EU Membership: Economic Benefits

Lord Hammond of Runnymede Excerpts

Wednesday 15th June 2016 Commons Chamber

[The Secretary of State for Foreign and Commonwealth Affairs (Mr Philip Hammond)]

I welcome the opportunity to speak in this crucial debate, Mr Speaker, and I consider that the subject matter falls perfectly well within my remit of foreign affairs.

As we approach the final stage of this campaign, it sometimes feels that we have lost sight of the key question that people are supposed to be answering in the polling booths a week tomorrow. That question is not, “Do we like the EU?”, or “Do we agree with everything it does?” It is not, “What message do you want to send the EU?” or even, “What message do you want to send the Government?” It is certainly not, “Is the EU perfect?” I would be the first to say loudly that it is not. This is a straightforward question that requires a clear-eyed, hard-headed analysis and response: “Are we safer, stronger and better off inside a reformed EU or outside it?” As Foreign Secretary, I know as well as anyone the frustrations of decision making by committee of 28 and the compromises that entails, but I also know that we are winning the arguments in Europe and are increasingly influential in shaping its future. I know, too, that we have greater global influence as a result of being a leading member of the world’s largest trading bloc.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

The right hon. Gentleman asked the question that we hear all too often: is the EU perfect or imperfect? The reality is that people complain that their council is imperfect. Unbelievably, some people in Scotland even complain that their Government are imperfect. A lot of people definitely complain that Westminster is imperfect. I find that a lot fewer people complain about the EU being imperfect, so can we stop saying that the EU is uniquely imperfect? There are imperfections at all levels of government, and to brand the EU in that way is a problem. The EU is a club for independent countries, which Westminster most certainly is not; it is a family of nations, which this is not.

--- Later in debate ---

[Mr Hammond]

I am grateful to the hon. Gentleman. He certainly did not hear me claiming that the EU was uniquely imperfect. It is just another imperfect institution among very many, including our own Government, I am certain.

I know that we are safer because we work with other EU member states to tackle the threats of terrorism and organised crime, and I know that we are better off for being part of a market of more than 500 million consumers, with the combined economic weight of a quarter of the world’s GDP, when negotiating trade deals with the rest of the world. I want to dwell on that point, because it is fundamental. We said back in 2010 that our economic security and our national security are two sides of the same coin, and it remains true today. Without economic security, there is no national security. How could we be safer if we could not afford to invest in our nation’s security and defence? How could we be stronger and more influential if our economy was shrinking?

[John Redwood]

How can the Foreign Secretary say that we are more secure and better off? If we take the fishing industry, for example, the number of fishermen has halved since we joined the EU and the industry has been under a common fisheries policy that has driven us into import dependence on other countries.

[Mr Hammond]

I say that because I take a holistic view. I am looking at the interests of the United Kingdom as a whole, taking into account all the pluses and minuses of our EU membership—yes, there are negatives as well as positives—balancing those arguments and reaching a conclusion about the net benefit to this country of being a member of the European Union.

[Mark Pritchard]

My right hon. Friend is absolutely right that there can be no economic security without national security. Will he tell the House how many of our NATO allies want the United Kingdom to leave the European Union? Many in the Brexit camp invoke Commonwealth leaders. Perhaps he can enlighten the House about how many Commonwealth leaders want the UK to leave the European Union.

[Mr Hammond]

My hon. Friend knows very well that the answer to both those questions is zero, but it goes further than that: I have not found any foreign leaders at all urging Britain to leave the European Union and saying that Britain would be a more influential and valuable partner if it left the EU.

[Caroline Flint (Don Valley) (Lab)]

rose—

[Mr Hammond]

I will give way in just a moment, but I need to make some progress, because many Members wish to speak.

The hon. Member for Hayes and Harlington (John McDonnell) set out some of the economic benefits of our continued membership of the EU. By the way, I welcome his candid assessment of the achievements of the SWP over the past four decades—I never thought that I would hear that coming from his mouth. I agree with him that workers’ rights such as paid holidays and maternity and paternity leave are important. However, it is perhaps worth reminding him that it was a Tory-led Government who abolished Labour’s jobs tax and took 3 million of the lowest paid out of income tax altogether, and that it is this Conservative Government who are introducing the statutory national living wage, which addresses his point about the wages of the lowest paid.

It is also worth reminding the hon. Gentleman—the Labour party periodically appears to forget this—that the most fundamental right for any worker is the right to have a job and a pay packet at the end of the month. That is a right that 2.5 million more people enjoy today under a Conservative Government than in 2010 under a Labour Government, which is the result of Conservative fiscal management and Conservative economic reforms. A Tory-led Britain that is a member of the European Union has delivered record levels of employment.

[Sir William Cash]

The Foreign Secretary has just referred to the net benefit to the United Kingdom from being in the single market. Will he tell me how a net benefit is actually a UK trade deficit? According to the House of Commons Library and the Office for National Statistics, in our trade in goods and services with the other 27 member states, we had a deficit of no less than £67.8 billion in 2015, which was up £10 billion on the previous year and is escalating. How is that a net benefit?

[Mr Hammond]

I shall come to that in a minute, but my hon. Friend dwells like an old-fashioned mercantilist on the trade statistics alone. I suggest to him that there are wider issues at stake about the overall impact on our economy and the benefits of the growth, investment and dynamism that being part of a 500 million-strong market of very wealthy consumers delivers to us.

[Alison McGovern (Wirral South) (Lab)]

I have been very happy to campaign in a cross-party way to remain, but as the Foreign Secretary has criticised my party’s record in government, may I ask him whether his Government’s cuts, loaded on to the poorest parts of our country, have made too many people question whether they have anything to lose in the referendum? Their wages have been falling since the crash, which has damaged their confidence in our economy to deliver for them. Does he believe that, when we vote to remain, we need to see real action to help people in the poorest parts of this country?

[Mr Hammond]

Yes, but we will do that only by delivering a robust economy that is soundly based and can go forward in the future. The most effective way of doing that is by being part of the European Union.

Our membership of the EU gives us both the freedom to trade in the world’s largest single market—a market of more than 500 million consumers—without tariffs and the bureaucracy of customs barriers, and access to more than 50 other markets besides, through EU free trade agreements. The benefits of being in that single market are clear for us to see: 44% of Britain’s exports go to the EU. How much of that trade would be lost if we put up the shutters and renounced our EU membership? How many businesses and employees who depend on that trade would go to the wall? How long would it take to negotiate a new trade agreement with our European neighbours? What would the terms be? I am prepared to bet that they would be nothing like as favourable as the terms that we have on the inside.

[Andrew Gwynne (Denton and Reddish) (Lab)]

What assessment has the Foreign Secretary’s Department made of the length of time that it would take for the British Government to negotiate not only a trade deal with the European Union, but, as he mentioned, all the free trade deals that currently exist between the EU and other parts of the world, so that we can trade with the rest of the world?

[Mr Hammond]

The hon. Gentleman raises a good point, and he will have heard the Prime Minister talking about that very issue only a few moments ago. We can expect that it would take us at least two years to negotiate our exit from the European Union if that was what the British people decided on 23 June. Thereafter, we would have to negotiate a trade deal with the European Union, and then trade deals with the 53 other countries around the world with which the EU has free trade agreements.

There is a small technical hitch, to which I have drawn the House’s attention before: we do not have any trade negotiators, because for the past 40 years the European Union has conducted our trade negotiations for us. It is about not just time but the price that we would have to pay to negotiate that access to the single market from outside. From the evidence of others who have done that, the answer is clear. That price would involve our freedom of movement, acceptance of the entire body of EU regulation, and a whopping sub to boot—all the things that the leave campaign tell us we will escape from—with no say at all in how the rules are made. It would be the worst of all worlds.

[Chris Philp (Croydon South) (Con)]

On the question of the trade deficit with the EU, which my hon. Friend the Member for Stone (Sir William Cash) mentioned a moment ago, does the Foreign Secretary agree that were we to exit the single market, the component of EU free trade that would be placed most at risk would be free trade in services, on which we enjoy a £20 billion trade surplus with the EU?

[Mr Hammond]

My hon. Friend is absolutely right. I want to address that important point later in my speech.

Any deal that we achieve with the European Union will almost certainly exclude free access to the market for services, which is something of a problem when services account for almost 80% of our economy.

[Caroline Flint]

rose—

[Geraint Davies]

rose—

[Mr Hammond]

Let me just make this point, then I will give way again.

By contrast, if we remain inside the EU, we can look forward to a huge dividend from an opening of the market in services over the coming years. The truth is that we have barely scratched the surface when it comes to the EU single market. The single market in goods is well developed, but in the sectors in which the UK is truly market-leading—financial, business, technical and professional services, the digital economy, the creative industries and energy—the potential remains huge, and the EU’s high-value market is the place to realise it.

[Mark Tami (Alyn and Deeside) (Lab)]

Has the right hon. Gentleman seen the warnings from Airbus about the threats to future investment in this country? I am talking about more than 6,000 jobs in Alyn and Deeside and 5,000 jobs in Bristol. Does he agree that the Brexit camp think that those are jobs that we can afford to lose?

[Mr Hammond]

That question has never been effectively answered—how many jobs are those advocating Britain’s exit from the European Union prepared to sacrifice on the altar of their notion of sovereignty? We have never had a straight answer to that question. What we do have is a range of independent estimates of what that number would be if we voted to leave next Thursday. I shall come to that in a moment.

It is because of the potential for the UK to open up the services market in the European Union that the deal the Prime Minister negotiated in February is so important. We now have a clear political commitment from all 27 other EU member states, plus the Commission, to accelerate the development of that market. These are the sectors in which the UK leads in Europe, and in which an expansion of the single market will disproportionately benefit the United Kingdom over the years ahead.

[Robert Neill (Bromley and Chislehurst) (Con)]

Does my right hon. Friend recognise that that commitment to a proper completion of the single market in services, added to the completion of a capital markets union, places the United Kingdom in a unique position to develop its world-leading sector, and that it would be mad to walk away from that opportunity?

[Mr Hammond]

My hon. Friend is right. That is what I hear from many of my European colleagues: we are about to move from one phase of European Union development into a new phase that is hugely beneficial to the United Kingdom, yet we are talking about walking away from it. Our financial services industry alone currently contributes more than 7% of UK GDP and employs more than 1 million people, two thirds of them outside London, but there is not yet a single market for financial services across the EU. The potential is huge.

A fully functioning digital single marketplace could be worth as much as £330 billion a year to the EU economy, with the UK again set to benefit more than any other country, as the leading digital economy in Europe. By the way, it would be a huge boon for Britain’s digital-savvy consumers, who would be able to shop freely across the digital single marketplace. Individuals are already feeling the benefits of last year’s EU agreement, led by the UK, to end mobile roaming charges, which it is estimated will save UK consumers around £350 million a year, and for years we have all been enjoying the budget airline boom created by EU regulations.

[Nigel Huddleston (Mid Worcestershire) (Con)]

Does my right hon. Friend agree that the reason why the markets had such a shock yesterday was the prospect of us leaving, based on a couple of polls? That £30 billion shock to our financial system hit not just capitalists but the pension funds of hard-working people, which deteriorated. If the prospect of Brexit caused that shock, what on earth would actual Brexit look like?

[Mr Hammond]

My hon. Friend is right. We can regard what has been happening in the markets this week as a fore-tremor—a taste of what could be to come if the people of Britain vote to take a leap into the dark on 23 June.

A fully fledged energy union in gas and electricity markets could save £50 billion a year across the EU by 2030, with huge benefits for consumers through their energy bills, as well as making Europe safer from threats of energy blackmail. But it is not just intra-EU trade benefits that our membership delivers. As a member of the world’s largest economic bloc, we benefit directly from being party to EU trade agreements with more than 50 other countries, with terms far more favourable than any that we could have negotiated alone, because of the combined negotiating muscle of an economic bloc with a quarter of the world’s GDP.

[Caroline Flint]

Trade is one of the areas where size does matter. Will the Foreign Secretary comment on the attempts to strike a deal between Switzerland and China? We hear much about what the world might be like if we leave the EU. My understanding is that as part of the deal the Chinese are negotiating for full access to the Swiss market, but have told the Swiss that they will have to wait 15 years to get into the Chinese market.

[Mr Hammond]

The right hon. Lady is right. The deal on the table between Switzerland and China is deeply asymmetric and deeply unfavourable to the Swiss, but reflects the mismatch in scale between those two marketplaces. Being part of the world’s largest economic bloc allows us to stare squarely into the eyes of Chinese and American interlocutors when negotiating trade deals.

It is a well rehearsed and well understood fact that 44% of the UK’s exports go to the EU, but it is an underestimate because it addresses only exports to the EU. If we take into account the countries with which the EU has a free trade agreement—destinations for another £56 billion of British exports—the figure goes up to 56%, which does not take into account any of the countries with which the EU is negotiating free trade agreements. If we included them, we would be talking about more than 80% of UK exports going either to the EU or to countries with which the EU had trade agreements. At the very least, more than half of Britain’s exports would therefore be at risk if we left the European Union, and it could take a decade or more to put in place new deals with the EU 27 and the 53 other countries with which we have free trade agreements. It is not about choosing between growing our trade with the EU or with the rest of the globe—as the figures show, our EU membership is key to both.

[James Cartlidge (South Suffolk) (Con)]

Is not the central absurdity of talking about the EU deficit and the surplus with the rest of the world that our trade with the latter is largely conducted through foreign companies—Japanese car makers and American banks, for example—that base themselves here precisely because we are in the single market? They trade with the whole world—they do not see it as two different places. We as a country should have that attitude.

[Mr Hammond]

My hon. Friend is right. The world’s supply chain has globalised itself. If I am honest, when I listen to the arguments of some of our opponents in this debate, although framed in terms of hostility to the European Union, I sometimes wonder whether what I am hearing is hostility to the globalisation of our economy.

What is true for trade is also true for investment—the other side of the coin. The reality is that Britain benefits hugely as a platform for investment from both EU and non-EU countries, many of which see us as a gateway to the rest of the European Union. They come here because of our language, our skills, our flexible labour market and our domestic regulatory environment, but if I talk to foreign companies based in this country—I have lots of them in my constituency, and other Members will be in a similar position—and to others around the world thinking of making that investment decision, it is clear that the single most important factor in the decision making of most of them is our membership of the European Union. Our membership makes Britain a launch pad for doing business with the rest of Europe. Almost three in every four foreign investors cite our access to the European market as a principal reason for investment in the UK. If we lost that access, we would lose the investment. It is as simple as that.

[David Rutley (Macclesfield) (Con)]

Is my right hon. Friend aware of Ernst and Young’s recent report showing that the UK continues to be the No. 1 destination for foreign direct investment in Europe, with the north-west seeing the biggest increase? Does he agree that a vote to remain would encourage yet further investment in the northern powerhouse and in other regions?

[Mr Hammond]

My hon. Friend is right. Treasury analysis shows that the UK is the largest recipient of foreign direct investment in the EU, ahead of Germany and ahead of France. We get almost a fifth of total inward FDI into EU countries—20% of the investment, with less than 12% of the population. I remind the House that every pound of that investment creates jobs in the UK. It is why Australia is a disproportionately large investor here, it is why so many Indian firms use this country as a base, and it is why world leaders, such as President Obama, Prime Minister Abe and Prime Minister Modi, believe we would lose out if we voted to leave the EU.

[Mr Jamie Reed (Copeland) (Lab)]

Will the Foreign Secretary confirm that that is particularly true of Japan and Japanese investment, on which this country relies for new nuclear power generation?

[Mr Hammond]

Not just for our new generation of nuclear power, but for a large part of our thriving car industry, which is built and based on our ability to export to the European Union. Japanese investment has transformed the economics of and labour relations in our car industry—it has done wonders for this country. It astonishes me that we would even contemplate undermining the basis on which that investment is made.

[Chris Philp]

Will the Secretary of State give way?

[Mr Hammond]

I will just make a little progress if my hon. Friend will allow me.

If we left the EU, the practical consequences of lower trade and lower investment would be felt directly by the British people: fewer jobs and higher unemployment. An estimated 3.3 million jobs in the UK—more than one in every 10—are linked to exports to other EU countries, with 250,000 jobs in Scotland, a quarter of a million in the south-west, half a million in the midlands, and 700,000 in the north. How secure will they be if we vote for Brexit next Thursday? How will the spectre of rising unemployment undermine consumer spending and sap business confidence—to blight, once again, those areas of the country that have been in this cycle all too often?

[Patrick Grady (Glasgow North) (SNP)]

Given the risks to the nations and regions of the United Kingdom that the Foreign Secretary is outlining, and given that the most recent poll shows support for leave in Scotland at only 32%, is he beginning to regret rejecting the SNP’s call for a four-nation lock on the referendum’s outcome?

[Mr Hammond]

No, I am not. This is a very important debate, but we have to use the power of persuasion to win it, not tricks. We have a week to make the case—openly and fairly. We need to let the British people decide, and then, as the hon. Member for Hayes and Harlington said, whatever their decision and however much we may not like it, we have to accept it, abide by it and implement it, and that is exactly what we will do.

Over 100,000 British businesses export to the EU. The future of every one of them—and of every person who works for them—will be put on hold if next Thursday there is a vote to leave. Will they be able to maintain access to their markets? Will they face tariffs? Will their customers hedge their bets and take their business elsewhere, just in case? It is difficult to see how even the most upbeat Brexiteer could not see that we are likely to face months, years and perhaps a decade of confidence-sapping, investment-eroding, job-destroying uncertainty that will take this country back to the dark days of 2008, and I for one never want to go there again.

[Antoinette Sandbach (Eddisbury) (Con)]

Rolls-Royce has a manufacturing facility in my constituency and has made the threat to jobs very clear. Unemployment has fallen 60% since 2010, but that improvement will be put at risk, as highlighted by a CBI report stating that the shock to our economy could cost 950,000 jobs. Does the Foreign Secretary agree that that risk is simply not worth taking?

[Mr Hammond]

I absolutely agree with my hon. Friend. It is a risk we do not need to take, and it is a risk that it would be absurd to take. I just cannot believe that after all the grief and pain we have been through in this country to rebuild our economy following the disaster of 2008-09 we are seriously thinking about going back there. That astonishes me.

Economic experts have judged overwhelmingly from the evidence that Britain’s economy will be stronger and more resilient if we remain in the EU. The G7 Finance Ministers, nine out of 10 economists, and independent organisations such as the IMF, the World Bank, the Institute for Fiscal Studies and the World Trade Organisation have expressed the view that the UK will be better off inside the EU.

And not just economists but more than 200 entrepreneurs —founders of household names such as Skype, lastminute.com and innocent drinks—agree. Rarely, if ever, can an issue have united the opinions of everyone from global institutions, through trade unions, to British businesses, large and small. The overwhelming weight of economic and business opinion is clear: Britain is better off in.

[Simon Hoare (North Dorset) (Con)]

Will my right hon. Friend nail from the Dispatch Box the canard that some on the exit side are peddling—that this is just a vehicle for another round of never-ending renegotiations? This is a serious, one-off decision. We will abide by the decision, and it has to be right for the future of our country.

[Mr Hammond]

My hon. Friend is absolutely right, and I am happy to repeat what he says, as the Prime Minister did earlier. The British people will have their say; they will make their decision, and we will implement it. I do not believe that our 27 partners in the EU would say, “Oh, fine, let’s go through all this again,” even if we wanted to. This has to be the deciding point. It is make your mind up time. People have to look at the options bus: a future they know and can predict, with Britain in the European Union—a Britain that has created 2.5 million jobs over the last six years, and a Britain with a growth rate that has outstripped that of every other country in the European Union—or a leap in the dark.

[Several hon. Members rose—]

[Mr Hammond]

I am going to make some progress now. I want to finish so that others can contribute.

What would be the consequences of a vote to leave? They would be: less trade, of course; lower investment; slower growth; and fewer jobs—less trade, because we would lose our access to the EU single market and to the free trade agreements the EU has; lower investment, because foreign businesses using the UK as a launchpad into the EU would go elsewhere, and UK businesses would be seeking to rebuild their markets, rather than investing for expansion; slower growth, because the economy would effectively be on hold for at least two years, and almost certainly very much longer, while we negotiated the terms of our exit from the EU; and fewer jobs, because, in a climate of such economic uncertainty, few companies would be hiring or expanding their workforce. Indeed, to answer the question asked by my hon. Friend the Member for Eddisbury (Antoinette Sandbach), the director general of the CBI, Carolyn Fairbairn, estimates that, if we left the EU, there would be almost a million fewer jobs in the UK by 2020 and that those under 34 would be hit the hardest.

Let us be clear: an exit negotiation with the EU will be far from the straightforward affair the leave camp is suggesting. We have general elections next year in France and Germany, and I can promise that every single vested interest in both those countries will be seeking to benefit from the British exit. We should expect no favours from those whom we have just snubbed. The Brexit campaign wants us to believe that we could negotiate a better deal for Britain from the outside than the one we actually secured from the inside at a time when the entire European Union was seeking to persuade us to stay. This is simple fantasy. [Hon. Members: “Hear, hear!”] It will not happen.

[Helen Whately (Faversham and Mid Kent) (Con)]

My right hon. Friend spoke about how companies that export to Europe would be badly affected by leaving the European Union. If we have a Brexit recession, not only will businesses that export to the EU be hit, but almost all businesses will be affected by the loss of investment in the UK and the loss of consumer income. Will not all businesses be affected?

[Mr Hammond]

My hon. Friend is absolutely right. I am afraid that I can predict, on the basis of experience, what will happen. If we get a Brexit vote, markets will go into freefall, business confidence will collapse, business investment will freeze, and consumers will panic and stop spending, and that will have a massive effect across the width and breadth of our economy.

The United Kingdom is, and should remain, an outward-looking trading nation. If we want to remain prosperous, we must move up the value curve, not down it. Britain’s future has to be about higher skills, higher wages and higher investment, not the opposite.

The EU has many failings, and no one is pretending that the reforms negotiated by the Prime Minister should be the last word. If we remain on the inside, we can and should continue to influence the speed and direction of reform. If we step outside, we will continue to be affected by EU rules, but we will have no way of influencing them and no way of reforming the institutions.

The consequences of the decision the British people make on 23 June will reverberate down the generations. This is not a decision to be taken lightly; all our futures depend on it. Now is not the time for reckless risk-taking; it is time for cool, calculated consideration of the facts, the evidence and the expert opinion, and all point to the same conclusion: we are stronger, safer and better off inside a reformed European Union.