European Union (Notification of Withdrawal) Bill

Lord O'Neill of Gatley Excerpts

2nd reading (Hansard): House of Lords
Tuesday 21st February 2017 Lords Chamber

[Lord O'Neill of Gatley (Non-Afl)]

My Lords, I would like to make four points. First, the decision to hold a referendum on membership of the EU in the first place was driven by politics, especially those of the party governing the country. Not a great deal of thought was given to the economics of the issue, but now that we are faced with the reality we must do so. Secondly, while the decision to leave the EU is hugely important for the future of the UK economy and our society, I do not believe that it is the only important economic issue for our future. I believe that the challenge of productivity, the ongoing apparent weakness of key aspects of our education system and skills training, and the highly unbalanced nature of the overall British economy are all at least as important. Of course, sadly, it may be the case—indeed, it probably is the case—that each of these challenges will become even more difficult as a result of the decision to leave the EU. If the decision to leave were to result in more serious focus on these challenges, and smarter, better-thought-out polices, it might allow for some positives out of the EU departure than otherwise might not have occurred. There is, as of yet, no real evidence to support such an optimistic hope but one lives in hope. In this context, this House certainly has a role to play, and it should by ensuring we make the best out of a poor hand.

Thirdly, as someone closely associated with the changing nature of the world economy, I would have hoped for sharper thinking about trade issues. There has been, and remains, enormous focus on legal and other technicalities of Article 50 and trade deals. While partially understandable, the degree of it in my view is misplaced. The biggest drivers of trade are the performances of domestic demand growth and competitiveness, as well as the geographic distance from trade partners.

A country’s imports are greatly driven by the level of its own domestic demand and the cost of imports relative to domestic goods and services. Similarly, exports are typically driven by domestic demand in the most important markets and the price of those exports for foreign consumers. While bilateral and/or multilateral trade agreements are important, they are not as important as rates of domestic demand growth. It is noteworthy in this regard, for example, that today China is the number one importer—I emphasise importer—for at least 70 countries, without having meaningful trade deals with hardly any other countries, other than, of course, being a member of the WTO.

This kind of evidence suggests that UK trade could prosper outside the EU, but we would need to go about life perhaps somewhat dramatically differently than we have started to do so far. Since the referendum result, we should have, and should still be doing even more than before to try and boost our so-called golden relationship with China—not doubting it—and aggressively pursuing stronger relationships with other rapidly rising economies, including, of course, India. At the same time, we need somehow to do our best to keep as close as we can to our geographic neighbours in Europe. While their share in our overall trade has declined, and is set to continue to decline, it will be a long time before any other country or region gets close to the importance of the EU.

Focusing on geographically distant and smaller countries, as beautiful as they are, such as New Zealand, may be easier, and might suit the politics, but they will not be materially relevant for the economics of our future trade performance. It is also the case that some highly globally integrated industries, which among other things, are very important for UK exports. They need something effectively as close to the single market rules as possible to continue thriving. This is true for autos and financial services, and no doubt some others.

Fourthly, as important as our trade ambition should be, the bigger concern for me is our ability and desire to continue to attract the world’s most talented and skilled immigrants. There is a huge amount of evidence that skilled immigration is very positive for productivity, for some key industries, and of course, for our excellent universities—perhaps crucial. The Government need to be highly focused—and more focused—on making sure that any obsession with demonstrating overall impact about immigration does not result in losing key talent.

I would also like to say in finishing that it also continues to make little sense for overseas students to be included in any overall target for reduced immigration targets, and I encourage the Minister to request a shift in this part of the Government’s stance, irrespective of this Bill and any amendments to it.