Brexit: Options for Trade (EUC Report)

Lord Green of Hurstpierpoint Excerpts

Thursday 2nd March 2017 Lords Chamber

[Lord Green of Hurstpierpoint (Con)]

My Lords, as has already been recognised, since the report was published, events have moved on. The Government have set their course, aiming for a deep and comprehensive free trade agreement, a customs agreement with the EU and a range of FTAs with other markets. More generally, the Government have proclaimed an aspiration for Britain to become the standard bearer for open trade policy. This is to be the new global Britain.

There is much to be saluted in those aspirations, even by one such as myself who believes that we should have remained in the EU. Apart from anything else, there is a fundamental difference between this approach—the approach of the new Brexit Britain—and that of Trump’s protectionist version of America. We did not hear at any stage in the referendum campaign rhetoric about cheap Chinese imports, for example.

I want to make a few points, all briefly—not least because some of what I was going to say has already been covered. First, the deep and comprehensive free trade agreement and the customs agreement with the EU will now be critical as the centrepiece of the Government’s strategy. As has already been underscored, this is unprecedented. It will be more ambitious than the ambitious Canadian agreement, the South Korean agreement and the Ukraine agreement—which we looked at in our deliberations. It will be different, too, from the Turkish association agreement. In a sense, “more than all of these put together” is the mantra. At the end of the day, it will be something sui generis.

Of course, unprecedented does not mean impossible. In fact, it has often been argued—there is clearly an element of truth in this—that the starting conditions make an agreement easier to achieve than was the case with any of the others that I referred to. We start, after all, from a position of considerable harmonisation, certainly in the goods markets and increasingly in the services markets, too. So, technically, the achievement not of convergence, which already exists, but of the avoidance of divergence should be easier.

Politically, however, it will not be straightforward. As has already been mentioned, from the EU perspective this deal cannot be as good for the UK as the status quo. If it were, others might be tempted to say, as Philip Snowden is reported to have said in 1931 when Britain dropped off the gold standard, “I didn’t know you could do that”. It will also be difficult for Her Majesty’s Government because the dispute resolution process will almost certainly have to involve in some way the ECJ—certainly on the EU side, there is no way to avoid that.

My second point has been made by a number of other noble Lords: there is close to no chance of accomplishing all this in two years. The Canadian deal took somewhere between seven and 10 years; the Japanese discussion with the EU is going surprisingly well but it is already into its third or fourth year and clearly will not be completed any time soon.

The complexities are enormous. They are not just about the short-term distractions of the EU elections and the high priority that will undoubtedly be attached by the EU to the budgetary questions and by all of us to the acquired rights questions. All these mean that that the process will take some time. On top of that, the trade discussions with the EU are inevitably related to other trade discussions—this is true on both the UK side and the EU side. The existing EU FTAs may be questioned by their counterparts. The South Koreans and the Canadians, after all, both signed deals with a market that included Britain. Will they want to review those agreements in the event of their no longer getting access to the British market?

Then there is the question of new agreements that are in process of negotiation now—I have referred already to the Japanese agreement, which is the most important case. The noble Baroness, Lady Armstrong, mentioned the north-east and its high export propensity per head. Those exports are very largely of cars to the EU market. Therefore, I am sure that the noble Baroness would want to join me in asking the Minister whether the Department for International Trade has given careful thought to the impact of a successful conclusion of the EU-Japan deal on the UK-EU discussions.

Thirdly, there is the all-important question of Ireland. We debated this at great length earlier this week, but, unlike everything else in the Brexit discussions on trade and investment, this is not just about commerce and could not be treated as one item in a shopping basket for a negotiation where, inevitably, trade-offs and compromises get made. It is of course about the peace settlement, and if it went wrong a human tragedy could result. Ministers have confirmed on a number of occasions that they attach a very high priority to the maintenance of a seamless, open, frictionless border on the island of Ireland. In responding to this debate, could the Minister confirm that this means that there are no circumstances in which we would sacrifice that question on the altar of a very good free trade arrangement in other respects?

Fourthly, the phased period of implementation in which the UK, EU and member states prepare for the new arrangements—to quote from the Government’s response to our report—has been commented on by a number of speakers. What is in a name? We might well ask. A rose is just as prickly by any other name. The fact is that this will take a considerable number of years beyond the two years of the Article 50 discussions. I wonder, in the company of a number of other speakers, whether the Government would not be better to say this outright and set a period— not an unlimited period but one, for example, of five years—during which there will be a transitional agreement and, knowing the direction of travel towards an eventual deep and comprehensive free trade agreement, discussions can take place in the orderly manner and over the timeframe they will need and necessarily take.

Finally, I will raise a broader and deeper issue. Global Britain will want to think of itself as a nation of traders. Indeed, we have heard that expression. We want to think of ourselves as outward looking and entrepreneurial, ready to take on the wider world. But, as of now, we are more what Napoleon said we were: a nation of shopkeepers. We have too few companies engaged in exports. We have market shares in some of the fastest-growing markets in the world that are behind those not only of Germany but of France and Italy. The growth statistics this week produced by the Office for National Statistics show how unbalanced the current growth pattern is in this country. We have a yawning trade and current account deficit, which has a long history. We have an import penetration problem such that the devaluation of sterling is blunted and tends to translate all too quickly into higher rates of inflation. Rhetoric will not change this and neither will monetary policy and fiscal rectitude alone.

We need to face up to one of the most basic lessons of the Brexit vote. Britain has lived for half a century with not only an increasingly unbalanced economy but an increasingly unequal society. These two trends are related. We have failed over decades to invest properly in the country’s societal future, above all through the education and training needed to enhance life chances and social mobility. Changes in the nature and structure of the economy in the latter decades of the last century played their part in this, and the radical change in technology that is likely to transform the economy over the next few decades will exacerbate the challenge.

The last generation saw the British economy become more dominated by services than that of any other major European country. Of course, others have seen manufacturing decline as a percentage of national output in the face of newly globalised competition—but none as steeply as Britain. As the share of manufacturing shrank from the 1970s onwards, apprenticeship training—the principal route into the good, intermediate-skilled jobs that are the backbone of any effective manufacturing industry—was allowed to wither on the vine.

The so-called hourglass economy has not done away with the need for intermediate skills. In fact, we are gradually building up a significant skills mismatch. An unbalanced and unfair system of preparation for adult working life has produced plenty of low-skilled workers and not enough intermediate-skilled ones, such that by 2022 on present trends, 9 million low-skilled workers could be chasing 4 million jobs while there will be a shortage of 3 million workers needed to fill some 15 million higher-skilled roles. In an underinvested economy that has seen no material growth in labour productivity, economic growth overall has failed to increase average prosperity and has been possible at all only because skills gaps have been plugged through immigration.

This is not sustainable and the social implications of these imbalances are certainly unacceptable. This is a complex problem with deep roots, both societal and economic. The Social Mobility Commission’s State of the Nation 2016 report documents in sobering detail how a disadvantaged start in life feeds through to weaker average educational performance from the earliest years onwards; less access to tertiary education; and less support for vocational development routes into adult working life and into a labour market where the supply/demand equation is increasingly weighted against the low-skilled.

Does this all seem irrelevant to the question of trade? I hope not, because it is actually fundamental to our long-term ability to succeed in trade. In other words, there is a lot more to the strategy for the successful development of the new global Britain in its trade position vis-à-vis the rest of the world than trade deals. Surely a major priority has to be a long-term, properly resourced skills education strategy. It is not easy. We have failed over several decades to do this well. We need—dare I say it?—to be prepared to learn from some of our European friends who do this so much better than we have done.