Financial Services (Implementation of Legislation) Bill [Lords]

John Baron Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 11th February 2019 Commons Chamber

[The Economic Secretary to the Treasury (John Glen)]

I thank all Members for their contributions to the debate. As my right hon. Friend the Financial Secretary to the Treasury set out earlier, the Government do not want a no-deal scenario, but our job as a responsible Government is to prepare for all possible outcomes, including reaching 29 March without a deal. The Bill forms an important part of those preparations. In a no-deal scenario, it would ensure that we could maintain the UK’s reputation as a global leader and that the competitiveness of our financial services industry would be maintained. The UK has in many cases played a leading role in shaping these proposals over a number of years, and they will bring benefits to UK consumers and businesses once they have been implemented. I want to talk about the four or five themes that have been raised in the debate, after which I will address the points made by the hon. Member for Wakefield (Mary Creagh).

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

I refer the House to my entry in the Register of Members’ Financial Interests. The Economic Secretary to the Treasury will be aware of our exchanges in Committee regarding EU regulations as they relate to key information documents and how KIDs are adversely affecting the assessment of investment trusts. The trade bodies oppose them, including the Association of Investment Companies, which has suggested that the investors’ response to them should be to “Burn before reading”. Can the Minister report back on his deliberations with the Financial Conduct Authority, which has been rather slow out of the blocks? Ultimately, it is the Government’s responsibility to get this right.

[John Glen]

I am happy to respond to my hon. Friend’s intervention. I acknowledge his expertise in this area and his excellent article in the Investors Chronicle this week. I would point out that, just last summer, the FCA issued a call for input and sought industry views on the next steps for packaged retail investment and insurance products—PRIIPs. That consultation closed on 28 September and the FCA is reviewing the responses carefully. It will publish a statement in the first quarter of this year. When I next see the chief executive of the FCA, I will challenge him on that publication date.

Let me turn to the substantive thrust of the concerns raised in the debate. The first relates to the desirability of no deal. As I have said, we do not want a no-deal scenario, but we need to be responsible and to plan for all eventualities. Our priority remains getting approval for the deal that we have negotiated with our European partners, which will deliver on the democratic choice of the British people.

Turning to the other preparations, we have now laid 50 statutory instruments before Parliament. The allegation from the hon. Members for Oxford East (Anneliese Dodds) and for Stalybridge and Hyde (Jonathan Reynolds) was that there had been no coherence to the Government’s work, but as the hon. Lady will know, we will have had 53 statutory instruments. We have more debates tomorrow and on Wednesday, and I think several more next week. We are addressing the deficiencies in all the major EU files and the relevant domestic legislation. This will ensure that we have a functioning financial services regime at the point where we leave the EU in a no-deal scenario. Our aim throughout this work has been consistently to minimise disruption for firms and their customers and to provide a smooth transition when we leave the EU.

The hon. Member for Glasgow Central (Alison Thewliss) made a point about the breadth of the power in this legislation. We have worked hard to ensure that this is a clearly defined power and that changes cannot be made such that the implemented files depart in a major way from the original legislation. However, the Government will retain some flexibility to make adjustments to take account of the UK’s new position outside the European Union. The amendments proposed by the Government require the Treasury to publish draft SIs at least one month in advance of laying, as well as a report detailing where there have been omissions and changes and giving the justification for those changes. We believe that the report will allow parliamentarians to scrutinise the changes before the SIs are laid. If the UK were forced to take on EU legislation either in whole or not at all, it is likely that we would be able to domesticate very few of these files in good time, so even the positive aspects of the reforms would be delayed. This is a pragmatic measure to deal with the reality of a very undesirable situation, and our approach has been endorsed by the industry, with which we have engaged in the preparation of the Bill.

Draft Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018 Draft Venture Capital Funds (Amendment) (EU Exit) Regulations 2018 Draft Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018

John Baron Excerpts

Wednesday 9th January 2019 General Committees

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

May I first thank the Minister for his opening comments, and say what a pleasure it is to speak under your chairmanship, Mr Sharma?

As the Committee discusses how we can ensure that those financial standards presently governed by the EU are transferred to our own regulatory bodies in good order, and that any deficiencies are made good, I would like to continue to develop the conversation we have started with the Minister regarding a real concern in the financial services industry about some present EU regulations that, if transferred wholesale, would continue to cause major concerns, particularly to investment trust investors. I double-checked that with the Minister’s authorities before the Committee sitting. I understand that investment trusts are caught by these regulations because they are deemed to be investment companies.

Let me start by briefly highlighting for Members my interests in the issue. I specialise in investment trusts, courtesy of my City days when I managed a lot of money for charities at Henderson’s and at Rothschild Asset Management. I wrote the Financial Times guidebook to investment trusts and my business specialises in investment trusts—I refer Members to my entry in the Register of Members’ Financial Interests.

The Minister will be more than aware that the EU’s core retail financial services regulations—known as package retail investment products, or PRIPs—have at their heart a key information document, which is supposed to be produced for every single investment trust and unit trust from 2020, in order to help investors better understand what they are buying.

Let me describe as clearly and succinctly as I can what an investment trust is. An investment trust is like any other public company, such as Marks & Spencer or Shell, but instead of managing clothes or oil, it specialises in financial products or investments. Investors have a wide range of investment trusts to choose from—more than 400—covering all areas of the investable world, if that is not a contradiction in terms, ranging from the UK market to very esoteric markets overseas, and specialist sectors within those markets. They are very old and some of them are quite large—one or two are now FTSE 100 companies, Scottish Mortgage being the prime example. They are becoming increasingly popular in the favour of private investors, who are increasingly recognising their ability to outperform benchmarks and outperform their open-ended cousins, unit trusts, over the long term.

The EU regulations we are looking to embody within UK law may have a good intention but the problem is the execution. Many in the industry believe that these key information documents are grossly misleading on the assessment and comparison of risk, grossly misleading on the projection of future returns, and certainly misleading on the comparison with similarly mandated sister funds within the unit trust industry. I suggest to the Minister that that could make for a perfect storm if no corrective action is taken. No wonder all three of the major trade organisations that oversee this particular area—the Investment Association, the Association of Investment Companies and the Personal Investment Management and Financial Advice Association—believe that these regulations should be scrapped or reworked. I am pleased to see that the FCA has instigated a call for evidence but I will later have questions for the Minister about that call for evidence and the follow-through.

Perhaps one needs to make the simple point that investment trusts, although they have a superior long-term track record, are actually riskier because they are more volatile than their open-ended cousins, unit trusts. When an investor puts money into a unit trust, that adds to the pot. When an investor takes money out, that detracts from the money that is managed in the pot. There is a direct relationship between the net asset value of the fund and the share price.

An investment trust is closed-ended. In other words, when one buys an investment trust, as when one buys Marks & Spencer or indeed Shell, one is not adding to their portfolio, but buying shares in the market. There is a disconnect between the net asset value and the share price. Therefore, that makes for volatility by the share price, which is why investment trusts are considered riskier than unit trusts over the short term, but actually they perform better over the long term. That is in part because as a company they can gear—as can all companies, such as Shell and Marks & Spencer—but also because they can take the long view, because they are not having to worry about redemptions and money coming in and out.

The Minister will be pleased to hear that I do not want to rehearse the arguments that we went through when we last discussed this issue, but I remind him that the key information documents—KIDs—being produced by the EU about investment trusts and a similar document that will have to be produced for unit trusts from 2020, are misleading. They are misleading on three counts. They are misleading on the assessment and comparison of risk. They are actually suggesting that investment trusts are less risky than unit trusts, which is clearly not the case. It is generally accepted in the industry that investment trusts are riskier because they are more volatile in the short term, but long-term investors can accept that volatility because they are hoping for better longer term returns, which, on average, investment trusts deliver. If one were just to believe the KIDs coming across from the EU, that logic is turned on its head. They say that unit trusts are riskier, which is simply not the case.

The documents also overstate expected returns because they extrapolate recent returns. KIDs produced in a bull market will suggest higher returns, whereas in a bear market they will suggest lower returns. We all know that past returns should be no guide when investing for the future. In a recent Association of Investment Companies report, 42 KIDs forecast 20%-plus returns per annum in a moderate performance bracket for investment trusts. Anybody who works in investment trusts or in the investment industry generally will understand that to achieve 20% per annum takes quite a bit of doing, and that you have to take on quite a bit of risk. Because of the way the KIDs are formulated, that is treated almost as the norm.

I suggest to the Minister again that if we are not careful and do not address that point, we will encourage the kind of investment behaviour that we should really be doing our best to avoid, which is buying high and selling low, because we simply extrapolated recent returns. That is the complete opposite of what people should do in the investment world. Extrapolating recent returns misleads investors, so there again the KIDs are no help.

I could go on about sister funds, but I am conscious that time is short and I do not think that this is going to be contentious delegated legislation, so I do not want to add to the Committee’s time. I remind the Minister of the importance of this issue. When we last discussed it on 10 October, we went into more detail—that was in a Delegated Legislation Committee and the shadow Minister, the hon. Member for Oxford East, was there as well. After that debate, the Minister kindly responded in a letter and, quite reasonably, made the point that the FCA is in the process of reviewing this scenario. He accepted that there were problems with the KIDs and that the FCA was looking into it. There had been a call for input, which closed on 28 September. The FCA is now reviewing responses, and the Minister suggested that he expects the FCA to publish its feedback statement this quarter.

That is well and good, but may I press the Minister on a couple of points? First, there is a role for Government in this situation. I accept that the FCA is the overarching regulatory body in this regard, but the Government, given that they are rightly making provision for the repatriation of EU powers in this field of finance, have a certain responsibility to ensure that the regulatory bodies are actually performing as they should. I gently suggest to the Minister that the FCA has been slow off the mark on the issue. All the regulatory bodies I quoted earlier suggest that that is the case. It is playing catch-up, and the problem with that is that it can make for hasty decisions and it can mean that the buffer of the timetable is hit more quickly than expected.

I ask the Minister to ensure that the FCA has liaised with the major trade organisations. Until fairly recently there has not been the sort of communication that one would have expected, or certainly anticipated, and that I hope he would have expected, given the delicacy and intricacy of what we are discussing. I ask him to try to ensure that the FCA is doing that and to get his officials to double-check that it is happening.

I also ask the Minister to look at the issue with a greater sense of urgency, if only because we will be leaving on 29 March. It is very likely that the regulations that we are putting in place will take effect, and if they take effect in their present form, they will be deficient. It is as simple as that. The FCA has clearly made that case, because otherwise it would not be calling for evidence. People have been beating the path to its door for quite a while now and it has finally decided to do something about it. I ask him to make sure that it is regarded by his Department as a matter of urgency.

We have a situation in which key information documents, produced under an EU regulation, are telling untruths when it comes to investing in investment trusts. They suggest that investment trusts are less risky than unit trusts. They extrapolate returns that are unrealistic and that one would have to take on quite a bit of additional risk to achieve. That in turn can lead to the sort of investment behaviour that we all think is bad, which is buying high and selling low.

I will not get into the complex issue of sister funds and so forth, but even there, when the key information documents compare investment trusts with unit trust sister funds, there are errors. That is an important point. People’s financial futures are—I will not say dependent—certainly influenced by those sorts of issues. As a society, we are rightly saying that people should take greater responsibility for their financial futures, but if they cannot rely on the accuracy of the information supplied by Government, under Government regulation, the Government need to look at that carefully and regard the matter with the sense of urgency I have suggested.

I will stop there. I look forward to the Minister’s response. As before, given that we have moved the discussion on, I do not expect a detailed response now—that would be unfair—but I expect some sort of response in writing, because the subject will not go away, particularly as the deadline approaches and as private investors are still not being well served.

--- Later in debate ---

[John Glen]

I thank my hon. Friend the Member for Basildon and Billericay and the hon. Members for Oxford East and for Glasgow Central for their exhaustive scrutiny of what I said and some of the issues. I put on the record my great respect for the assiduous way in which Opposition Front Benchers have conducted themselves during this process; I concede that it has not been optimal, in terms of the level of engagement and impact assessments. I will now try to faithfully respond to all the points; when I cannot, I shall write to the relevant Members.

Before I come to the issue of the level of engagement and impact assessments, I will address the point that the hon. Member for Oxford East raised. There were long discussions during the passage of the EU withdrawal Act, but that legislation does not give the Treasury the ability to make major changes to policy or legal frameworks beyond those appropriate to ensure basic continuity. We are acting within the spirit of that and doing so as professionally as we can, with as much work to consult and engage with the industry as possible.

We have not conducted a formal consultation on these SIs, but we have engaged closely with industry to ensure that there is a functioning legal framework in a no-deal scenario. That hints at the points raised, which I will come on to more substantively in a moment, about the fact that there are contested spaces in this area and that, in a no-deal scenario, there would be a significant imperative for a bigger corpus of legislation to set the industry fair in this country. Obviously, though, we anticipate and hope—well, not hope, but believe—that we will secure that deal.

The engagement has involved talking to asset management trade associations, representative bodies such as the Investment Association and wider financial services bodies such as TheCityUK, to get technical input to inform our work. That is across the United Kingdom as a whole. I chair the asset management taskforce and I had three or four meetings through 2018 where many of those concerns were also taken forward. I draw attention to the words of Chris Cummings, the chief executive of the Investment Association, who said on 7 December last year:

“In a possible no deal Brexit, HM Treasury’s commitment to remain open to international funds ensures that the UK will remain a world leading asset management centre and that UK savers will continue to have access to a full range of investment opportunities.”

We have worked to satisfy him, and other stakeholders like him, through this process.

I turn specifically to the issue of the impact assessment. The challenge in some areas has been that multiple statutory instruments will apply. We have grouped them together and taken them to the Regulatory Policy Committee to be looked at in the round, so it can then provide a more meaningful assessment of the impact.

I recognise that, as the hon. Member for Glasgow Central said, it is sub-optimal not to have it at this point, but the impact assessment that covers the SIs being debated today has been prepared and is going through the normal clearance and scrutiny procedures. We hope to have it published shortly. It will then cover the balance of those statutory instruments that we will be debating subsequently in these Committees over the next eight weeks, so I hope I will not need to make this apology again.

I emphasise that the point of this legislation is to minimise disruption to firms and their customers and maintain continuity of service provision as a whole. As such, these SIs will significantly reduce costs to business in a no-deal scenario, as without them the legislation would be defective. That is the principle on which we are doing this: we are doing it because the industry wants us to deliver it.

On the point made by the hon. Member for Oxford East about the temporary marketing permissions and the volume of notifications to the market, earlier in the year the FCA launched an online survey for EEA inbound passporting firms and funds, to help inform its preparations and identify firms for which a temporary permission may be relevant. In 2018 there were around 2,060 EEA alternative investment funds that had been notified via a passport to market into the UK. It is not expected that those firms will enter into the temporary marketing permissions regime.

The hon. Lady asked about the specific requirements on depositories. Authorised UK AIFs will be required to have a UK depository as a result of amendments to be made in a related collective investment schemes SI. Transitional arrangements are included in that SI to ensure that firms have sufficient time to make preparations, and unauthorised AIFs will be allowed to have an EEA depository.

The hon. Lady went on to ask about something that has often been raised: the cost to the sector. Again, we will need to see the overall cost, based on that impact assessment. UK investors will maintain their rights to funds in which they are already investing, and will continue to have access to funds currently marketed under a passport and enter the temporary marketing permissions regime. The main cost to firms that we have identified are familiarisation costs of the new legislation and transition costs, because of changes in legal definitions and reporting requirements for firms using the temporary marketing permissions regime. In due course, I think that will be seen to be a very modest sum.

Both Front-Bench spokesmen referred to the FCA resourcing. I will seek to provide more clarity on that. I managed to get the number of full-time equivalents, but I knew that if I gave some information, more would be requested, so I will seek that out. In its business plan it is funded by a levy and it would be able to move quickly, should it need additional resources.

With regard to UK fund managers passporting into the EEA, the Government are only able to take legislative action in relation to EEA fund managers who passport into the UK; we cannot determine the outcome the other way around. However, again, for the comfort of the Committee, I draw attention to the statement made by the chair of the European Securities and Markets Authority on 3 October 2018, in which he said:

“In the case of a no deal Brexit, NCAs and ESMA should have in place with our UK counterparts the type of MOUs that we have with a large number of third country regulators…ESMA has co-ordinated the preparations for such MOUs together with the EU27 NCAs.”

That is also supplemented by the remarks of Andrew Bailey of the FCA to the Treasury Committee last December, when he estimated that the cost of EU withdrawal for the FCA has been less than initially expected, thanks in part to the temporary permission regimes that the Government have enacted, and which the alternative investment fund managers SI and a number of others have set up.

[Mr Baron]

I take on board that the Minister has just quoted ESMA and all the rest of it. The trouble is that investment trusts are not well understood within the EU. It is all right for them to say, “We are happy with things,” but if they are inherently deficient, we have to step up to the plate.

[John Glen]

Let me just finish with the points made by the hon. Member for Oxford East and then I will come to my hon. Friend’s points.

On the point about regulations on UCITS, I think the hon. Member for Oxford East was asking whether removing the AIF-related reporting requirements for the EEA UCITS, despite their being defined as alternative investment funds, will reduce transparency, in essence. It will not. This instrument carves out reporting requirements on alternative investment funds for funds that obtain recognised status from the FCA, to be sold as UK retail investments. As a result of that recognition process, the FCA will already receive all the information necessary for the effective supervision of the funds.

I want to come to the points made by my hon. Friend the Member for Basildon and Billericay. He kindly offered me the device of writing to him by letter, but in essence he set out a series of concerns, which he raised previously in a similar Committee in October, about the distinctions between the investment trust and the unit trust, and the application of key information documents and how they can be misleading. He drew my attention again to the concerns of the different industry bodies. For the edification of the Committee, I wrote to him, as he pointed out on 26 October. In Q1 2019, the FCA will publish its feedback.

My hon. Friend’s point about the obligation of the Government versus the regulator is very fair. I will reflect on his comments and have a regular dialogue. I met the chairman of the FCA this week. I have regular conversations and meetings with the chief executive, and I will make those points to him. That has to be set within the context that I am not licensed by this process to innovate, although I recognise that we must also accept that over the last 10 years we have reached a level of authority and reputation, when it comes to regulatory breadth and depth of oversight, that is commonly welcomed.

My hon. Friend has quite reasonably drawn attention to the lack of familiarity in the EU framework with some of the instruments in some jurisdictions outside the UK, which means that the appropriateness of those conclusions has sometimes been contested. I very much understand the issue.

[John Glen]

I respect the deep—deeper than my own—personal experience of both hon. Members who have spoken about that matter. In terms of the previous engagement of the British Government through their representations as the documents were constructed, I cannot account for that now, but I am happy to write to the hon. Lady about it.

The point that my hon. Friend the Member for Basildon and Billericay is making is that, in the future, when we leave the EU, we will have to take account of the combination of responsibilities to broadly align with common expectations in like-minded investment communities and to attend to real challenges that lead to perverse investment decisions and outcomes for investors, which my hon. Friend is very familiar with.

I hope that has covered the points raised. If there are other points that I have not answered, I will be happy to write to hon. Members.

[Mr Baron]

May I remind the Minister of the sense of urgency that is required? It is not just that the date of the 29th is looming, but that the FCA, if one were being charitable, has been slow out of the traps—that is not just my opinion, but that of a number of trade bodies—and appears somewhat slow in coming to review the whole situation. Pressure from the Government would help.

[John Glen]

I accept that. In the context of Q1 of this year, with respect to no-deal preparations, the Financial Services (Implementation of Legislation) Bill on in-flight files is going through the other place at the moment to put in place a mechanism to have discretion to onshore, or not, files that are live. They have to be the priority at the moment, but the point is well made and I have heard it. I will make representations.

I hope I have demonstrated that the regulations are needed to ensure that alternative investment funds continue to operate effectively in the UK if the UK leaves the EU without a deal or an implementation period. I hope that the Committee has found the debate informative and will now be able to support the regulations.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018.

draft Venture Capital Funds (Amendment) (EU Exit) Regulations 2018

Resolved,

That the Committee has considered the draft Venture Capital Funds (Amendment) (EU Exit) Regulations 2018.—(John Glen.)

draft Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018

Resolved,

That the Committee has considered the draft Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018.—(John Glen.)

Finance (No. 3) Bill

John Baron Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 8th January 2019 Commons Chamber

[Jonathan Reynolds]

This group of amendments relates to the tax and fiscal implications of the UK’s withdrawal from the EU.

Throughout the last year Parliament has been asked to approve a series of Bills giving the Government the power to deliver every type of Brexit deal conceivable, and this Finance Bill is no different. I said when closing the Second Reading debate on the Bill for the Opposition that this approach was one of “give us the powers now and we will make the decisions later,” and as it currently stands Brexit represents the biggest transfer of power to the Executive in modern constitutional history. That is disappointing for anyone who thought Brexit would see greater powers for this Parliament, but it is also a recipe for very bad decisions, and there is a classic culprit in this Finance Bill in the form of clause 89. Innocently named “Minor amendments in consequence of EU withdrawal”, it gives the Government power to amend tax legislation without any of the usual due process in the event that the UK leaves the EU without a deal.

The Government always tell us—I am sure they will do so again—that this is simply a safeguarding provision that we will never have to use, but all of us here today know that as it stands the Government have absolutely no chance of getting their deal through, because that deal does not deliver the basics of what this country needs. It does not deliver smooth, low-friction borders for manufacturing and supply chains, nor does it deliver market access for financial services. It also fails to resolve the big question: after we leave the EU, will we prioritise market access or trade autonomy? Because of that, we will almost certainly end up in the backstop arrangements, a halfway house without any say for the UK—the very worst of all worlds.

The new clauses and amendments are therefore of seminal importance, and I am extremely grateful to the Chair of the Home Affairs Committee, my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), for laying amendment 7 before the House today. It is clearly a cross-party amendment, supported by the Chairs of the Treasury, Exiting the European Union and Business, Energy and Industrial Strategy Committees, but it has the Opposition’s support because it offers Parliament a chance to make a clear statement rejecting a no-deal outcome—a statement that cannot come soon enough.

Anyone pretending that crashing out without a deal is simply about resorting to World Trade Organisation schedules is dangerously misinformed. As The Economist magazine said last month:

“A no-deal Brexit is about a lot more than trade—it would see many legal obligations and definitions lapse immediately, potentially putting at risk air travel, electricity interconnections and a raft of financial services”.

It would mean tariffs on trade with the EU, but it would also affect trade beyond the EU as all our current trade agreements negotiated as an EU member would immediately cease to apply. Agriculture, aerospace, the automotive sector—all these major sectors of our economy—would face potentially irreparable damage, and while tariffs may be reduced over time, excise duties and health checks on food, plants and livestock cannot be reduced so easily. Researchers at Imperial College London have calculated that just two minutes more transit time per lorry at Dover and the Channel tunnel translates into a 47 km traffic jam, and for perishable items like food, delays of that magnitude simply could not be sustained. When we add to that higher prices through tariffs and further inflationary pressure from another inevitable fall in the value of the pound, it is a recipe for significant pressure on living standards. That is why the Opposition say that no deal is not a real option.

There has been some suggestion that the Government might accept amendment 7.

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

Does the hon. Gentleman not acknowledge that by ruling out preparations for no deal one is in effect tying the hands of one’s negotiating team, which in effect makes a trade deal—which we all, I think, would prefer to leaving on WTO terms—more difficult to achieve and therefore makes leaving on WTO terms more likely?

[Jonathan Reynolds]

The facts are as they are. It is far too late for that. Everyone knows the position that this country is in. The Government have run down the clock. They lost their majority through a general election that they did not need to call, and it is far too late to start applying the logic that might have applied several years ago. Because of that, our vulnerability is evident for everyone to see. No one should underestimate the likelihood of a no-deal outcome at this stage. No one should be pretending, through semantics or parliamentary chicanery, that we might be able to present no deal as a way of giving us greater leverage in negotiations. I am afraid that the Government have got us to the point of ruin if that is the strategy that Conservative Members wish to pursue.

--- Later in debate ---

It is clear that Brexit can happen without this country, or this Government, having to undermine our economy, our constitution and our values as a country. Those who have signed amendment 7 represent different parties. We have different views on Brexit and the way forward. We have different views on the 2016 referendum and how we voted in it, but it is right that parliamentarians from all parts of the House should rule out the most damaging option that could happen on 29 March.

[Mr Baron]

My right hon. Friend is very gracious in giving way. Does she accept that the UK trades profitably with the majority of the world’s GDP on World Trade Organisation terms? Therefore, this is not the cliff edge or crashing out that many people paint.

[Nicky Morgan]

I have great respect for my hon. Friend, but I think that it would have been better to have had this debate in 2016 rather in 2019, because the honest truth is that the Brexit that some Members on these Benches and some people out in the country say that they want was not outlined in any way, shape or form in the 2016 referendum. I refer to one Member, who said at the time, “Only a madman would leave the single market.” Yet now, that is exactly what he is proposing should happen.

I do not agree with my hon. Friend the Member for Basildon and Billericay (Mr Baron) about the advantages of WTO, and I will tell him why: if it was so good, Members who are backing the WTO option—a no-deal option—would not be so keen to get into negotiating free trade agreements so quickly with countries around the world. I do not know whether it was my hon. Friend, but one Member just now talked about trading with America and China, yet free trade agreements with America and China are touted all the time by those in favour of Brexit as agreements that need to be negotiated as quickly as possible.

The honest truth is that to make trade work around the world, all countries will seek to enter into agreements with countries they want to trade with in order to lift or to lower tariffs and non-tariff barriers. That is what we have done, very successfully, in our relationship with the European Union since we joined over 40 years ago.

[Mr Baron]

May I intervene?

[Nicky Morgan]

Very briefly.

[Mr Baron]

My right hon. Friend is being very gracious and I very much appreciate that.

Many of us in this place—I would like to think the majority of us—would prefer a good trade deal to WTO. That is not inconsistent, but I think what my right hon. Friend misses is that on a bad deal versus WTO we have got to get the balance right, because the EU has had such a bad track record on negotiating trade deals. We trade with the rest of the world on WTO terms very profitably and very successfully, even though many of us would prefer a good trade deal.

[Nicky Morgan]

Trade deals are immensely complicated. While Members know how I voted in 2016, I accept that this country will be leaving the European Union on 29 March—with regret, I have to say, but I do accept it—but one of the debates that we have not even started to have is how the House is going to approach the approval of trade deals. I can tell my hon. Friend that this is a real worry to those who are going to be negotiating those agreements. We saw with the Transatlantic Trade and Investment Partnership just how politically contentious that agreement was, even though it did not even reach the House as an agreement. We are going to spend the next few decades in the House negotiating and approving trade deals, which everybody, for various constituency reasons, will have problems with.

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[Yvette Cooper]

My hon. Friend is exactly right. This is about dealing with risk, delays and increased costs. There is the risk that border delays will hit tight cross-border supply chains, but the CBI also estimates that the impact of WTO tariffs will mean a £4 billion to £6 billion increase in costs on our exports. The Environment Secretary—the leave campaigner himself—has said that WTO tariffs on beef and sheepmeat will increase by over 40%.

[Mr Baron]

The right hon. Lady is being very generous in giving way, but may I encourage her to temper her dire warnings about WTO terms? There were many forecasts and predictions from business organisations, the Bank of England and the International Monetary Fund about the disastrous consequences if we voted to leave the EU in 2016, including predictions of 500,000 extra unemployed by Christmas 2016. Those predictions did not materialise because investment is about comparative advantage such as low taxes and more flexible labour market practices. That is what determines investment at the end of the day.

[Yvette Cooper]

I am not drawing on macroeconomic predictions about the overall impact on the economy, although I note that there are predictions of a 9% reduction compared with the level at which we might otherwise be. I am actually focusing on the microeconomic impact on individual businesses across the country of simply seeing those costs go up. That is a real impact of the tariffs. It is not about confidence, levels of investment and so on; it is about the real impact of those costs on consumers, manufacturers, exporters and importers that is the real consequence of WTO tariffs.

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.

Draft Financial Regulators' Powers (Technical Standards Etc.) (Amendment Etc.) (EU Exit) Regulations 2018

John Baron Excerpts

Wednesday 10th October 2018 General Committees

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

I thank the Minister for his opening comments, and it is a pleasure to be speaking in this debate under your chairmanship, Sir David. As the Committee is discussing how we can ensure that those financial standards presently governed by EU law are transferred to our own regulatory bodies in good order and that any deficiencies are made good—it could become a very real issue if we do indeed leave without a deal in five months’ time—I would like to highlight for the Minister and the Committee a real concern in the financial services industry about some present EU regulations that, if transferred wholesale, would continue to cause major concerns, particularly to investment trust investors.

Let me start by highlighting for Members my interests in this issue, which include my business interests. I have also written a Financial Times book relating to investment trusts, and I direct Members to my entry in the Register of Members’ Financial Interests. I believe there may even be people on my side of the Committee, if nowhere else, who have bought the book—in which case, my apologies.

The EU’s core retail financial services regulations—known as packaged retail investment products, or PRIPs—have at their heart a key information document, which is supposed to be produced for every single investment trust and unit trust, and from 2020, in order to help investors better understand what they are buying. The intention is good, but the problem is the execution. Many in the industry believe that these key information documents—or KIDs—are grossly misleading on the assessment and comparison of risk, grossly misleading on the projection of future returns and certainly misleading on the comparison with similarly mandated sister funds within the unit trust sector. I suggest to the Minister that all this makes for a perfect storm from which investors might seek redress in numbers if no corrective action is taken soon. No wonder that all three of our major trade organisations—the Investment Association, the Association of Investment Companies and the Personal Investment Management & Financial Advice Association—believe that the regulations should be scrapped or reworked. Even the FCA has instigated a call for evidence, believing that something is wrong here.

Let me give some examples, and perhaps to help Members, I should describe very briefly what an investment trust is. They are unique to this country. They are quite old—the oldest form of collective investment—and quite difficult to ignore as an industry. The Scottish Mortgage Investment Trust for example is a FTSE 100 company. An investment trust is a closed-ended company with a limited number of shares, like Marks & Spencer, GlaxoSmithKline or BP, but instead of managing clothes, pharmaceuticals or oil, it manages investments of different types and with different briefs.

The unit trust, which is the investment trust’s better-known cousin, is another form of collective investment and is open-ended. Investors put money in, which adds to the pot; it is not closed-ended. It is generally recognised that while investment trusts have a better long-term track record—as closed-ended companies, they can gear and they have discounts because their share price will sometimes be at variance with their net asset value—they can be more volatile in the short term because of the very same factors that make for good investment: their gearing and movement in discounts, when compared to unit trusts. I ask hon. Members to bear that in mind as we go through the regulations.

When it comes to the issue of assessment and comparison of risk between investment trusts and unit trusts, the documents required and produced under EU regulations are grossly misleading. The documents have similar titles, and I do not want to get too technical here, but the investment trust sector is governed by key information documents, or KIDs, whereas the unit trust sector, from 2020, will be governed by documents called key investor information documents, or KIIDS, which are being produced now in preparation for 2020. They have similar titles, but very different methodologies for assessing risk. When measuring risk on equities between investment trusts and unit trusts, the risk-reward indicator average puts unit trusts at 5.1 and investment trusts at 4—there are seven bands; the higher the band, the riskier the investment. In other words, it assesses investment trusts as less risky than unit trusts, which is simply not the case. It is generally accepted across the industry that investment trusts are actually riskier because they are more volatile, although they produce superior returns over the longer term. Yet here we have an example in which an EU-inspired KID is actually saying completely the reverse. Investors could be misled into believing that investment trusts are less risky than unit trusts and there could be repercussions because that is simply not the case.

The documents also overstate expected returns. The problem is that the documents extrapolate recent returns. In a bull market, KIDs will suggest higher returns, while in a bear market, they will suggest lower returns. We all know that past returns should be no guide when investing. The 42 KIDs forecast 20%-plus returns per annum in a moderate performance bracket for investment trusts. In any normal existence, 20% cannot be achieved without taking on a significant degree of risk. Anyone who knows the financial services industry, as I do, having worked in the City for 15 years as a director at both Henderson and Rothschild & Co, where I invested money on behalf of individuals and charities—apologies, Sir David; I should perhaps have mentioned that—knows that it is necessary to take on extra risk to earn 20%. If we are not careful and do not address that point, we will encourage the kind of investment behaviour that we should really be doing our best to avoid—buying high and selling low. That is the complete opposite of what people should do in the investment world. Extrapolating recent returns misleads the investor, so KIDs again are of no help.

Finally—I am conscious that time is short for everyone—those documents are misleading for another reason. KIDs are produced for investment trusts, and their equivalent is produced for unit trusts. There is such a thing as sister funds, where an investment trust manager also runs money in a unit trust—the same manager, with a similar brief and remit, and a similar portfolio. There is often a large overlap between the portfolios held by a unit trust and an investment trust. I mentioned that investment trusts, because of their gearing and discounts, are higher risk, but Association of Investment Companies research compared 56 investment trust KIDs with those of their unit trust sister funds, and none of the 56 had a higher risk indicator. That is misleading. In fact, the vast majority—53—had a lower risk indicator. Again, that is completely misleading.

I take issue with the shadow Minister’s swipe at a no-deal Brexit. The industry and many businesses actually say that no deal would not be the Armageddon she suggests. We trade with the majority of the rest of the world on no-deal terms. We have no trade deals with China, India, Brazil or America, because the EU has been very poor at negotiating trade deals. In essence, we trade on World Trade Organisation terms with those countries.

The shadow Minister asked for a specific example of who would be smiling if we left the EU and were able to take control in the event of no deal. I suggest to her, and more importantly—in the nicest possible way—to the Minister, that this is a concrete example of what our financial regulators need to grip when power returns to this country. At the moment, we have a completely misleading EU directive, in part because other EU countries do not understand investment trusts, because they do not exist there. They are almost uniquely UK investments, which have done very well over the years.

I ask the Government, well before March 2019, which is not far away at all, as part of the preparations for no deal, to prepare the ground to either scrap or rework that EU legislation. It is still possible that, at the end of March, that legislation, about which the whole industry is up in arms, will suddenly be incorporated into UK law and given to bodies such as the FCA to oversee. Meanwhile, thinking about the audience outside this place, I suggest that the FCA needs to raise its game. True, it has asked for evidence, but the writing has been on the wall for a long time. It should warn investors not to rely on the information in KIDs, because it is misleading. The time to act is now, before too many investors get hurt. I leave that thought for the Minister to consider.

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[Mr Jones]

He did try, to be fair to him; he is not a bad Minister. This puts a spotlight on a cost of Brexit that is not being factored in. Those 800 SIs will all have a cost to them. It would be interesting if the Minister supplied information about not just the number of SIs relating to this regulation, but the estimated cost of each of them, including the cost of preparations by the Department. That will be a huge cost across Government.

My hon. Friend the Member for Oxford East and the hon. Member for Glasgow Central made a good point about the capacity of the Bank of England, PRA and FCA to implement this and take over this responsibility. I have sat on many Committees since I have been in Parliament, and I do read the explanatory notes, even when the subject is boring or dry, as this may be. Uniquely for an explanatory note on a piece of legislation, no costs are included in this one. It will be interesting to see if all the SIs we get have explanatory notes in which no costs are included, as though this were a zero-cost game.

There is not just the question of what the SI will cost; there are other costs. Clearly, the tasks being taken on by the Bank of England, the PRA and the FCA will involve cost. If we are to do justice to the transparency of the Brexit process and those claiming great wins for the taxpayer out of it, the full extent of those costs needs to be known. It is unfair on those organisations to be given extra responsibilities but no cash to go with them, unlike other parts of Whitehall, where hundreds of millions are being spent employing new civil servants. This is a hidden cost of Brexit. This is one piece of legislation; how many times will it be duplicated across Government? I suggest many, many times, adding up to millions and millions of taxpayers’ pounds.

The explanatory notes state that no consultation was done, although the statutory instrument was published in draft in April. The notes say:

“The financial services regulators plan to undertake public consultation on any changes they propose to make to Binding Technical Standards or rules made under the powers conferred upon them by the Financial Services and Markets Act 2000 using the powers delegated to them”.

The important point there is about who will decide. Will there be ministerial or parliamentary oversight of what is in the consultation? Who draws it up? Is that left to the regulators to do? There will obviously be controversy on the issue that the hon. Member for Basildon and Billericay raised, and people will complain about it. Again, how will that be dealt with? Will Parliament or a Minister have any say over the regulators and how they conduct the consultation? It is said that the devil is always in the detail, and that was clearly demonstrated by the hon. Gentleman.

There may well be unintended consequences to taking on some of these regulations. There may well be better ways of doing things—I do not disagree with that—but where will the political pressure to get the authorities to change the regulations come from, if there is simply a general consultation? For example, someone has already decided that the regulation the hon. Gentleman referred to does not need looking at, but Parliament does need to look at it. Ministerial oversight is needed—not just of the draft regulations, but in a whole load of areas. Basically, we are delegating our responsibility to determine what should and should not be looked at to statutory bodies. In many cases, we might have a very different view from regulators.

We are all told that the draft regulations are being put in place for the nightmare scenario in which we do not get any deal in the negotiations that are taking place. I am interested in what happens to the SI if we do get a deal. Can the Minister explain—he may not be party to this—where this small piece of possible legislation is in the great negotiations? What happens if we get a deal? Does the SI fall?

As for regulators taking over these responsibilities, what will happen in future? Let us suppose we get no deal, the draft regulations go through and we try to transpose everything into UK legislation—this point was made eloquently by the hon. Member for Glasgow Central. What happens if our regulations get out of kilter with the EU regulations? Clearly, the sector is not based on a single company; We are talking about global business—money moving around the world—that does not recognise boundaries. What is the mechanism to ensure that if there are changes in EU regulations, we reflect them, or take them on board directly? Again, will that be left to the regulators? Will they decide which option we take, or will the decision come back to Parliament?

If such decisions are to come back to Parliament, we will be very busy in a whole host of areas for years to come. Basically, when EU regulations in this or any other area change, how do we ensure that we are not at a competitive disadvantage, or that the regulations for institutions based both in the EU and here do not somehow clash? This is not easy. It demonstrates one of the problems with what someone—I cannot remember who—on the leave side said: they said that that the deal would be the easiest ever done. No, it will not. This demonstrates in one small area the technical detail that will hit us.

I worry, because if our regulations are rather weaker—the hon. Member for Basildon and Billericay seems to think that our savers or investors are disadvantaged by the current regulations—and savers and investors are somehow less protected, that leads us to the point made by the hon. Member for Glasgow Central about what came out of the 2008 crash. What we needed was not more regulation for regulation’s sake, but international regulation to ensure that people in this country investing in a pension fund that might be investing overseas were protected, and vice versa. When people ask, “Will these dry regulations affect ordinary people?” the answer is: yes, they will if we get them wrong. That is why this is important.

[Mr Baron]

The right hon. Gentleman makes some good points. For absolute clarity, I was suggesting that current EU regulation was not serving investors well, and if it is to be encapsulated in our regulatory governance in March next year, we need to act quickly to put it right, because the consequences could almost make for a mis-selling scandal, if not a perfect storm. I just want to make him aware of that.

[Mr Jones]

I do not have expertise in this field, as the hon. Gentleman does, and I defer to him, but that is one area; what else is there? A proper consultation might have thrown these things up. The sector in which he is involved may well have made representations, particularly around the points he made.

Even if these measures are incorporated into UK legislation post March next year, how do they get unpicked? Who decides that? I sit on the important Regulatory Reform Committee, and we may well be very busy if we get flooded with things that have to be incorporated and then must be unpicked later on.

This statutory instrument seems quite mundane, boring and dry on the face of it, but it demonstrates the bigger picture that will hit Parliament. Not only will it have to spend an amount of time on this, but there will be unintended consequences that may not be relevant straightaway, but certainly will be. All those people said that leaving the EU would be simple, but these are the unintended consequences.

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[Mr Baron]

If I may just move away from the hypotheticals, I have tried to outline a serious deficiency in EU regulation here. Can I have an assurance from the Minister that our regulatory bodies will have the power to put that right, if we leave without a deal?

[John Glen]

The purpose of this process and this statutory instrument is to provide the framework to onshore the binding technical standards that are needed. Turning to my hon. Friend’s point, I will ensure that the FCA is aware of the issues that have been raised—I am sure it already is. I am told that this summer, it launched a call for input to seek feedback for consumers and firms, which closed on 20 September. Next time I see Andrew Bailey—I see him regularly; I saw him just last week—I will ask him to consider that.

I will come on to the other points and the broader principles. Some of the considerations about where we will be in the future are subject to the deal that we end up with. Again, I do not want to be drawn into hypotheticals at this point. I will come back to my hon. Friend’s point in a minute.

The hon. Member for Oxford East raised a number of other issues about resourcing. The right hon. Member for North Durham also raised this, in terms of the regulators having enough resource. In my travels to Indonesia, Malaysia and Japan over the summer, I have seen that UK regulators are highly regarded and among the most important and most respected in the world. They have the resource and expertise, and the Government are confident that they are ready and able to do what has been asked of them. The hon. Member for Glasgow Central was also concerned about this point. I have had no indications from my conversations with the PSR, the PRA or the FCA that there is a resourcing issue. If that changes, I am sure they will be very keen to come and talk to me about it.

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[John Glen]

I note the right hon. Gentleman’s point and I will now move on to the issue of supervisory co-operation and the continuance of that, as raised by the hon. Member for Oxford East. While it is true that we will be outside the EU’s framework, we want supervisory competition to continue. I am sure that the hon. Lady knows that there exists a high level of co-operation across many countries outside the EU framework, and our regulators stand ready to do this. A point was made about optimism for the future. The Chancellor set out some great opportunities in the Mansion House speech that we will have with global financial partnerships. The regulators will be deeply involved in that.

I turn now to the points made by my hon. Friend the Member for Basildon and Billericay and acknowledge the quality of his articles in the Investors Chronicle. I look forward to reading his book. The powers in the European Union (Withdrawal) Act 2018 deal only with fixing deficiencies at the point of exit, as he will know. Wider changes need to be considered at a later date, but I think he has put on the record some meaningful analysis of the implications of the regulations for the characterisation of risk around unit trusts versus investment trusts. I have heard that, as have my officials, and we will come back on that.

[Mr Baron]

I thank the Minister. All I have asked him to do is look at this and be conscious of it; I do not expect immediate answers now. Most of us, whether Brexiteer or remainer, would prefer a good trade deal that favoured both sides; trade deals tend to be good. Is the Minister able to confirm now—although I would be happy for somebody to do so afterwards—whether this bit of regulation, which is causing so much angst over here, will remain in force within the Chequers agreement? In which case, we have further battles to wage.

[John Glen]

Candidly, at the level we are at at the moment, in seeking a strong bilateral arrangement to determine the future dynamics of dialogue between the EU and the UK supervisory bodies, I cannot answer with that degree of specificity. I take the point and will seek to come back to him as soon as I can.

Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2018 Draft Tax Credits and Guardian’s Allowance Up-rating etc. Regulations 2018

John Baron Excerpts

Wednesday 7th February 2018 General Committees

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

The Minister will also be aware that our record on helping the vulnerable is something to be proud of. The Minister has talked about reducing income inequality but we must also remember that many foundations—including the Joseph Rowntree Foundation—suggest that we have reduced relative poverty as well. There is always more to be done, but together with very low unemployment we can be proud of the fact that we have helped the vulnerable in society, whilst accepting that there is still more to be done.

[Mel Stride]

My hon. Friend is entirely right, and he will know that prior to the very recent figures, which still show that the level of income inequality is the lowest since 2010, it was the lowest in 30 years.

Exiting the EU: Costs

John Baron Excerpts

Wednesday 29th November 2017 Commons Chamber

[Elizabeth Truss]

I see, regrettably, that the misery has spread to the Liberal Democrats; there seems to be a contagion on the Opposition Benches. I invite the right hon. Gentleman to welcome the fact that this country has the lowest unemployment in 40 years. We also have the third highest number of start-ups in the world—a record number for this country—and the other positive benefits that we are seeing due to the actions of this Conservative Government.

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

Most of us—certainly those of us on the Conservative Benches—accept that a good trade deal is better than no deal, that there is always give and take in a negotiation, and that it is important that we meet our financial commitments. However, does the Minister accept that this issue is largely a storm in a teacup, because nothing is agreed until everything is agreed? It is important to make that point and not to listen to the few siren voices who still refuse to accept the result of the referendum.

[Elizabeth Truss]

My hon. Friend is right. Regrettably, there are people—particularly on the Opposition Benches—who still do not seem to accept democracy and that fact that people did vote to leave the European Union.

UK Economy: Post-Referendum Assessment

John Baron Excerpts

Monday 23rd May 2016 Commons Chamber

[Mr Gauke]

I look forward to hearing that plausible case when it is made. I look forward to an analysis, supported by leading economists, making that case, but we have not heard it yet. The hon. Gentleman and I agree about our membership of the euro—we always have done—but if we were to single out two politicians in this country perhaps more responsible than anyone else for keeping us outside the euro, I would highlight, from my party, William Hague and, from his party, Gordon Brown, both of whom believe we should remain in the EU.

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

“Project Fear” has reached new lows. Following the predictions of world war, we now have a forecast of recession equal to that of the great depression should we leave. Does the Minister accept that the Treasury got it absolutely wrong when it forecast an economic shock if we left the ERM and that the Treasury, the OECD, the IMF and even the Bank of England did not see the last recession coming?

[Mr Gauke]

The Treasury—indeed, some of the same civil servants—was involved in making the assessment of the five economic tests that kept us out of the euro. I suggest that my hon. Friend looks carefully at the report. We do not make any claims of the sort he suggests—about it being the greatest depression since the great depression of 1929—but suggest that the “shock” scenario involves the economy shrinking by 3.6% compared with the base, which is the forecast for the next few years. This is actually a very measured, conservative assessment of the impact, but none the less there would be an impact and it would result in 500,000 more people being unemployed than need be the case.

Greece

John Baron Excerpts

Monday 29th June 2015 Commons Chamber

[Mr Speaker]

Order. There is still a lot of interest but very little time. I will try to take a few more questions on this statement, but I give notice to colleagues that it will almost certainly not be possible to accommodate everybody. There are swings and roundabouts in these things, as Members know.

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

Greece reminds us all that one can defy economic logic for only so long. Given that eurozone growth rates are well below global growth rates—in the economic slow lane—and that unemployment rates are that much higher, largely caused by the drive towards economic and political union, what cast-iron safeguards are we negotiating to ensure that we retain our sovereignty such that we do not get drawn into this ever-closer union?

[Mr Osborne]

As my hon. Friend well knows—the Prime Minister was explaining this at the Dispatch Box just an hour or so ago—one of the issues we are seeking to address in our renegotiation is Britain’s involvement in ever-closer union, which is not something that the British people are very comfortable with. I would make the broader observation, which relates both to the UK and to members of the eurozone, that we have to make the European continent, ourselves included, a competitive place to do business. We have to have businesses that can export around the world. We have to be able to make sure that jobs are being created in the European Union. A very important strand of what we are seeking to change in our relationship with the European Union is to make the EU more competitive for all its citizens, Greek as well as British.

Oral Answers to Questions

John Baron Excerpts

Tuesday 16th June 2015 Commons Chamber

[Mr Osborne]

I do not read The Guardian every single day but I was made aware of that letter. I disagree. The same sort of people were saying the same things five years ago and now we have one of the fastest-growing economies of any major economy in the world. This is not the first thing on which I disagree with the hon. Gentleman. This morning he called for the abolition of the monarchy, so he is making an interesting start to his political career.

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

As the economy continues to recover and the deficit falls, will the Chancellor consider increasing funding to the Foreign and Commonwealth Office, given that continual cuts under successive Governments have reduced its capacity and its skill base to such an extent that many people are saying that that has hindered our recent foreign policy decisions?