Oral Answers to Questions
John Glen Excerpts(7 years ago)
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Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)
The Economic Secretary to the Treasury (John Glen)
The Office for Budget Responsibility has set out its forecasting assumptions regarding EU exit and will update them when the details of a deal justify a forecast change. Parliament will be presented with the appropriate analysis to make an informed decision ahead of the vote on the final deal. It is in the interests of the EU and the UK to strike a deal, and we remain confident that we are on track to achieve a mutually advantageous deal in the near future.
Mr Bailey
The Chancellor’s Budget measures were based on OBR assumptions of an orderly withdrawal from the EU and a 21-month continuation in the customs union. In the event of a no deal, will the Minister share with the House the assessment he has made of the potential decline in tax revenues and consequential changes to his tax and spending plans in the Budget?
Nicky Morgan (Loughborough) (Con)
Mr Speaker, through you, may I assure all Members of this House that the Treasury Committee will take very seriously the job of scrutinising the analysis produced by the Treasury on the final deal on behalf of all Members, and will let Members know the conclusions that we draw from that before the meaningful vote?
My hon. Friend the Minister may well be aware of the OBR discussion paper published last month on Brexit and the OBR’s forecasts. Paragraph 1.27, which talks about the risk of a disorderly Brexit, says that
“while not a direct parallel, it is worth noting that the ‘Three-Day Week’ introduced in early 1974…was associated with a fall in output of…under 3 per cent that quarter.”
The shadow Chancellor might think that the 1970s was a good way to manage the economy, but can my hon. Friend assure us that he does not think that that is the way forward for this country?
John Glen
That is certainly not the way forward. I can assure my right hon. Friend that we are doing everything we can to plan for all eventualities. That is why I am taking through a large number of statutory instruments to take account of all possibilities next year, but we are working on, and focused on, achieving a good deal.
Helen Goodman (Bishop Auckland) (Lab)
There is no estimate in the Red Book for the benefits to tax revenues of the measures that we took in the Sanctions and Anti-Money Laundering Act 2018. Is that because Ministers are holding that money in their back pocket in case of a no deal?
Leo Docherty (Aldershot) (Con)
Surely the greatest threat to this country is not no deal, but a Labour Government and the tax bombshell that would come with them.
Lee Rowley (North East Derbyshire) (Con)
Gareth Thomas (Harrow West) (Lab/Co-op)
The Economic Secretary to the Treasury (John Glen)
As the hon. Gentleman knows, the co-operative movement is very important to our economy; we have met to discuss various aspects of its future. I am happy to meet him again to discuss the matters that he wishes to bring forward.
Luke Hall (Thornbury and Yate) (Con)
Chris Bryant (Rhondda) (Lab)
If we took every single person who has suffered a major traumatic brain injury—for instance, from a car crash—from needing four people in order to be able to wash, clothe and look after themselves to needing just one, and thereby leading a more independent life, we could save the taxpayers £5 billion a year. May I meet with the Chancellor to explain all this?
Mr Speaker
Before we come to the first of the two urgent questions, I remind the House that the sitting will be suspended at 1.45 pm and will resume at 3.15 pm. That is to accommodate the fact that significant numbers of colleagues are going to the commemorative Remembrance service in St Margaret’s church. It might be useful for colleagues to know that both urgent questions will therefore finish by 1.45 pm.
Draft Building Societies Legislation (Amendment) (EU Exit) Regulations 2018
John Glen Excerpts(7 years ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Building Societies Legislation (Amendment) (EU Exit) Regulations 2018.
It is a pleasure to serve under your chairmanship, Mr Hosie. The draft regulations are another statutory instrument to form part of the Treasury’s work to ensure that there continues to be a functioning legislative and regulatory regime for financial services in a scenario in which the UK leaves the European Union without a deal or an implementation period. These regulations fix deficiencies in UK law relating to building societies. They have been drafted using the same approach taken across all the financial services SIs that I have had the pleasure of introducing, laid under the European Union (Withdrawal) Act 2018.
The Building Societies Act 1986 and related legislation contain various provisions governing how building societies must act. Those include requirements relating to the UK’s membership of the European economic area. For example, one provision ensures that loans secured on UK land and loans secured on EEA land are treated equally. That has important consequences for building societies, as loans secured on land are used when defining who counts as a building society member in the original legislation. Loans secured on land are also used when calculating a building society’s lending limit—a legal requirement that ensures that building societies focus on their core business of mortgage lending. Other parts of the 1986 Act ensure that EEA bodies and UK companies are treated in the same way regarding transfers of business from a building society to a commercial company.
In a no-deal scenario, however, the UK would be outside the EEA, and outside the EU’s legal, supervisory and financial regulatory framework. UK legislation relating to building societies therefore needs to be updated to reflect that, and to ensure that the provisions would work properly in such a scenario. The original legislation treats members of the EEA differently from other third countries in certain respects. Given that that will no longer be appropriate after exit day, the draft regulations will amend the 1986 Act and related legislation to equalise the treatment of EEA countries and other third countries after exit day.
To take the example that I have already set out, this draft SI amends the original legislation to ensure that new mortgages on properties in non-EEA states and in EEA states are treated the same after exit day. Members should note, however, that the instrument maintains pre-exit legal treatment of mortgages on properties in EEA states, providing contractual continuity for those building society members who have an existing mortgage on a property in an EEA state. Building societies will have to take that treatment into account when calculating lending limits and defining building society members. Members of the Committee should also note that no existing building society members will have their mortgages, savings or membership rights affected by the changes in this statutory instrument, and that no building society currently lends on property outside the UK—only a handful have done so in the past.
The original legislation also allows building societies to transfer business to and from companies and mutuals in EEA states, but not in countries outside the EEA. The draft SI will amend the legislation so that such transfers are no longer allowed, equalising treatment of EEA firms with other third countries. Members should note that no building society has yet used the provisions that are being removed; to date, all transfers of engagement have taken place between UK companies and mutuals.
The draft regulations replace several references to EU directives with equivalent references to the Prudential Regulation Authority’s rulebook, and ensure that the existing relationship between the UK and the Channel Islands, the Isle of Man and Gibraltar are maintained.
There are some potential costs for business linked to the restriction of the ability of building societies to lend on properties in the EEA. That is because the provisions in the draft SI will prevent building societies from diversifying too far into EEA lending, should they wish to. Members should note, however, that there will be no direct impact on building society balance sheets resulting from this instrument—no building societies are offering mortgages outside the UK, and only a handful have done so in the past. Any potential costs are therefore expected to be minimal.
As I emphasised this afternoon, in an earlier Delegated Legislation Committee sitting, if we enter an implementation period when we leave in March 2019, access to each other’s markets will remain the same, and the legislation will continue to apply as at present for the duration of the implementation period. However, the draft regulations contain practical measures necessary to ensure that the legislation governing building societies functions appropriately if the UK leaves without a deal or an implementation period. I hope that Members will join me in supporting the draft regulations, which I commend to the Committee.
John Glen
I am keen to try to address the points raised by the hon. Gentleman. First, I reiterate that the Government believe that the draft regulations are necessary to ensure that the legislation governing building societies functions appropriately if the UK leaves the EU without a deal or an implementation period. There is no intention whatsoever to make any policy change with respect to the governance and law surrounding building societies.
I note the hon. Gentleman’s reference to the issue raised by Lord Tunnicliffe in the other place and the comment on restricting the ability of building societies to lend on properties in the EEA post-exit. I think that issue was also raised in the impact assessment, which led to the question being asked in the Lords.
The change to the definition of loans secured on land means that building societies will be restricted from diversifying too far into EEA lending. This is a function of the lending limit that will apply, which requires building societies to secure at least 75% of their assets on residential property. Clearly, if they were continuing to lend in the EEA, that would not contribute to that 75%, which would really practically impact them, and therefore they would probably find it an undesirable lending decision to make. Also, as I said in my opening remarks, no building societies are currently proactively offering products for properties in the EEA.
As for the consultation, in line with the general approach to onshoring, the building society sector was not consulted on this SI. However, officials consulted extensively with the PRA, which has in-depth knowledge of each individual building society within the sector, when drafting the SI. Furthermore, the SI was shared with the Building Societies Association on its publication over the summer, and the BSA had no comments on it.
In conclusion, this SI does nothing to affect existing building society contracts. On exit day, all contracts between a building society and its customers, such as mortgage contracts, will remain unchanged. I hope that gives the hon. Gentleman the reassurance he seeks and answers the points he has raised. I commend the regulations to the Committee.
Question put and agreed to.
Draft Central Counterparties (amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018
John Glen Excerpts(7 years ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018.
It is a pleasure to serve under your chairmanship, Mr Bailey.
As part of contingency preparations for a no-deal scenario, the Treasury is laying between 60 and 70 statutory instruments under the European Union (Withdrawal) Act 2018, to ensure that, in the unlikely scenario of the UK leaving the EU without a deal or an implementation period, a functioning legislative and regulatory regime will continue to be in place for the UK financial services sector. The SIs will do that by fixing deficiencies in applicable EU law that would be transferred directly on to the UK statute book at the point of exit, and in existing UK law to ensure that it continues to operate effectively after exit day. The SIs do not change policy; instead, they are intended to provide continuity as far as possible at the point of exit by maintaining current legislation.
Where existing EU legislation would not operate properly in a UK context in a no-deal scenario, we need to amend it, to ensure that it works effectively after we leave. The regulations deliver on a commitment made last December, when the Treasury announced that it would give the Bank of England functions and powers in relation to non-UK central counterparties and establish a temporary regime to enable those firms to continue to operate in the UK for a limited period after exit. That is similar to the approach we have taken to the European economic area firms that currently operate in the UK under the financial services passport, creating a temporary permissions regime that will allow them to continue operating in the UK for a limited period after exit, while they apply for authorisation. The debate on the instrument implementing that regime took place on 24 October.
Central counterparties stand between counterparties in financial contracts, becoming the buyer to every seller and the seller to every buyer, and they guarantee the terms of trade even if one party defaults on the agreement, reducing counterparty risk. As such, they are central to the UK and global financial system, reducing risk and making the system as a whole more resilient.
UK firms currently receive services from non-UK central counterparties under the framework set out within the European market infrastructure regulation. Under EMIR, non-UK central counterparties are permitted to provide services to UK firms if they are either located in the EU and authorised by their home regulatory authority, or located in a third country that has been deemed equivalent by the European Commission and the central counterparty is recognised by the European Securities and Markets Authority.
Should the UK leave the EU without a deal or an implementation period, it would be outside the single market for financial services, meaning that non-UK central counterparties would be unable to provide services to UK firms until they were recognised under the UK’s domestic regime. Given that many UK firms rely on non-UK central counterparties to provide clearing services and for mitigating transaction risks, such a sudden dislocation in the provision of services would introduce risks to those UK firms and financial stability risks to the broader financial system. The draft regulations therefore introduce measures to mitigate the risks and ensure a smooth continuation of services from non-UK central counterparties to UK firms.
First, the draft SI establishes a UK framework for recognising non-UK central counterparties while maintaining the same regulatory criteria for non-UK central counterparties to provide services in the UK. To do that, the European Commission’s responsibility for determining the equivalence of a third country jurisdiction’s regulatory and supervisory framework in respect of EMIR is transferred to the Treasury, and the Bank of England may provide technical advice from the Treasury on such decisions, in the same way as the European Securities and Markets Authority may, and does, provide such advice to the Commission currently.
In addition, functions of the European Securities and Markets Authority that relate to recognising individual central counterparties located in third countries will be transferred to the Bank of England, including the mandate to make technical standards specifying the information to be provided by CCP applicants. The Bank is the appropriate authority to take on that role, as it is already responsible for the authorisation of UK central counterparties.
Secondly, the statutory instrument will provide powers to the Bank to consider recognition applications ahead of exit day, so that the necessary steps to recognise non-UK central counterparties can be taken as soon as possible after exit day. In response to a point raised by Baroness Bowles when the SI was debated in the other place last week, I note that central counterparties are not required to apply for recognition ahead of exit day. Although they are able to do so and are encouraged to engage with the Bank on such matters as soon as possible, they will also be able to apply for full recognition after exit day.
Finally, the draft regulations will establish a temporary recognition regime for central counterparties. The regime will provide temporary recognition for a period of three years to non-UK central counterparties that intend to continue providing clearing services in the UK. The purpose of temporary recognition is to allow additional time for applications to be processed and for equivalence decisions to be made by the Treasury. Although non-UK CCPs are encouraged to engage with the Bank as early as possible, the TRR will ensure continuity of services in the event that a recognition decision cannot be made ahead of exit day. The statutory instrument also gives the Treasury a power to extend the regime for 12 months at a time if it is
“satisfied that it is necessary and proportionate to avoid disruption to…financial stability”.
The SI is essential to ensure that we have a functioning financial services regime in a no-deal scenario. It provides reassurance for non-UK central counterparties and the UK businesses and customers they serve that they will continue to be able to operate here, no matter the outcome of negotiations. The importance of the SI’s provisions is reflected in our announcement last December, which made it clear to industry well in advance of exit day that the Treasury would introduce legislation to deliver such a regime. The Bank of England is in the process of engaging with industry to ensure that the regime functions properly when the UK leaves the EU.
It should be noted that if, as expected, we enter an implementation period when we leave in March 2019, non-UK central counterparties that meet the current requirements will continue to be able to provide services to UK firms, because access to each other’s markets will remain the same during the implementation period. However, it remains prudent to continue to prepare for a no-deal scenario to provide certainty to the financial services sector that we are ready for all outcomes. In that context, the measures in the SI are a pragmatic approach to ensuring that UK firms can continue to access non-UK central counterparties if the UK leaves the EU without a deal.
I hope that colleagues from all parties will join me in supporting the draft regulations. I commend them to the Committee.
John Glen
I shall do my best to answer the questions that have been raised. I think it would also be helpful if I were to set the context with respect to powers under the European Union (Withdrawal) Act 2018. What is being done through the statutory instruments may be disputed by the Opposition, but it is ultimately a matter of the legislation that was passed. I am using the provisions to do everything I can to ensure that we have the right arrangements should there be a no-deal scenario. I recognise the points about the unusual nature of the process—the large number of statutory instruments. That is why I am committed to doing everything I can to facilitate meaningful scrutiny, dialogue and exchange of information in advance of Committee sittings.
The regulations are tightly constrained to fix deficiencies, not to make wider changes; this is not a power grab. The temporary recognition regime and other transitional arrangements are in line with the expectations of the industry, which needs certainty. It needs the contingency arrangements. I propose to go through the six questions and the additional points raised by the hon. Member for Glasgow Central and, I hope, answer them meaningfully.
First, as to the consultation, it is right to say that there has been long-standing engagement. It is done case by case, on the basis of the most appropriate mechanism. We announced it in December 2017 and published three letters over the course of this year. Engagement with relevant stakeholders in the industry has to vary according to different statutory instruments. In the case we are considering, I think it is fair to say that the arrangements we have undertaken have been well received by the industry, which welcomes the certainty we have given. Obviously there are a small number of players, and we have done what is necessary.
Secondly, the hon. Member for Oxford East is correct about the alignment of the Commission to the Treasury and the transmission of the ESMA powers to the Bank of England. The Treasury will make the equivalence decision, but the authorisation process will be carried out at a technical level with the appropriate skills in the Bank of England. That is purposefully aligned to the same distribution of roles from the Commission to ESMA.
Thirdly, on the question whether, if there were a need for an extension, it would be appropriate for the Treasury to make that provision using the negative procedure, that is an administrative, managerial decision. It is not based on any extension of the existing powers. It would be on the basis of a clear need to do so. The principle of what we are doing and the criteria for doing it are being discussed now; it is a translation of what already existed. The three years plus one arrangement is designed with industry convenience in mind.
Fourthly, as to the scope of EMIR and any changes, we are retaining most of EMIR as it currently applies in the EU and are unable to make significant policy changes, as I said, under the 2018 Act, so the legislation provides a good basis for discussions on equivalence with the EU. The hon. Lady raised the issue of regulation 14(1)(a) and the equivalence, as compared to EMIR,
“as it has effect in EU law as amended from time to time”.
Regulation 14 applies only before exit day. After exit day our approach to equivalence will be to compare third-country regimes to EMIR as onshored and part of domestic law. We will not necessarily as a matter of policy be following changes to EMIR in EU law; but equally it would not be our aspiration to deviate wilfully. There is obviously a lot of alignment. We start from a common starting point, and obviously we anticipate securing a deal on the basis of the alignment that currently exists.
Fifthly, the hon. Lady rightly pointed out the need for clarity the other way, in how the Commission deals with trades carried out through UK CCPs. It is welcome that, according to Tuesday’s Financial Times, Vice-President Dombrovskis has indicated a willingness to act to mitigate. That outcome is a function of the technical group dialogue that has been going on since April, and it has been welcomed in the City. More details are needed, but we have acted proactively to give as much assurance as we can, and that significant step forward is very welcome.
Sixthly, the hon. Lady asked about the mechanism to switch off the regulations. The SI itself does not include provision for switching itself off in the event of a deal, but the White Paper on the withdrawal agreement Bill confirmed that it would contain provisions to allow SIs like this one to be repealed, delayed or amended should a deal be secured. In the circumstances of a deal, we will do whatever is appropriate, and clearly this SI would not be necessary. The hon. Lady is looking at me quizzically.
Anneliese Dodds
I am grateful to the Minister for that explanation. Are we to understand that the decision whether to switch off any SI produced in the context of the withdrawal Act is ultimately in the gift of Ministers?
John Glen
To be honest, I will have to write to the hon. Lady to clarify that detail. The essential point is that the statutory instrument is for a no-deal scenario; if we get a deal, we will not need the SI because we will be in a close working partnership and we will have the implementation period. I will need to write to her about the precise mechanism that we would use to get rid of the SI or withdraw its provisions, but that is my attempt to answer her six questions.
The hon. Member for Glasgow Central asked about fees and, quite reasonably, echoed a number of other points. There has been dialogue with the industry on the fees, which will be proportionate to the process that the Bank of England will need to go through. In practice, these firms do not exist in massive numbers. I cannot give her the cost in pounds and pence, but it will be aligned to industry expectations and will not impede the choice to register.
Alison Thewliss
Can the Minister give any indication whether the fees will start straight away, or be phased in over a longer period?
John Glen
On the fees that will be necessary to go through the process of authorisation with the Bank of England, it would be best if I wrote to the hon. Lady to give clarity on how they will be applied.
I have had conversations with the relevant people in the Bank of England and am confident that it is making adequate preparations and effectively allocating resources ahead of March 2019. As demonstrated by the letters published in December 2017 and in March and October this year, the Bank will continue to work closely with CCPs to provide guidance on applications with a view to making the process run as smoothly as possible.
The hon. Lady made a wider point about resourcing and skills. I have checked the position, after previous debates in which the right hon. Member for North Durham made similar reasonable points, and there is provision for regulators to extend their resources if required.
I hope that I have adequately responded to points raised, that the Committee has found this afternoon’s sitting informative, and that it will join me in supporting the draft regulations.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018.
Leaving the EU: Central Counterparty Clearing
John Glen Excerpts(7 years ago)
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The Economic Secretary to the Treasury (John Glen)
I congratulate the hon. Member for Nottingham East (Mr Leslie) on securing this debate and thank him for what he said. He set out very clearly the risks and the need for clarification. I am very happy to give him the answers to the questions that he has posed in his thoughtful and helpful speech.
I, first, wish to acknowledge the issue of no deal and to clarify from the outset that the Government firmly believe that it is in the interests of the EU and the UK to strike a deal. That remains the clear goal on both sides and we are confident that that will be achieved. I reassure the hon. Gentleman and the whole House that an enormous amount of work and dialogue is going on at all levels in order to understand the issues that exist on both sides.
Our proposal for the future UK-EU relationship in financial services seeks to be both negotiable and ambitious. It is founded on preserving the economic benefits of the most important financial services traded between us and on ensuring stable institutional processes for governing the relationship into the future. That is the best way to protect financial stability and open markets, and it is in the interests of businesses and consumers on both sides. Just for clarification, under our plan, we would build on the EU’s existing equivalence regimes but expand their scope to recognise business activities that are in the interests of both the EU and the UK but not covered by the existing regime.
Mr Leslie
Just stepping back from the specifics, on the policy stance of the UK Government, are we intending to remain in lock-step with our European neighbours in terms of the regulatory approach that we take—as a matter of philosophy? The Americans would perhaps like us to depart from that, but it feels to me important, for our existing market access, that a commitment is given to preserve some of the harmonies that we already have.
John Glen
I am very happy to respond to that point. We are seeking to recognise that we start from a common starting point. What we acknowledged in the White Paper in July is that there is an appetite on both sides—on the part of the UK and the EU—to retain the autonomy around their supervisory bodies. But we need to develop a strong bilateral relationship in the future should either side wish to innovate and deviate from the existing alignment, so that we can then have a strong bilateral dialogue on how to resolve any disputed areas.
However, I reassure the hon. Gentleman that we are not seeking to differentiate ourselves and to become a bargain-basement regulatory environment. We secure such significant investment in the City of London because of the world-class nature of our regulatory environment. In fact, we have led the way in many of the dialogues over the years within the EU. So our aspiration is an ambitious one and it is based on a strong trading dynamic with the EU into the future.
I want to move into the specifics, because the hon. Gentleman has raised some significant and sensible points. We are prepared for all outcomes, including for no deal. The Government recognise that, in the event of a no deal, this is a critical issue. We are not complacent and he has set out the stakes clearly, which are so high for jobs and livelihoods up and down this country.
As the Financial Policy Committee has said, £69 trillion- worth of centrally cleared derivative contracts could be affected. Central counterparties, as the hon. Gentleman set out, are financial institutions that firms use to reduce counterparty risk. CCPs do that by standing between the parties of a trade, becoming the buyer to every seller and the seller to every buyer. That guarantees that transactions will be honoured if the other party defaults.
CCPs are central to the UK and global financial system. They reduce risk and ultimately improve the efficiency and resilience of the system as a whole. Any disruption to this system would affect large banks and institutional investors, which use these clearing services when hedging their risks.
There are key issues for CCPs and their members. First, when the UK leaves the European Union, EU CCPs will not be recognised to provide their clearing services to UK firms, and vice versa. Secondly, there is legal uncertainty about whether EU clearing members can continue to meet their contractual obligations to UK CCPs. This disruption is particularly acute for EU firms using UK CCPs. The European Central Bank estimates that UK CCPs clear approximately 90% of euro-denominated interest rate swaps used by euro area banks. The only industry mitigant available would be to close out or transfer the contracts that EU clearing members have with UK CCPs before March 2019. But as the FPC has said, the movement of such a large volume of contracts in a short timeframe would be costly and would strain capacity in the derivatives market.
The importance of the financial services sector to the UK and the EU has already been noted in this debate, and it is critical that we acknowledge that and respond to these challenges wholeheartedly. I spend my time as a Minister promoting, preserving and standing up for the benefits of the sector for the whole United Kingdom—not just the City of London, but areas such as Bristol, Nottingham and Edinburgh. The sector is a British asset as much as a European one. This Government remain committed to agreeing a close future relationship on financial services with the EU that preserves the mutual benefits of our uniquely integrated markets while protecting financial stability, consumers, businesses and taxpayers across the UK and the EU, and this relationship must take into account that the UK is a global hub for these clearing services.
As I said, it remains unlikely that the UK will leave the EU without an agreement, but we are prepared for all outcomes, so I will now go into some detail on the no-deal situation. As the hon. Gentleman mentioned, we have committed to unilateral action to resolve the risk of disruption as far as possible on the UK side. Colleagues will be aware that the Government have already laid draft secondary legislation that will establish a temporary recognition regime for CCPs. That regime will allow non-UK CCPs to continue to provide clearing services to UK firms for up to three years while those CCPs apply for recognition in the UK.
My noble Friend Lord Bates debated the statutory instrument through the Lords on Tuesday, and a debate is arranged for a Delegated Legislation Committee in the Commons next Monday—the pack is ready for me to go home to Salisbury with so I can prepare—and, as has been highlighted, any successful mitigant to the clearing services problem requires action by both UK and EU authorities.
I welcome the announcement by European Commission Vice-President Valdis Dombrovskis, I think, on Tuesday this week, that the EU will, if necessary to address the financial stability risks arising from the UK leaving the EU, act to ensure continued access to UK CCPs on a temporary basis. It is right that EU authorities will have to set out further details on their plans, and we would welcome that, but this announcement is a positive step in ensuring the stability of the financial system for the UK and the EU.
The Government are committed to working with our EU partners to identify and address risks relating to the UK’s exit from the EU. We are supportive of continued engagement and co-operation between our regulators. This is continuing, including through the technical working group convened by the ECB since April with the Bank of England, and is evidence of our shared interests in these issues. I acknowledge what the hon. Gentleman has said about the lack of detail coming out. I think that is a condition of the Commission’s negotiating stance. We respect that, but will continue to engage and to observe what is going on.
There are suggestions from some in the EU that UK CCPs pose a risk to the EU’s financial stability. That is the impetus behind the proposal to revise the framework for supervising third-country CCPs, including the so-called location policy. UK CCPs are truly global institutions, and we recognise that there are legitimate questions about the future supervision of UK CCPs with EU members once we leave the EU. We should take a stable and co-operative approach to the supervision and regulation of globally active firms. This should include the ability for regulators in different jurisdictions to defer to each other based on comparable rules—a principle that the EU and the UK have committed to at the international level. Some of the measures currently under consideration by the EU undermine this principle and cannot be seen as an enhancement of the existing equivalence process. In particular, a location policy would be a poor solution that would unnecessarily harm investment in Europe, increase costs for European firms and ultimately undermine financial stability. We are making that case, and I am sure that those who use CCPs will be making the same case.
I thank the hon. Member for Nottingham East for raising, in a very thorough way, some very legitimate issues at the core of these negotiations. I want to reassure him, and the hon. Member for Bristol East (Kerry McCarthy), who contributed to the debate, that the Government are not complacent on these matters. I am acutely conscious of the large number of statutory instruments that I will be taking through over the coming weeks. Dialogue is continuing at all levels as we seek to reassure the City of London, and the financial services industry across the United Kingdom, that the Government are prepared for all outcomes, though working determinedly and passionately for the best outcome and a good deal that recognises the centrality of financial services to the UK economy.
Question put and agreed to.
Banking Act 2009 Reporting
John Glen Excerpts(7 years ago)
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The Economic Secretary to the Treasury (John Glen)
The Treasury has laid before the House of Commons a report required under section 231 of the Banking Act 2009 covering the period from 1 October 2017 to 31 March 2018. Copies of the document are available in the Vote Office and the Printed Paper Office.
[HCWS1049]
Draft EEA Passport Rights (amendment, Etc., and Transitional Provisions) (EU Exit) Regulations 2018
John Glen Excerpts(7 years ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018.
It is a pleasure to serve under your chairmanship, Mr Austin. The Treasury is in the process of laying around 70 statutory instruments under the European Union (Withdrawal) Act 2018. That is being done to ensure that a functioning legislative and regulatory regime for financial services is in place should the UK leave the EU without a deal or an implementation period. This is the second debate in the House as part of that programme, and I look forward to several more in the weeks ahead.
The overriding objective of that work is, as far as possible, to maintain continuity at the point of exit by maintaining legislation as it currently exists. Where existing EU legislation would not operate properly in the UK context, we need to amend it to ensure it works effectively after we leave. We are therefore using powers delegated to Ministers under the withdrawal Act to fix deficiencies in applicable EU law that will be transferred directly to the UK statute book at the point of exit, and to fix existing UK law to ensure that it is not deficient on and after exit day.
Ian Murray (Edinburgh South) (Lab)
I am grateful to the Minister for giving way so early in his contribution. I hope he will tell us before he finishes what projections the Treasury has made of the number of potential job losses in the financial services sector if the UK leaves the EU without a deal.
John Glen
I will be very happy to address that point in due course, either in my introduction or when summing up.
That work will provide the UK’s financial services sector with much-needed certainty about regulatory requirements in the event of no deal, and ensure that firms can continue to do business in the UK. That is consistent with the Government’s position that, although the best outcome is for the UK to leave with a deal, in the meantime we must—and we will—continue preparing for no deal. I want to underscore the point that the tabling of this statutory instrument was a planned activity that was widely anticipated by the regulator and industry.
Thelma Walker (Colne Valley) (Lab)
Has the Minister ever seen a Treasury matter of comparable scope and importance debated in a Delegated Legislation Committee?
John Glen
No—I acknowledge that this is a significant event. What we are doing today is wholly necessary, and I cannot at the moment envisage anything of comparable significance.
Many of my esteemed colleagues will be familiar with the passporting system, which allows a firm in a European economic area state, such as a bank or an insurer, to offer services in any other EEA state on the basis of the authorisation granted by its home state regulator. That system relies on a set of reciprocal agreements between EEA member states, which are implemented in domestic legislation, in this case under schedules 3 and 4 to the Financial Services and Markets Act 2000. My Department had to make a key decision about how to deal with those existing EEA passport rights in UK law in the event of no deal.
In such a scenario, the UK would be a third country, outside the EU financial services framework and therefore outside the passporting system. The provisions agreed between EEA states would cease to apply in the UK, meaning any references to EEA passport rights in UK legislation would become deficient at the point of exit. As a result, the Government will need to repeal provisions in the 2000 Act implementing the EEA financial services passport, meaning that any EEA firms currently operating in the UK via a passport would lose their permissions to do so on exit day, just as UK firms would lose their permissions to passport into other EEA states. Instead, firms would need to obtain authorisation from the UK’s regulatory authorities—the Prudential Regulation Authority and the Financial Conduct Authority—by exit day if they wished to continue doing business in the UK.
Mark Garnier (Wyre Forest) (Con)
Has the Minister done an analysis of what that would mean in terms of income for regulators and the extra requirement for them to be the direct regulators as opposed to just having oversight?
John Glen
I cannot give my hon. Friend a precise figure, but it would be a considerable change in the way that the regulators operate and would need a considerable reconfiguration of resources in an ideal scenario. Having had conversations with Sam Woods and Andrew Bailey at the PRA this morning, it is a scenario for which they have made contingency provisions.
The volume of applications received by the UK regulators is expected to increase significantly, as many hundreds—perhaps thousands—of EEA firms submit applications for UK authorisation. That will include applications from large and complex businesses with a substantial UK presence. To minimise the disruption faced by EEA firms and UK businesses and consumers due to the loss of EEA passporting rights in a no-deal scenario, the draft regulations fulfil the Government’s commitment, made on 20 December last year, to introduce legislation to establish a temporary permissions regime.
Ian Murray
The Minister said a few moments ago that the regulations would allow UK financial firms to continue doing business as regulated businesses in the UK. Can he say whether they would be allowed to continue doing business in the EU?
John Glen
I am sorry if I made a mistake in what I said; the regulations actually allow EEA firms to continue operating in the UK. The reciprocal right of UK firms to operate in the EEA does not exist at the moment. That is a reciprocal decision that we hope will be in the interest of EEA states to make with respect to the comfort of their citizens, who receive financial services from UK firms, but that is not something that has happened yet.
This regime would enable EEA firms operating in the UK, via a passport, to continue their activities in the UK for up to three years after exit day, allowing them to obtain UK authorisation or transfer business to a UK entity as necessary. The regulations would also give the Treasury the power to extend the regime, which is crucial to alleviate the potential scenario in which some EEA firms cannot be authorised within the three-year period. The Treasury would not be able to extend the regime as a matter of course, but only if it considered it necessary to do so. The use of the power would also need to be based on a robust assessment from the FCA and PRA regarding the effects of extending or not extending the period. The length of the regime could only be extended by 12 months at a time. The instrument that would extend the regime would be subject to the negative procedure, and that has been drawn to the special attention of the House of Lords by the Secondary Legislation Scrutiny Committee Sub-Committee B, in a report published last week, on 18 October.
My officials and I judged that choice of procedure to be appropriate, given that the power to extend the regime is conferred by the draft regulations under discussion today, which are subject to the affirmative procedure. I reassure hon. Members that we take parliamentary scrutiny seriously, and although this affirmative instrument introduces the power to pass regulations via the negative procedure, the Treasury believes that if similar provision were to be made by an Act of Parliament, it would also be via the negative procedure, not least because the power is so tightly drawn.
The temporary permissions regime would ensure both that firms can continue servicing UK businesses and consumers for a temporary period after exit day, and that they have appropriate time to prepare for and submit applications for UK authorisation and can complete any necessary restructuring. The PRA and the FCA can manage the expected applications for UK authorisations from EEA firms that were previously operating in the UK via the passport in a smooth and orderly manner.
The draft regulations are a pragmatic response to a complex problem, and are needed to minimise disruption to users and providers in the UK financial services sector in a no-deal scenario. I note that the Secondary Legislation Scrutiny Committee report has acknowledged the importance of the regulations in achieving that objective, and I emphasise to the Committee how widely desirable they are both to the industry and to the regulators.
It is also important that industry understands what we are doing, how it will work and why it is necessary. To aid that, the regulations were published in July in draft form along with an explanatory policy note to maximise transparency and understanding before their introduction. The regulators responsible for the authorisation and supervision of financial services firms are now in the process of consulting industry to ensure that the rules that would apply to firms in this regime function properly when the UK leaves the EU.
To conclude, the regulations are essential to ensuring that we have a functioning financial services regime in a no-deal scenario. They provide reassurance for EEA financial services firms, UK businesses and the customers they serve that they will continue to be able to operate here, no matter what the outcome of the negotiations. The City’s success is based on being the most open and dynamic financial centre in the world. Ensuring that EEA financial services firms can continue to operate here after exit day will help to maintain that status, protect jobs and preserve tax revenues to fund our vital public services. I hope that colleagues will join me in supporting the regulations, which I commend to the Committee.
John Glen
First, I congratulate the hon. Member for Stalybridge and Hyde on his 13th statutory instrument. I assure him that we will have to celebrate at least his 30th together, in this room or one down the corridor.
As he always does, the hon. Gentleman has raised some very important matters and I will do my very best to respond. The first substantive point is whether these matters should be dealt with through primary or secondary legislation. This instrument and many others are affirmative instruments and we rightly have the opportunity to discuss this one today. That process was a matter of considerable debate during the passage of the Bill and was agreed by Parliament as the only practical way of proceeding. That sets the context for why we are doing that here.
The hon. Gentleman made a number of points about the regime and how it will work, including landing slots. The regulators will have the ability to set landing slots if they so choose. We have been working closely with the regulators on that and expect them to organise and schedule the landing slots in an orderly manner. They are limited because they have to be in a two-year period from exit day. I will come on to the specific points made by the hon. Member for Edinburgh South, but I would stress that these are arrangements for a no-deal scenario. The Government are fully committed to securing a deal—and a deal on financial services that is in the best interests, as I fully acknowledge, of the financial services sector, which has a considerable footprint across the United Kingdom.
The amendments to domestic legislation, both primary and secondary, are consequential amendments to provisions of domestic legislation that reference the EEA passporting system, which will no longer be in effect after exit day. This is essentially a clean-up exercise to remove redundant references to passporting arrangements on the UK statute book. It does not result in any policy change. Provisions in any onshored EU legislation that reference the EEA passporting system will be similarly amended in the relevant individual exit statutory instruments that will be laid as part of the ongoing onshoring programme.
The hon. Member for Stalybridge and Hyde raised the issue of the extension period of around six to 12 months to three years. The extension is necessary to ensure a smooth transition for firms moving from the current system of passporting rights to full UK authorisation. It will bring the statutory deadline set out under the Financial Services and Markets Act 2000 in line with the overall three-year duration of the regime and will help to ensure the overall application process can be managed in an orderly manner. It will not disadvantage firms, as every firm in the regime will be able to undertake the same activities they were entitled to undertake before exit day.
Ultimately, the Government are committed to ensuring a smooth transition for EEA passporting firms to UK authorisation. The determination of the three-year window was made in close consultation with the PRA and FCA, based on estimates that they made of the number of applications they would be likely to receive for authorisation. We believe this is good news for firms. It will not give them uncertainty; it will give them assurance. UK businesses and customers will welcome that.
The hon. Gentleman asked about applications for authorisation that are rejected. I can tell him that we will have further statutory instruments laid later on to enable such firms to wind down their UK-regulated activities in an orderly manner. On the Government’s negotiating objectives for passporting, the Prime Minister has made it clear that Brexit will mean an end to passporting. The temporary permissions regime is about managing that transition. We have set out a proposal for an ambitious future relationship in our negotiations. I will set that out in a moment.
The hon. Member for Edinburgh South raised the issue of an impact assessment of a no-deal scenario. As he readily acknowledges, the Treasury is undertaking a wide range of analyses in support of the negotiations and preparation. He cited various scenarios, all of which have different assumptions according to the people citing them as being desirable. In a no-deal scenario, there are a range of outcomes. We could make assumptions about a degree of hostility or a degree of co-operation from our friends and neighbours in the EU. EEA members would not serve their consumers very well if they did not offer a reciprocal regime. It is impossible to make a meaningful financial or jobs calculation because it is conditional on a range of assumptions and is not possible to set out.
Ian Murray
I just do not accept that excuse. The Treasury does projections on every single aspect of its work every single day. Indeed, the financial services sector itself has said that up to 10,000 jobs could go on day one if there is no access to the single market, so let me make it easy for the Minister, as I tried to in the Chamber earlier this week. Will unemployment, as a result of any of the scenarios, go up or down?
John Glen
I have stated my and the Government’s position. We are working towards a deal that is in the best interests of the United Kingdom as a whole. There was an awareness of this measure on 20 December last year. It was laid on 11 July. The head of the PRA came to the Select Committee on 11 July and set out how desirable it was. With respect to the wider question of the economic consequences of different outcomes, it would be beyond the scope of this Committee if I set that out here and now. However, I can say that we must have a deal that is right for financial services and allows us flexibility going forward, but this measure is about making sure that we have adequate certainty for consumers who benefit from the financial services of EEA firms, and that is what this is about.
As to what will happen to UK firms that passport into the EEA , the Government, as I said, can take legislative action only in relation to EEA firms that passport into the UK. We cannot, through unilateral action, influence the status of UK firms operating in the EEA. However, as I said, it is hugely desirable for their consumers for them to do it. That is why we really want to avoid that situation and agree a deep and special partnership with the EU, as well as an implementation period, which is important for both.
Jonathan Reynolds
I think the Minister is saying that the Government’s objective is still for mutual regulatory recognition for—essentially without the existence of the passporting regime—similar arrangements to those we have now after we leave. I think most people would acknowledge that that is quite a difficult thing to propose without negotiating a new relationship with Europe that would include such things as being part of a new customs union, as the Labour party has proposed.
Is it not possible that, if the Government agree what we might call the Chequers package—a common rule book on goods—even though a deal might be agreed we should still be using the measures we shall agree today? Even though a deal of some sort was agreed, because it did not cover the financial services sector, we would still be using the regulations that are before the Committee.
John Glen
Of course, the outcome of the negotiations will determine what we do. If we get a deal, clearly the implementation period will take effect. We would then have to look at what new legislation was optimal, from a financial services point of view, to keep us competitive; but such decisions have to be deferred until we get to that point.
I do not want to detain the Committee unduly, but there were other points I wanted to address. On the point about the FCA and the PRA powers to enforce home regulator powers or breaches, it is not an extra-territorial measure, but it has effect in the UK only. It merely preserves requirements imposed by an EU regulator so that the EU regulator does not have to impose such requirements itself. Once in the regime, the UK regulators will be able to disapply the requirements if they choose.
I think I have probably addressed all the points that were made. I am grateful for the number of points that have been fed to me from my left. I do not think that I have addressed all the scenarios to the satisfaction of the hon. Member for Edinburgh South, and I acknowledge his dissatisfaction. All I can say is that the Government are fully committed to delivering the best possible deal on financial services. I visited Edinburgh over the summer recess and I acknowledge the importance of financial services to the hon. Gentleman’s constituency, and to jobs throughout the country. We hope that we shall not need provision for a no-deal scenario, but it is appropriate that we make provision for it today.
Question put and agreed to.
Resolved,
That the Committee has considered the draft EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018.
Mutual Deferred Shares
John Glen Excerpts(7 years ago)
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The Economic Secretary to the Treasury (John Glen)
The Government have decided not to lay the secondary legislation required to give effect to the provisions in the Mutuals’ Deferred Shares Act 2015, which enable mutual insurers to raise equity by issuing mutual deferred shares (MDS). The Government have consulted widely with industry representatives in reaching their decision. During that consultation, industry representatives informed the Government that mutual insurers would only issue MDS if they qualified as tier 1 regulatory capital and would not alter the tax status of any mutual that issued MDS. It has not been possible to design MDS which meet both these criteria. The Government have, therefore, decided not to lay the regulations. The Government would reconsider their position if any material factors changed in the future.
[HCWS1026]
EU Customs Union and Draft Withdrawal Agreement: Cost
John Glen Excerpts(7 years ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
John Redwood (Wokingham) (Con)
(Urgent Question): Will the Government make a statement on the additional costs of staying in the EU customs union after 2020 and provide an updated estimate of the total costs of the current draft of the withdrawal agreement?
The Economic Secretary to the Treasury (John Glen)
Every arm of Government is working at pace to firm up and put in place all necessary arrangements to ensure that we are ready to leave and chart our own course as global Britain. The Government will continue to update Parliament on the progress of the negotiations, and the Prime Minister will update the House shortly in this regard in a post-Council statement.
In respect of the customs union, common rules will remain in place throughout the implementation period to give businesses and citizens critical certainty. This will mean that businesses can trade on the same terms as now until the end of 2020. As the Prime Minister has said, a further idea has emerged—and it is an idea at this stage—to create an option to extend the implementation period for a matter of months, and it would only be a matter of months. But as the Prime Minister has made clear, this is not expected to be used, because we are working to ensure that we have a future relationship in place by the end of December 2020.
As the House will appreciate, the length and cost of any extension to the implementation period are subject to negotiations. Throughout the implementation period, we will continue to build our new relationship, one which will see the UK leave the single market and the customs union to forge our own path and pursue an independent trade policy while protecting jobs and supporting growth.
During the progression of our exit negotiations, we reached a financial settlement with the EU that did two things—honoured our commitments made during our membership and ensured the fairest possible deal for UK taxpayers. In December, we estimated the size of the settlement to be between £35 billion to £39 billion, using reasonable assumptions and publicly available data. In April, the National Audit Office confirmed that this was reasonable.
The Government are committed to upholding our parliamentary democracy through honouring the result of the referendum and remaining fully transparent with Parliament on the deal that is reached, in advance of the meaningful vote.
John Redwood
The Treasury should do some calculations, because it would be an act of great rashness to agree to extend our period when we would be in another seven-year financial period for the EU, with all the consequences that might bring. It could cost £15 billion or more for a year and we would probably have to accept liabilities that might extend for the whole seven-year financing period. Why wouldn’t the EU front-load its expenses when we were still in the thing, and why wouldn’t it expect us to meet the forward commitments, as it says it wants us to do as and when we leave under the existing seven-year period?
We are desperately in need of more money for our schools, our hospitals, universal credit and for our defence—[Interruption.] We desperately need money so that we can honour our tax-cutting pledges which we all made in our 2017 manifesto—[Interruption.]
John Redwood
Our economy is being deliberately slowed by a fiscal and monetary squeeze that we need to lift. We need tax cuts to raise people’s take-home pay so that they have more spending power. All this is possible if we do not give £39 billion to the EU, and all this will be even more possible if we do not pledge another £15 billion or £20 billion for some time never, if we are now going to give in yet again. When will the Government stand up to the EU, when will the Government say that they want a free trade agreement and they do not see the need to pay for it, and when will the Government rule out signing a withdrawal agreement that is a surrender document that we cannot afford?
John Glen
I am grateful to my right hon. Friend for a number of Budget representations on that point. What I can confirm is that, when the sum of £35 billion to £39 billion was agreed, it was agreed on three principles: the UK would not make its payments sooner than it would otherwise have done; it would be based on the actual rather than the forecast; and it would mean that we would include all benefits as a member state. I recognise the wide range of concerns in the House, including those raised by my right hon. Friend, but we are at a delicate stage of the negotiations and the Prime Minister will be speaking to the House shortly.
Peter Dowd (Bootle) (Lab)
The right hon. Member for Wokingham (John Redwood) has some brass neck. He spent eight years being a cheerleader for austerity and he comes to the House today and says that; it is unbelievable. Amid the Tory quarrelling, the Prime Minister’s negotiations appear to succumb to a new failure every day. She has stood staring at the menu for two years while the Cabinet devours itself. It now seems that it may take a bit longer for her to make up her mind, demanding that the EU give further time in relation to the transition period. What we cannot fathom is how the Government are unable to negotiate our exit within the agreed period, begging instead to make it longer.
Humiliatingly, I have to say, we hear that 95% of the agreement is done, as though that is supposed to reassure us. Perhaps I may remind the Government that 95% of the Titanic’s journey was completed successfully. Meanwhile, the Government have gone from discussing a backstop to discussing a backstop to a backstop, to requesting an extension to the transition. These do not signal a Government who are about to emerge victoriously.
Let me ask a couple of questions, if this 95% deal is done. First, on the EU’s trade policy, during the transition, the common external tariff and customs regime will continue to apply to the UK, but third countries will have no legal obligation to continue to treat the UK as if it were a member state. Therefore, what trilateral discussions have the Government had with both the EU and third country partners, such as Mexico, South Korea, Switzerland and all the other countries with which the EU has preferential trading agreements in place, to ensure that the UK will continue to benefit from these arrangements during the transition period? Secondly, what progress have the Government made towards acceding to agreements facilitating trade, such as the pan-Euro Mediterranean convention that facilitates diagonal cumulation of origin, during the transition period and in any deal thereafter?
These matters, along with the question of the wider trade in goods, are easily resolvable with the transition period that has already been agreed. If the Government had got their act together, there would not be talk of additional time. The only thing that is costing the Government is this useless Government.
John Glen
It is difficult to discern the precise questions there, but I thank the hon. Gentleman for his comments. The Government are in a negotiation and there are a number of issues that are not yet resolved. With respect to the final state around our future freedom to trade, those are matters that will be reported on to this House before there is a meaningful vote. So he needs to be patient a little longer as we move through that last 5% and deal with those matters.
Several hon. Members rose—
Justine Greening (Putney) (Con)
I am very concerned about the Government’s plans because, essentially, they mean our staying in a customs union in which we will have no say on the rules for a prolonged period, at the very moment that the global economy is facing some significant risks. Can my hon. Friend explain how this is in the UK’s national interest?
John Glen
I have set forward the Government’s position with respect to the negotiation and the idea about a modest extension in terms of months. It will be for the Secretary of State and the Prime Minister to update the House sooner, but I acknowledge my right hon. Friend’s point with respect to the opportunities that exist beyond the EU in terms of finding a settlement that gives us the freedom to develop our trading relationships.
Kirsty Blackman (Aberdeen North) (SNP)
I was going to start my question by thanking the Chancellor for coming and answering questions on the cost of Brexit, but it is not the Chancellor who is here and I am afraid that the Economic Secretary is not doing a very good job of answering the questions on the cost. Can he tell us please: in the event of no agreement on staying in the customs union and the single market, what will be the loss in productivity to businesses in the UK and in Northern Ireland specifically and how many redundancies does he expect to see in Northern Ireland and in the UK? What is the loss cost to the UK economy of the EU citizens who have chosen not to come here or who have chosen to leave as a direct result of the Brexit vote? Lastly, if he truly believes that we would be better off as a result of the UK leaving the EU without being in the customs union or the single market, can he tell us what his models say about how much better off each of us will be?
John Glen
No, I cannot give the hon. Lady a cash figure for every member of the United Kingdom, but what I can say is that the Government and the Treasury are determined to make preparations for all eventualities. That is why we are preparing 70 statutory instruments to take through this House in the event of a no deal. The EU should be very clear that we are going to be ready for all eventualities while being committed to negotiating the best possible outcome, as directed by the British people two years ago.
Greg Hands (Chelsea and Fulham) (Con)
Of course, it is the policy of the party opposite for us to remain in the customs union forever. That is worth bearing in mind. Will my hon. Friend give a bit of detail on what work HMRC has done, in the case that we are in the customs union but outside the EU, on who determines things such as trade preferences and who runs trade defences on behalf of this country in those years?
John Glen
I can confirm to my right hon. Friend that these are matters with which the Government are engaged intensively in the negotiations at the moment. We are also working towards securing as much autonomy as possible for the British Government in the future. That is the mandate that we have been given by the British people.
Hilary Benn (Leeds Central) (Lab)
The Minister told the House a moment ago that the Government expect the negotiations on the future relationship to be concluded by December 2020. However, when the Government published their backstop proposal for Northern Ireland, they said that they expected those negotiations to be concluded at the latest by December 2021. Which of those two dates represents Government policy?
John Glen
Government policy is that we have a backstop arrangement in place to fulfil our obligations and we are in negotiation over the timings of that. The Prime Minister will be coming to the House later today and the right hon. Gentleman will have an opportunity to clarify with her the answer to that question.
Mrs Anne Main (St Albans) (Con)
Can my hon. Friend inform me why he thinks that there is any incentive for the EU to give us a good deal if they think that by dragging their heels they can drag us into being obliged to pay extra money to them?
John Glen
There is no expectation that this Government will seek to pay more money to the EU. We are in negotiation, as has been set out. We have made considerable progress. We have a small number of items to resolve, but the intention is to get the best possible deal for the British taxpayer in the national interest.
Mr Chris Leslie (Nottingham East) (Lab/Co-op)
Will the Minister break it gently to the right hon. Member for Wokingham (John Redwood) that, if we stay in the customs union and the single market—and, quite frankly, if we remain in the European Union—we will save our constituents that £81 billion that will be lost to them otherwise? That is not my calculation, but the Minister’s—the Treasury’s own calculations and forecasts from last December say that our constituents will be £81 billion worse off if we leave on the WTO terms of the right hon. Gentleman.
Antoinette Sandbach (Eddisbury) (Con)
What businesses in my constituency want is certainty and reassurance that the border will be as frictionless as possible. This is key to many sectors of prosperity in the north-west. Will the Minister confirm that the costs involved in temporary ongoing membership of a customs union will dramatically be outweighed by the benefits to business?
John Glen
The Government have to reconcile the decision of the British people to leave the EU with, as my hon. Friend says, the need to make sure that the cost to business is as little as possible. That is why it is absolutely imperative that, when we secure the final outcome of the negotiations, it is good for business, good for the economy and good for jobs.
Tom Brake (Carshalton and Wallington) (LD)
Could the Minister set out the extra cost to UK GDP of leaving the customs union, and the extra cost to businesses in Wokingham, in particular, of the hard Brexit favoured by the right hon. Member for Wokingham (John Redwood)?
Charlie Elphicke (Dover) (Ind)
I am sure that my hon. Friend, who is doing an excellent job today, is, like me, an avid reader of the Conservative manifesto, which states that the withdrawal agreement and future relationship will be negotiated side by side. Ninety-five per cent. of the withdrawal agreement has been completed, which is great news. How much of the future relationship agreement has been done?
Mr Speaker
I understand that the Minister’s natural courtesy inclines him to look in the direction of the person who is asking him a question, but it is helpful if he faces the House. It is not a serious sin; I am just trying to aid and counsel him in the discharge of his duties.
Helen Goodman (Bishop Auckland) (Lab)
The Government’s own statistics show that leaving with no deal would put unemployment in the north-east up to 20%. What is their calculation of the effect on unemployment in the north-east of leaving the customs union?
John Glen
There are a range of assumptions around the implications of different scenarios. The Government seek to ensure that we minimise the downsides and maximise the upsides in the agreement that we come to. I recognise that significant industries in the north-east rely on certainty in that relationship, and that is why it is very important that we get it right.
James Duddridge (Rochford and Southend East) (Con)
This modest extension that is only a plan is going to cost £15.6 billion. How will the Minister explain that in Southend, Salisbury and Stockport? Could we not use the money slightly better?
Nigel Dodds (Belfast North) (DUP)
Could I ask what the purpose of any such extension might be? Is it to replace the Irish backstop, or is it in addition to that?
John Glen
At the moment, this is an idea that has been raised. In terms of the detail of it and where it fits within negotiations, clearly the Prime Minister will be best placed to answer. I say to the right hon. Gentleman that one of the enduring principles of our negotiations is to ensure that we treat the whole United Kingdom as a single united entity. That is an enduring principle that is guiding us through these negotiations.
Mr Speaker
Succinctness as exemplified, legendarily, by the hon. Member for North East Somerset (Mr Rees- Mogg).
Mr Jacob Rees-Mogg (North East Somerset) (Con)
Will my hon. Friend say whether, if we stayed in the customs union, any revenues that came from customs would be considered to be own resources?
Mary Creagh (Wakefield) (Lab)
The Minister is doing his best to accentuate the positive, as the song goes, but he knows that the cost of Brexit is already being paid by every family and every business in this country: higher prices in the shops, a staffing crisis in the NHS and a hit to the public finances of £26 billion a year, before Brexit has even happened. Can I ask him to resist the jingoism and fantasy maths of the English nationalists in the Conservative party and remember that staying in a customs union is a red line for those of us in the Labour party? The value of not returning to a hard border—
Mr Peter Bone (Wellingborough) (Con)
Is the Minister aware that many people on the Government Benches and in the country think that £39 billion is not worth paying, let alone any more?
Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)
Thousands of people across Merseyside, including my constituents, are employed in the automotive and aerospace sectors. Our membership of the customs union is vital for supporting jobs and investment in our regional economy. What assessment has the Treasury made of the effect of leaving the customs union on those sectors? Does the Minister agree that only staying in the customs union will ensure the future of those sectors?
Sir Hugo Swire (East Devon) (Con)
I think we can agree that any extension to the transition period will be costly—£15 billion, £16 billion or whatever it is—but the problem is that we will have no MEPs to represent us, no say and no influence on any legislation introduced during that period. Does my hon. Friend agree that there should be no taxation without representation?
Several hon. Members rose—
Catherine West (Hornsey and Wood Green) (Lab)
There seem to be a number of questions that the Minister is not able to answer. Is his boss available, or is he also in “the killing zone”?
Mr Philip Hollobone (Kettering) (Con)
The extension to the transition period is designed to replace the backstop to the backstop. Given that the Irish Government and Her Majesty’s Government have both said that they are not going to build the hard border, who is?
Caroline Lucas (Brighton, Pavilion) (Green)
In January, the Prime Minister promised ahead of the so-called meaningful vote that there would be a full economic impact assessment of the exit deal. Can the Minister guarantee that that will happen? How much time will MPs have to consider the deal before we have to vote on its credibility or the lack of it?
Mr Jonathan Djanogly (Huntingdon) (Con)
When looking at the customs union, would it not also be wise to look at the significant benefits of being in a trading bloc of 500 million people that has delivered wealth through some 40 FTAs with some 70 countries—agreements that the Government have already said they wish to adopt if we are able to, post Brexit?
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
Last October, I asked the Chancellor in the Treasury Committee whether the benefits of feasible future trade deals outweighed the costs of leaving the single market and the customs union. He could not give me a clear response. Is the Minister any closer to giving a clear response today?
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
Is the Minister finding withdrawal from the European Union as easy and cost-free as some of those on the Government Benches behind him suggested it would be?
Owen Smith (Pontypridd) (Lab)
Will the Minister confirm that the head of HMRC estimates that the cost for British business of leaving the European Union customs union would be £20 billion a year?
Angela Smith (Penistone and Stocksbridge) (Lab)
A lot has been said this afternoon about the strategic cost of Brexit, but every day thousands of civil servants are dedicating their working lives to working to the Prime Minister’s direction, yet the Prime Minister is sacrificing the interests of the country to try to heal the divisions in her party among those on the Conservative Benches. When are the Government going to get a grip and stop wasting taxpayers’ money on delivering the impossible?
John Glen
The Chancellor has made money available across-Government to help us through this process. I would acknowledge the massive contribution made by our civil service to help across many Departments of Government. The Prime Minister is committed to securing the best deal for the nation.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
Leaving the customs union will cost us billions, but it is also costing dear now. Does the Minister not agree with me that, with violent crime rising, the Home Office could have done with the extra money to pay for an extra 4,500 police officers, instead of £500 million for extra customs and border officials to prepare to leave the customs union?
Martin Docherty-Hughes (West Dunbartonshire) (SNP)
Will the Minister advise the patients of the Golden Jubilee Hospital in Clydebank in my constituency how patient they have got to be to have medicine regulation while Recardio is taking out its health clinical trials for new heart medicines?
Christian Matheson (City of Chester) (Lab)
The truth is that this is typical crackpottery by the Brexit extremists on the Conservative Benches, who seem to be running the show over there at the moment. Will the Minister tell us what the effect will be on the aerospace sector and on Airbus next to my constituency of leaving and being outside the customs union, as opposed to remaining in and protecting those jobs?
Anna McMorrin (Cardiff North) (Lab)
Experts have found that Wales will be hit disproportionately hard, with people and communities up and down Wales hit hardest if the UK leaves the customs union and the single market. Is the Minister prepared to make that sacrifice?
Ian Murray (Edinburgh South) (Lab)
The Minister has been asked five times to identify the figures for unemployment if we leave the customs union, so let us make it easier for him: will unemployment go up or will it go down?
Andy Slaughter (Hammersmith) (Lab)
The Minister looks as though he wishes he was somewhere else, and he has referred most of our questions to the Prime Minister, for which I am sure she is grateful. He must be able to answer this question: does he stand by the Treasury forecast that this country will be worse off outside the customs union, the single market and the EU?
John Glen
What I stand by is the desire of the Government to find the best possible solution for the United Kingdom—that maximises the advantages to the UK economy of the growth in economies outside the EU. There is a range of assumptions to a range of forecasts, and the Treasury always goes into considerable depth in setting those out clearly.
Nick Thomas-Symonds (Torfaen) (Lab)
Manufacturers in my constituency need certainty, yet in recent weeks we have had a backstop, a backstop to the backstop and now an extended transition. Is not the truth that the Government’s chaotic approach to these negotiations is putting jobs at risk?
Mr Sweeney
Does the Minister not accept that any firm whose operations span European supply chains will be worse off if we do not have a customs union?
Bilateral Loan to Ireland
John Glen Excerpts(7 years, 1 month ago)
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The Economic Secretary to the Treasury (John Glen)
HM Treasury has today provided a further report to Parliament in relation to the bilateral loan to Ireland as required under the Loans to Ireland Act 2010. The report relates to the period from 1 April 2018 to 30 September 2018.
A written ministerial statement on the previous statutory report regarding the loan to Ireland was issued to Parliament on 24 April 2018, Official Report, column 21WS.
[HCWS1008]
Contingent Liability Notification
John Glen Excerpts(7 years, 1 month ago)
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The Economic Secretary to the Treasury (John Glen)
I can today confirm that I have laid a Treasury Minute informing the House of the contingent liability that HM Treasury has taken on in authorising the sale of a portfolio of Bradford & Bingley (B&B) and NRAM loans acquired during the financial crisis under the last Labour Government.
On this occasion, due to the sensitivities surrounding the commercial negotiation of this sale, it has not been possible to notify Parliament of the particulars of the liability in advance of the sale announcement.
The contingent liability includes certain market standard time and value capped warranties and indemnities confirming regulatory, legislative and contractual compliance. The maximum contingent liability arising from these warranties and indemnities is approximately £49 million. There are further remote fundamental market-standard warranties which are capped at £983 million.
As part of the transaction, UK Asset Resolution (UKAR), the holding company for B&B and NRAM, also terminated interest rate swaps, which hedged the risk of changes in interest rates, held against these mortgage loans. These swaps were taken out by B&B and Northern Rock more than 10 years ago when the loans were issued, in line with good risk management practice. Due to the fall in long term interest rates, there is a substantial cost for terminating the swaps.
The net impacts of the sale and the termination of the swaps on a selection of fiscal metrics are as follows:
Public Sector Net Debt is reduced by £449 million in 2018-19;
Public Sector Net Borrowing is increased by a total of £100 million by 2022-23; and
Public Sector Net Financial Liabilities is reduced by £83 million in 2018-19.
UKAR will incur an accounting loss of £180 million on the transaction in 2018-19. UKAR is expected to make an overall profit in 2018-19.
The net present value of the assets if held to maturity was estimated by UKAR’s advisers to be £741 million using Green Book assumptions. UKAR received £943 million in exchange for the assets.
I will update the House of any further changes to B&B and NRAM as necessary.
[HCWS1009]