Brexit: Financial Services (European Union Committee Report)

Lord Dykes Excerpts

Thursday 9th February 2017 Lords Chamber

[Lord Dykes (CB)]

My Lords, it is a pleasure to follow the noble Viscount, Lord Eccles. I have always respected the sensible approach he has to these practical matters of markets and business. I add my thanks to the other speakers in this debate, particularly the very distinguished, competent and professional chairman of the committee, the noble Baroness, Lady Falkner of Margravine, and her colleagues who produced this excellent report. This is a complicated area, but the report is not too long.

Unusually, I do not agree with my noble friend Lord Butler who said that he feels very optimistic, in contrast to this report. The report is realistic, but it espouses a not irrational, not excessive, but sensible and proper degree of pessimism about the difficulties we will see in the future.

There are many warnings in this excellent report, and I shall quote briefly two significant parts of it.

“We conclude that, if the current passporting regime is not maintained”—


and we cannot assume that it is necessarily going to be—

“the Government should seek a deal to bolster the current equivalence arrangements for third country access, to cover gaps in the regime and to ensure the continuation of equivalence decisions as financial services regulation develops”.

More fundamentally:

“Negotiations on the UK’s new relationship with the EU are likely to take longer than the withdrawal negotiations under Article 50”.


That is a very serious problem. The report also states:

“A transitional period will therefore be needed in relation to financial services following the completion of the Article 50 process, when the UK leaves the EU. This may need to be adapted and extended in the light of subsequent negotiations on a new long-term relationship with the EU. This will enable firms and others such as regulators to adapt to any new business conditions”.


There has been a lot of coverage in the press of the Article 50 Bill, which has now successfully passed its Commons stages and will come to us when we resume after the mini-recess that is just about to begin. It is very interesting to observe how the intelligent commentaries in various parts of the press—but not all of them, unfortunately—are coming increasingly to the conclusion that it would be much better to maintain the status quo in the relationship between the new separate UK total market—financial and other markets, including physical markets—and the rest of the EU.

I was therefore very impressed when the Prime Minister in her Lancaster House speech outlining her plans and the details said:

“I know that this—and the other reasons Britain took such a decision—is not always well understood among our friends and allies in Europe. And I know many fear that this might herald the beginning of a greater unravelling of the EU.


But let me be clear: I do not want that to happen. It would not be in the best interests of Britain. It remains overwhelmingly and compellingly in Britain’s national interest that the EU should succeed. And that is why I hope in the months and years ahead we will all reflect on the lessons of Britain’s decision to leave”.


Astonishingly it has not been noticed by many people, but in the first paragraph of her Sunday Telegraph article on 8 January the Prime Minister emphasised that the Brexit decision was only part of the reaction as a result of those who voted no in the referendum. The rest of it was a general disaffection with the state of people in the British economy, their feeling of job insecurity, older people feeling they were being left out—although pensions have been more generous in recent years—and, of course, 16 and 17 year-olds were grumbling because they were not included in the voting system this time round.

There was an astonishing mixture of things in an advisory, opinion-giving referendum. We have to bear that in mind. I make no criticism of the Prime Minister; she was not herself elected and she could not be under the system. She took over from the previous Prime Minister, Mr Cameron, whose vote was less than one-quarter of the total voting population. I believe that Theresa May knows that the more she thinks about it, the more she has to sustain the very good relationship that we ought to have with the EU.

Sixty per cent either abstained or voted against the referendum result. That meant that the total amount of the population will have enormous second thoughts. Those second thoughts are developing. We see the post coming in and more and more emails, particularly on the financial sector and worries about the famous London market. I declare an interest tangentially as a member in those days of the London Stock Exchange and a partner in a big institutional firm. We were not part of the financial markets, as such, although we were indirectly. We were all very proud of what the city has achieved and of the London financial markets becoming the leading market in the world. It is a tremendous asset. It is ironic that the very market that has sustained and cultivated the success of the euro itself as a currency—the main market in the world—is in a country where a good number of people have become increasingly psychologically afraid of the euro, because we were driven out of the exchange rate mechanism in humiliating circumstances in 1992. That has lingered as a feeling.

Since the war, there have been eight devaluations of Britain’s currency—three by government action and five in the marketplace. The recent one when the referendum result was announced was modest, and not too bad against the dollar and the euro. That is not a good background for us to be too overoptimistic about our ability to do what we were intending to do for those who did vote in the referendum and voted just about Brexit and nothing else.

I think there was also a blending and mingling of all those emotions, not least the fear of immigrants. Theresa May as Home Secretary was responsible with others for not bothering to invoke some of the articles of the Rome treaty—the TFEU as it now known—that gave some restrictive possibilities to limit the number of immigrants as if there was no reason to have a free-for-all, which we seem to be accepting, including from Romania.

The definition of optimism given by the noble Lord, Lord Butler, is, I think, a little esoteric for the purposes of this debate. It reminds me of the lovely old Hollywood joke: the true definition of optimism was a 98-year old man who got married for the seventh time and deliberately bought a new house near a school—that kind of optimism, maybe. We have to face up to the realities of this difficult matter.

In the debate last autumn in the Moses Room on the single currency, I noticed how the noble Earl, Lord Caithness, praised the euro for being a successful currency. It is now the second world reserve currency after the US dollar. It is getting closer and closer to the US dollar. The European Union, of course, has a much lower overall national or international debt coefficient than the United States. As noble Lords know, the difference is $19 trillion for the federal Government in the USA and $12 trillion for the European Union with 500 million people.

There is a lot to be working for. In this feeling that we have a lot of negotiations to come, I wish the Minister very well in terms of the details and add my congratulations on her new post. The conclusions are more and more to do with somehow leaving the European Union in a formalistic sense, but keeping all the relationships going—the markets, the physical relationships and the acquis communautaire. Of course, it will be put into what is going to be the repeal Bill, if it comes along. I do not use the adjective “great”, by the way, because I have my doubts about it. Therefore, we are ending up with the same kind of bureaucratic input that people who did not like Europe were madly complaining about when they said that the European Union was far too bureaucratic and heavy. All those instructions, regulations and requirements will be inserted into the repeal Bill if we maintain the status quo in all the markets in Europe that we are suddenly so keen on.

The whole thing is becoming more and more shaky as an approach for a mature Government in a mature Parliament in a mature country. This country needs to recover the self-confidence we had as an upstanding and successful member of the European Union, whatever the future structure and decisions may be. The Article 50 Bill has only just started. There is a long, painful and bumpy road to come. No one can predict how it is going to turn out, but I think the second-thought syndrome is becoming increasingly powerful.