Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019

Lord Lilley Excerpts

Monday 18th February 2019 Lords Chamber

I am not quite sure, without sticking together about four documents, which I have not done, whether this means that we are on a regular cycle in which, every three years, equivalence will be redone. I see no reason why we should not check that the countries that were equivalent still are, but I should like the answer to that question. It seems to be an important point that could have appeared in what I think is the basic piece of regulation, if such a thing exists, about equivalence determinations.

[Lord Lilley (Con)]

My Lords, I hope that the noble Lord, Lord Adonis, will not be shocked to hear that as I have wandered through the corridors of this place, I have heard some noble Lords expressing the view that they are a little tired of his obsession with the statutory instruments. I hope that he will not be even more shocked to know that I am coming to his defence. I think that he is doing an important job and is highlighting one of the great benefits of Brexit. He is bringing to our attention the fact that, after 45 years when we have had to accept these accumulating piles of statutory instruments with scarcely a debate, with no possibility of rejection—that is why there has been no debate—with no hope of altering or amending, which is why we have not, up to now, considered any of the statutory instruments, now, because of Brexit, we are able to do so because, to coin a phrase, we are taking back control of our laws. We should be grateful to the noble Lord for being a convert to this. There is more joy in heaven over one sinner that repents than over 99 just men who have no need of repentance—and I rejoice with him.

Along with the noble Baroness, I have the privilege of sitting on the Secondary Legislation Scrutiny Committee of your Lordships’ House, which goes through these regulations and changes to ensure that they accord with what they are supposed to accord with, to highlight any aspect of them which we think needs to be brought to the attention of the House and, if need be, to upgrade them. I have to say that it has been a revelation to me to see the scope, scale, detail and complexity of legislation which, in the past, has been implemented simply because it is EU legislation. Even if the whole House had rejected it, it would still have become the law of the land.

The noble Lord, Lord Adonis, is right to be concerned about several things. He is right to be concerned about consultation, because now consultation will matter. There will be some point in listening to what people think about statutory instruments because we will, in extremis, be able to reject them, and certainly to suggest to the Government that they might choose to do things differently, and it will be possible for them to do so.

The noble Lord is also right to point to the need for impact assessments and measures of cost. My noble friend Lord Deben—another great convert to Brexit—pointed out that these were important and suggested that the failure to cost these things was because the Treasury was anxious to hide them. I can tell him that today our committee considered one measure which concerned the European budget. We suggested that there should be a costing of that, because there would be a saving of between £10 billion and £12 billion net from no longer being part of the European Community if we leave without a withdrawal agreement on 29 March.

[Lord Deben]

I do not quite understand how we can know the net saving if we have not estimated the actual cost of any of these statutory instruments. That, surely, is the issue. Although we all understand my noble friend’s very amusing and charming way of putting it, many of us realise that the reason why we have these things in this form is that it gives us real equivalence. The problem we are now faced with is that we have fake equivalence. We decide what we want, but if others are not prepared to go along with it, our financial industry will be very much disadvantaged.

[Lord Lilley]

I am trying to get the full gist of my noble friend’s intervention, which was, first, that he seemed to think that the cost of all the statutory instruments which have not been costed—although many of them have—might somehow accumulate to anything approaching the £10 billion to £12 billion a year net contribution that we will save as a result of this one statutory instrument that we have been discussing in the Secondary Legislation Scrutiny Committee today, which will remove us from the EU budget. If he thinks that they are on that scale, I invite him to name one that might be worth £1 billion, for example. I suspect that he will not be able to do so.

My noble friend went on to talk about equivalence, which is important and can be valuable; that is the substance of this SI. It is worth the House remembering that equivalent regulation is not as important as superior regulation. It is far more important for this country to have good regulation—that is, the best in the world, which is not to say the most detailed or intrusive regulation but effective, appropriate, not-too-onerous regulation that ensures good quality of business. That has been the City’s great strength over the years. Better regulation than other countries has often been more important than identical regulation. The Eurodollar market is in London, not New York, because of bad regulation in America: Regulation Q, or whatever it was, drove all the business out of America. Our success in the trade in German state bonds was because the majority of it took place in London, due to our regulatory system being superior to the Germans’ before we introduced the single market and they had to improve theirs somewhat. Likewise, we carried out a high proportion of the trade in French equities because our regulatory system was superior, rather than identical, to that of France.

We should remember that the four great financial centres in the world—New York, Singapore, Hong Kong and London—all have something equivalent to each other and are great financial centres because they have in common common law and all the infrastructure built on that, such as legal and accounting processes, which make them flexible and desirable places to do business. In effect, they outpaced countries with different legal systems. We should welcome equivalence where appropriate but be very glad that we will not have to have regulation identical to that of our friends and partners on the continent. It is almost certainly beneficial to London to be a rule-maker, not a rule-taker.

[Baroness Kramer (LD)]

Perhaps I could explain to the noble Lord, Lord Lilley, that one reason why so many of us are making comments and expressing concerns about procedure, including about the impact assessment and the limitation on what we can do with statutory instruments—we cannot amend or change them—is because the whole process pales greatly in comparison to the equivalent process available to us as we dealt with these fundamental issues as EU members. Then, we were framing the overarching directive that set the context through extensive and transparent consultation and scrutiny, via a process in the European Parliament and the European Council. Typically, we then engaged our regulators for the final stretch, but in the context of all that work in discussion and negotiation. One of the reasons for London’s great success is that it was able to shape so much of that discussion in the way it thought appropriate, bringing all its experience to the table. That is what made it Europe’s premier financial centre and the great global financial centre it is today, all of which it achieved in the context of EU membership.

[Lord Lilley]

The noble Baroness makes an important point but one that deflects a little from reality. When I was a Treasury Minister, I had to negotiate things in Europe. I suppose we had a certain influence, but at no point did the House get involved much, rightly or wrongly. She should not create an ideal world that did not exist.

[Baroness Kramer]

I accept fully that this House did not get involved, but I do not consider democracy as having only one locus. Our Members of the European Parliament were democratically elected as democratic representatives. The Ministers we sent to Councils engaged with democratic representatives. I do not think that this process happens in only one place. It seemed to me that as a consequence of that representation, we had real importance. Now, we face two situations—

[Lord Lilley]

The point being made by the noble Lord, Lord Adonis, and others is that we should not leave that process to Ministers. The noble Baroness seems to be saying that our doing so in the past was jolly good because they defended our interests.