King’s Speech

Lord Lilley Excerpts

Thursday 14th May 2026 Lords Chamber

[Lord Lilley (Con)]

My Lords, it is always a great and nostalgic pleasure to follow the noble Lord, Lord Liddle, whose enthusiasm for rejoining the European Union reminds me of the remarks of Samuel Johnson about a friend of his who was contemplating a second marriage—that it was a triumph of hope over experience. No experience or facts will dint the hope and enthusiasm of the noble Lord, Lord Liddle.

But we all make mistakes—we predict things which do not happen and advocate policies which do not work—and there is no great shame in it. Indeed, I am sure the right reverend Prelate would accept that as long as we acknowledge our mistakes and repent of them, we will be forgiven. I certainly made mistakes. Indeed, I made the same mistake as this Government are making and which lies behind their policy on the reset. The Government actually believe that, in the words of the Business Secretary, the single market is “where the magic happens”, and that rejoining it or aligning with it will make our exports grow and our GDP likewise.

As the Trade and Industry Secretary responsible for preparing this country for participation in the single market and overseeing the process, I made similar speeches. I did not invoke magic, but I did say that membership of the single market would boost our exports to the EU and with it our growth. I said it would do so even more powerfully than the Uruguay round, which we were simultaneously negotiating and which halved tariffs worldwide and created the WTO.

For many years thereafter I assumed that that had happened, but eventually I was confronted with the facts and they showed that I was wrong. Throughout our more than a quarter of a century of membership of the single market, our exports of goods to our fellow founding partners of the single market had stagnated. They grew at less than 1% a year for 28 years. At the same time, our exports to countries worldwide with which we had no trade agreements had grown four times as much, by 87%. Our services exports within the single market grew more slowly than all but two other rather minor countries in the single market.

The single market magic, whatever it is, failed for Britain. Why do the Government not recognise that? Why do they still believe—I am sure they are sincere in their belief and are not just lying to us—that the single market will magically boost our exports? They are not alone. Most of the commentariat also assume that the single market was good for us. Indeed, how many noble Lords who are going to speak in favour of a reset today were aware that the single market was such a failure in terms of our goods exports to the EU? I think half a noble Lord was aware of it; the others were not.

There is a reason for that. I have been thinking about why this view is so prevalent. The reason why the facts are so little known is that the single market was the aspect of European membership which commanded near universal support. Free-market Conservatives like me hoped that it would unleash market forces and make us all richer. Eurosceptics put aside any reservations because Mrs Thatcher was a great advocate of it. On the other side of the political spectrum, Jacques Delors persuaded an initially very sceptical Trades Union Congress, and with that the Labour Party, much of which had been opposed to membership of the European community, that the single market would enable it to control and regulate markets in the public interest. What was more, it could do so from a European level without the need to win an election in Britain, which eluded it for 18 years. None of us ever doubted that it was a good thing and nobody queried it.

I googled to find out what studies had been made by academics and politicians of how much the single market had benefited British goods exports, or not, during our membership. There were almost none during that period. Eventually, some studies were made and the facts are incontrovertible. Our goods exports to the EU grew at a snail’s pace and our service exports did little better. We can respond to those effects by adjusting our predictions and policies accordingly—that is what we should do—or we can react like Hegel, who claimed he could derive all the theories of natural science from his first principles and his dialectic method. His disciples went out and came back and said, “But master, the facts contradict your theories”, to which he replied, “So much the worse for the facts”. That seems to be the Government’s attitude as far as the facts of our past experience in the single market are concerned.

There is a lesson from that experience: what drives trade is not trade deals. Trade deals can bring some benefits if they are not off-set by the greater burden of regulation which one imports with them, but it is only a second order benefit. The noble Lord, Lord Liddle, is right to say that trade deals with the rest of the world are not going to be an elixir. What drives trade is producing goods and services that other people want to buy, going out and selling them, preferably in fast-growing markets, and not allowing yourself to be encumbered by unnecessary burdens and protection from Europe, which have made Europe the slowest-growing continent in the world.

Sadly, that is not what we have been doing. We have stopped producing things. We have been introducing policies which make it more difficult to produce things, and you cannot export what you do not produce. The Government have a policy of stopping all new exploration and development in the North Sea, but our exports of oil and gas to Europe were considerable. As a result, we have closed down one-third of our refineries and our export of our important refined products. That has undermined our chemicals industry, and with that we have lost production of fertiliser and ammonia. It is not just in oil and gas related industries; anything dependent on energy has been undermined by the fact that we have the highest energy prices in the OECD. That has meant that we have lost much of our aluminium industry and processes. We saw that happen in the steel industry, as mentioned in the brilliant speech from noble Lord, Lord Hunt, and we are losing production in all energy-intensive industries: ceramics, bricks, cement and so on. It is a self-inflicted wound. We cannot export what we do not produce.

I urge noble Lords to read an excellent report by Catherine McBride and others called Premeditated Industrial Destruction? She is one of our leading trade analysts, and it paints a very grim picture of what is happening to our trade and why. It is nothing to do with trade deals—if you do not produce, you cannot export. The obsession with tweaking our trade arrangements with the EU is a displacement activity for those who will not face up to the damage that our domestic policies are inflicting on industry after industry.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, my noble friend Lord Fox has had to leave, as the cold lurgy got him; undoubtedly, it will now get me over the weekend. The core point of his speech—the significance of and need for ambitious and strong leadership now—is almost the central point of the debate we have had today. I hope that the Government are going to take that on board. The impact of the turbulence we face domestically and overseas on the cost of living for ordinary people is really quite devastating. The Government have to deliver bold action in response. I am not sure that this King’s Speech meets that test.

I say to the Government: stop pussyfooting in the European partnership Bill and seize the opportunity. The noble Lord, Lord Livermore, has talked in the past about the 6% to 8% scarring of the economy in 2025. I have seen the numbers and I am with him, but I will leave him to argue that case with the Conservatives, who do not appear to have taken note of them.

I also want to point to the speech made by my noble friend Lord Strasburger, who talked about the specific damage done to one of our most important industries—the creative industry—by Brexit. I could bring industry after industry before this House to make exactly the same case. To those who think that Brexit has not been a huge damage, I say: go out and speak to industry after industry. I defy anyone to continue to make that statement.

[Lord Lilley (Con)]

My Lords, does the noble Baroness speak to the NFU, which does not want to rejoin Europe because it believes that the divergences from EU rules since Brexit have benefited it enormously? Doing away with those divergences would cost £600 million to £800 million a year just for PPPs, and £500 million a year for fisheries.

[Baroness Kramer (LD)]

We may be speaking to the people at the NFU, but I suggest that the noble Lord go out and start speaking to individual farmers. He will find that the agricultural sector has been really badly hit by the processes that we have been through. It also underscores the inadequacy of trying to fill this just with trade agreements. I listened to a lot of the ideas that came from the Conservative Benches; if you added them together, you would be lucky to get 1% to 2% growth, even if you were able to implement them in a positive way. That does not anywhere near offset the 6% to 8% damage. Again, I will leave the Minister to continue with that argument.

This is an important time to be much more ambitious on the European front. Of course I support youth mobility schemes, the recognition of professional qualifications and the reduction of red tape, but this is the time when we need to be going for a bespoke customs union and building the trust, as well as building the British economy, that will enable us to be on a trajectory towards the single market and eventually to rejoining. If I look at just the customs union, I think it is widely accepted now that the impact of that would put £25 billion more into the UK economy every year. That money could bring some relief to our debt numbers, could help us deal with the need for additional investment in defence and could in turn help struggling people.

Missing from the King’s Speech is action to turn around the sad trajectory of small businesses. I applaud the late payments Bill, but I say to the Government that it is time to grasp the nettle and completely revise business rates to keep small businesses viable, and it is time to force the energy companies to offer competitive pricing to small businesses. I do not know what is holding the Government back from referring that industry to the CMA because it is clearly not offering competitive options to small business, and we are paying a huge price for that. A scheme for apprentices is very important, but it is meaningless if we keep losing small businesses because they are the ones that can take on apprentices and they are often the only real source of jobs in our most deprived communities.

What about access to finance for small businesses? The British Business Bank has made a commitment to support community development banks and financial institutions, which is laudable, but the Government have given it pennies to work with. A sector that can lend at best £150 million in the UK lends more than $300 billion in the US; it is the complete backbone to small business and provides the secure foundation for its economy. Will the new legislation allow the National Wealth Fund to step into that space and let us properly grow the community development investment financing sector?

These Benches will scrutinise very carefully the enhancing financial services Bill. It has not been much discussed today but I notice that, in their briefing, the Government—this counters other messages that we heard from the Conservative Benches—finally recognise that the financial sector has suffered quite severely because of Brexit and has been stagnant while other areas have been growing. It is salami slice by salami slice. The EU is building capacity in financial services across a network of cities, often in partnership with British firms. People talk fluently now of Lloyd’s of Brussels, LCH has replaced the term London Clearing House, and LCH Paris is becoming a major force. This will become far worse if in June 2028 the EU decides to limit its grant of equivalent status to UK central counterparties. The risk is not just that we lose trillions in derivatives clearing business but that the financial operations that collocate with CCPs could make that call to collocate elsewhere. Neither the EU Bill nor the financial services Bill seems to deal with any of this.

The enhancing financial services Bill intends to enable credit unions to expand. We have called for that for some time and it should help with financial inclusion, but we need a more far-reaching strategy, including clarification of the future of banking hubs. Consolidation of the PSR and the FCA can be successful if it is done with care, but I am much more concerned about plans to scrap much of the certification regime that sets the standard for senior management recruiting and accountability in the banking world. Before the certification requirements were brought in, senior bankers simply hired their friends. I was shocked, in going around to HR department after HR department, to discover that they did not even require CVs or check references if someone was referred by a senior banker within their own organisation. That accounts for a lot of the failures that we have had to deal with historically.

I also suggest that the Members here who question the importance of the certification regime look at the evidence that the Parliamentary Commission on Banking Standards got from senior bankers. The changes I can see to the certification regime weaken individual responsibility and return to the concept of collective responsibility. It was on that basis that bankers were shocked that they should have been expected to call out any kinds of concerns or failure in management, or carry the can for what went wrong. This is an industry that genuinely needs good regulation. I do not care if it is streamlined—that is always an advantage—but we have to recognise the importance of regulating this industry.

I am equally concerned about changes to ring-fencing. The co-mingling of retail and investment banking was a major factor in the 2007-08 crisis. The free money from retail deposits fuelled casino-type investment. Retail banking dropped credit standards, mis-sold products such as PPI, and switched to short-term funding. If anyone thinks that reducing the ring-fence will help the financing of small businesses, think again. The major banks have restructured their operations and staffing in ways that make cash-flow lending impossible except to large clients.

I cannot see how this Bill tackles risks outside the recognised institutions. I have been truly concerned with the Government’s love fest with private credit, which we saw during the passage of the Pension Schemes Bill. Private markets play an important role in financing productive investment, but these markets, which now exceed $18 trillion, as Sarah Breeden, Deputy Governor of the Bank of England, said,

“have not yet been tested, at that scale and complexity, by a broad-based macroeconomic shock in a higher-rate environment”.

There is little transparency, underwriting standards are weak, the loans are sliced and diced, and liquidity is very limited. Private credit is now deeply wound into the banks, insurance companies and pension funds through lending arrangements. Interconnection matters. Add in potential bubbles in tech and AI valuations, and the play by hedge funds now in the gilts markets, and it becomes evident that risk has not gone from the financial sector, it has simply taken a new shape. This Bill is a chance to make sure our regulators have the powers and capacity to respond. I am afraid there is a current complacency and that is very dangerous.

This Bill is also an opportunity to urgently address the issues of digital currency, both fiat and stablecoin. Too many powers have been switched from Parliament to the regulators. Digital is not just a variation on plumbing. Should sterling stablecoin be redeemable at par, for example? What quality of assets is required to back it? I suggest not gold and bitcoin. Who controls the exchanges that can shut off transactions at will? At the international level, what happens to UK monetary sovereignty when future cross-border trade is dominated by dollar and renminbi stablecoin? These issues are above the pay grade of the FCA and the Bank of England, and need to come to Parliament.

We will support the expansion of the sandbox in the regulating for growth Bill, but my noble friend Lord Clement-Jones will, I think, speak extensively on the risk of getting on a deregulation bandwagon without looking extremely carefully, particularly as we are dealing with AI. We saw the damage that has been done by the failure to regulate social media early enough—a price paid by vulnerable people and by many of our youngsters. This is not to be repeated in AI, so again, beware the worship of a deregulation programme.

We will also look closely at the highways financing Bill to make sure that the RAB funding is not a way to burden ordinary people with funding costs that the capital markets have rejected. It has a place, but we have to be careful with it.

My noble friend Lord Fox has detailed our support, but with care, for nationalising the steel industry as we try to sort out its role. There is a need for a long-term strategy to underpin that process.

I thank my noble friend Lord Stoneham for focusing on housing, which is an issue that has not been extensively debated today but which absolutely underpins the future of our economy. I also thank him for his focus on the industrial strategy.

We will work hard to ensure that the competition reform Bill ensures an independent CMA with teeth. This should not be a proposal to weaken the CMA; it should be a proposal to strengthen it in very changing times.

However, none of this, frankly, is enough. Our work is going to be to put together a programme of much greater ambition—ambition that can be managed without excessive risk but that takes real care and real energy.