Brexit and the EU Budget (EUC Report)

Lord Hannay of Chiswick Excerpts

Thursday 6th April 2017 Lords Chamber

[Lord Hannay of Chiswick (CB)]

My Lords, I am delighted to follow my noble friend Lord Butler. I am even more delighted that, unlike him, I will address the vexed legal issue, because that avoids a situation in which we might disagree, which we seldom do.

I should begin by declaring an interest: over many years of my professional career, I struggled with the intricacies of the EU budget: during our own accession negotiations in 1970-72, when this issue was at their heart, and then during the late Lady Thatcher’s five-year- long battle to secure and entrench a two-thirds rebate on our net contribution—that was from 1979 to 1984, when I was her principal Foreign and Commonwealth Office adviser. In the negotiations of what was subsequently called the Delors package, in 1987-88, when for the first time an overall framework for EU spending priorities and policies began to take shape, I was the permanent representative to the European Union. So I bear the scars of these endeavours and I did acquire, I think, some familiarity with the subject of the report we are debating today.

The report before the House is a valuable one, in my view, and I congratulate the noble Baroness, Lady Falkner, on having chaired the committee during its production. It has much useful material and detail about the issues that will confront our negotiators during the negotiations that are about to take place. For the most part, with one exception which I will return to in a minute, I have no hesitation in endorsing it as a genuinely useful background brief on a subject that will inevitably come up before this House again and again as these negotiations progress.

What lessons do I draw from my experience negotiating on budgetary matters in the European Union? First, I suggest that you should never think that you know enough about this subject to allow you to make sweeping assertions about it in advance. Just do not do that. If you do, all too often a black hole will open under your feet as soon as you have done it and you will have to revise everything you have said. When I heard a former Minister of the Crown—a Minister who was actually responsible for the largest spending department in the UK, Mr Iain Duncan Smith—musing that perhaps the European Union would end up owing us money, I could barely avoid grimacing at his woeful ignorance.

Secondly, do not establish in advance, and do not let anyone know, what overall figure you might settle for. Lady Thatcher never did that and she was right not to. You must retain a degree of flexibility. Then, never say that no deal is better than a bad deal. Lady Thatcher also never said that. I had hoped that the Government had stopped saying it when it went missing from the letter to Donald Tusk, but, alas, it then popped up within a week in the White Paper on the repeal Bill. If you want the other side to move their figures, they have to believe that if they do so, you might strike a deal with them. If you start saying that you are not going to strike a deal with them, they will not move.

It follows from what I have just said that I believe that the Commission has already made one fundamental and egregious error by allowing an unsubstantiated figure of €60 billion to slip into the public domain. I believe that it will come to regret it, because that will not be the outcome, but also because the only way to reach any agreed settlement is for both parties to the negotiations to work their way, painfully and painstakingly, through the detailed components of any overall figure. That is the work of the coming months; it cannot be done in advance, unilaterally, by one of the parties to the negotiations.

Now for my beef, which is paragraph 135 of the report. I do not believe that the committee should have accepted so uncritically and endorsed the legal opinion that in the absence of any deal the United Kingdom would have no financial obligations to the European Union. To put it mildly, that is only one legal opinion among many. It could only be settled in a court of law and it would be exceptionally unwise, in my view, if the Government went down that road, because the collateral damage to the United Kingdom from doing so—economic damage, trade damage and political damage—would be massive. That is, no doubt, why the Government are so coy about telling us what the consequences of leaving without a deal might possibly be. Unfortunately, this conclusion—the one in the report about the legal liability—is all too likely to encourage those of the Government’s supporters who are, in any case, showing many signs of wishing to leave without a deal to believe that they have a “get out of jail free” card. They do not; this would be a “get out of jail very expensively” card. I am glad that the Government show no signs of being tempted to go down that road. The Tusk letter certainly implied that they do not wish to do so.

We in this House surely need to ensure that that distinctly contentious and dubious legal opinion is not available to be hung around the neck of the Government, like the dead albatross around the neck of the Ancient Mariner, when the Government return one day, as we must hope they will, with an agreement for us to consider and approve. How it can best be done that the House does not continue to support that legal opinion I leave to the noble Baroness, Lady Falkner, who may perhaps take a shot at it—she tiptoed up to it in her introduction—when she replies at the end of this debate. I do not believe that we should either credit it or allow it to stand.