Brexit: Financial Services (European Union Committee Report)

Lord Butler of Brockwell Excerpts

Thursday 9th February 2017 Lords Chamber

[Lord Butler of Brockwell (CB)]

My Lords, I declare my interests as noted in the report. After the figures of potential job losses given by the noble Lord, Lord Shutt, I hope to cheer the House up a bit. I have come to think that since the report which we are discussing was published in December, the impression it gave about the problems presented by Brexit for the UK’s businesses and financial services is perhaps too pessimistic.

As a member of the sub-committee which produced the report under the courteous and skilful chairmanship of the noble Baroness, Lady Falkner, I believe that it correctly reports the importance of our financial services to the UK economy; the unreliability of the equivalence and passporting regimes which enable UK financial institutions to provide services to the rest of the EU; and the need for a regime to ensure that UK financial services do not face a cliff edge when the UK leaves the EU. All that is correct, but the reason why I have become more optimistic is that this report is understandably UK focused. It is about what UK businesses want and need and not so much about what EU businesses want and need. When the issue is considered from the EU perspective, more grounds for optimism emerge. The reference to avoiding a cliff edge implies that there is a sharp fall on the other side of the cliff, but when the interests of the EU partners are taken into account, I wonder whether that implication is correct.

The report received many representations from outside—for example, from the British Banking Association—which urged the need for a transition period to avoid the cliff edge, which has already been referred to. It is widely recognised that the phrase “a transition period” has two meanings. It can mean an extension of the period in which existing arrangements continue to apply while a new bilateral agreement is negotiated. It can also mean a period after a new bilateral agreement is reached before it comes into effect so that businesses on both sides have time to adjust to the new arrangement. Certainly a transitional period—in both senses of the phrase—is better than a cliff edge, but a rapid agreement respecting the mutual interests of both sides is better than either. The refrain that we most insistently hear from businesses is that they want certainty and they want it as soon as possible.

A report by an official working group for the European Parliament’s Committee on Economic and Monetary Affairs, seen by the Guardian newspaper, warns of the importance of the London market to the EU partners. According to the Guardian, it says:

“The exclusion of the main European financial centre”—


that is, London—

“from the internal market could have consequences in terms of jobs and growth in the EU. It is in the interest of EU 27 and the UK to have an open discussion of this point”.

It is relevant that, while 5,500 UK firms benefit from passports for trading financial services in the EU, more than 8,000 EU firms benefit from passports for trading into the UK. It does not follow that we can take equivalence and passporting regimes for granted but I believe it does follow that the EU partners have an interest in not using them in a vindictive manner.

I do not go along with TheCityUK in its view reported last week that Brexit will enable London to become more attractive to worldwide businesses by tearing up those parts of the EU regulatory regime which UK firms find finicky and burdensome. It will still be necessary for the UK to retain harmony with EU regulations. This may involve conforming to regimes and requirements which we will have no formal role in formulating but it does mean that we will have a mutual interest in keeping close to each other. Since the UK has often been a leader in formulating effective regulation, this is likely to be in the interests of both sides. Certainly, when the UK’s approaches have differed from those of our EU partners in the past, it has not been because the UK has been less rigorous.

Those are important issues for companies but there are also important issues for individual citizens. One illustration is the provision of insurance. It would be tedious for UK motorists if they had to start applying for green cards again or pay extra insurance for trips to Europe because it is no longer recognised that UK insurance policies provide the same minimum cover as their EU counterparts, but it would also be tedious for European motorists if their policies were no longer accepted in the UK. A similar point applies to the European health insurance card.

The old injunction against cutting off one’s nose to spite one’s face is particularly apt in both the UK’s and the EU’s approach to these matters. In all these areas we must hope that the negotiations take proper account of the mutual interests of both sides and are not driven by ideology.