Brexit: The Future of Financial Regulation and Supervision (European Union Committee Report)

Lord Desai Excerpts

Wednesday 6th June 2018 Lords Chamber

[Lord Desai (Lab)]

My Lords, if I may I will speak in the gap. I am a member of the committee but, by some muddle, my name does not appear on the list. I join everyone else in thanking our chairman for her excellent work—and our staff. I shall concentrate on one thing, because the report has been summarised very well by my fellow committee members. We all agree that the City is not only a great contributor to our economy but one of the best financial centres in the world. There is no doubt about that. We also know that access to the City is of great benefit to EU countries. But I say to my noble friend Lord Liddle that we could not write a report on any assumption other than that Brexit will happen. We had to work that out. If it does not happen, who knows what will happen—but we had to do that.

My doubt is this: yes, it is a fact that we are a very good financial centre, we make a great contribution to European prosperity and Europe needs us. In a world of rational, self-interest pursuing agents, it would be recognised by both sides that it is in our mutual interest to arrive at a good agreement—be it equivalence, mutual recognition or whatever. My fear is that we do not live in that world in this context. Given the way that the Brexit negotiations have gone, I increasingly suspect that neither side really wants to pursue rational self-interest. Indeed, had we wanted to pursue rational self-interest, we would not have got into this in the first place.

Given that we are champions in the financial industry, it of course makes sense for the other side to use what in the old days we used to call import substitution to keep us out as far as possible—because their industry can develop only if ours is stopped from competing in their market. This is the history of all developing countries and, if you are a financial centre such as Frankfurt or Paris, you look forward to the time when you can make it difficult, if not impossible, for the City of London to compete.

My conclusion from this is rather pessimistic, but I think it agrees with a lot of what our witnesses said. Assume the worst. That is the only ground on which you can plan the future. It is most likely, unless we are very lucky, that we will not get a good agreement in finite time and that we will have to adjust to a situation after Brexit when we will have to use our ingenuity and innovation to do better elsewhere.