all to see. Some people now wish to rip that up.

Every single Brexit model is bad. Investment is likely to fall, trade will most certainly be reduced, barriers will be erected, people will be poorer and productivity will be stifled. On that basis, we need to think, and think again—and quickly. As I see it today, and I will paraphrase the Prime Minister’s words from another constitutional debate: there is no positive case for Brexit, now is not the time for Brexit, and frankly, Brexit must be taken off the table.

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[Mr John Baron (Basildon and Billericay) (Con)]

I speak to the amendment that stands in my name and those of my right hon. and hon. Friends. At times, although not so much in this debate, there has been a sadness of tone in these debates, but I wish to recognise how well the Prime Minister has handled herself during these testing times and commend her for that.

Part of the problem is the way we have approached these negotiations from the start. Some saw Brexit as a problem to be managed, but it should have been an opportunity to be seized. I believe that that opportunity is still there. We have the prospect of trade deals around the world, and we do prefer constructive trade deals to WTO terms—of course we do. We also have the opportunity of introducing an immigration system that no longer discriminates against the rest of the world outside Europe—we currently have to sign up to such a system as members of the EU. We could have a fair immigration system, roll back the ECJ and take control of our finances.

Those opportunities are still there, but the problem is that we have descended into the situation, partly because of an unnecessary general election, whereby we have encouraged EU intransigence. Concessions have been offered and they have been pocketed with nothing in return, and we now find ourselves, via this agreement, in the position that Mervyn King, the former Governor of the Bank of England, correctly described as sacrificing

“the benefits of remaining without obtaining the benefits of leaving.”

That is where we find ourselves at the moment.

The withdrawal agreement is in two parts—the transition period and the backstop. Let me make it clear that there are elements of the transition part that I find difficult to stomach. We know about the bits about the money and the ECJ, but, in essence, the transition period itself is like staying in the EU; it is a question of staying on for those extra 18 months while we try to negotiate a trade deal. It is a transition period—there is a definite end.

What I have a problem with is the backstop. We have to be clear that we have to be pragmatic; we are where we are. After 40 to 45 years of integration, one is not going to leap from imperfection to perfection in one bound—it will take a series of steps, so we have to be pragmatic. As a keen Brexiteer, I am prepared to swallow the transition period, because one hopes we will negotiate a free trade deal of some sort that will be mutually beneficial, and this is a transition period, with a definite end. I can stomach that, but what I find more difficult to stomach is a backstop in which we could be permanently entrapped, in suspended animation, being able to leave only at the behest of the EU. That is like entering a contract of employment that gives only the employer the right to terminate the contract. Nobody would enter that with their eyes wide open—it is completely wrong. During that period of suspended animation, we would not be able to form trade deals, and the precious Union with Northern Ireland would be affected. Having served in the Province in the 1980s, I, too, have seen people die for that Union. That precious Union would be put at risk. Meanwhile we would be an EU taker.

We should take it with a pinch of salt when the Government say, “Ah, but it would be uncomfortable for the EU and therefore it would not be permanent.” Not only would it be uncomfortable for us as well, but the EU has a long track record of cutting its nose off to spite its face in order to achieve political objectives. So I do not buy the argument that we would automatically find ourselves out of the backstop because the EU would find it uncomfortable. Situations such as this make the alternatives more attractive.

In summary, my amendment would give the UK a unilateral right to exit the backstop. It does reflect reality and I hope that the Government will go a long way towards giving this issue of unilaterally getting out of the backstop serious consideration.