Outcome of the European Union Referendum

Lord Shipley Excerpts

Wednesday 6th July 2016 Lords Chamber

[Lord Shipley (LD)]

My Lords, it is a pleasure to follow the noble Baroness, Lady O’Loan, with whom I agree on a number of points, but I want to speak about the impact of leaving the EU from the perspective of the English regions. Despite the headline vote being a 52/48 win for leave across the UK, in England and Wales outside London, the gap was a much bigger defeat for the remain campaign. We need to understand the reasons why.

I think that there were three reasons. People wanted to halt an increasing concentration of decision-making at a European level. They felt disconnected from it and unable to influence it. Secondly, it was a clear rejection of the principle that a single market requires free movement of people. Many on lower incomes felt threatened by the prospect of being undercut in the labour market. Thirdly, it was a vote to oppose the impact of reductions in public spending, which have been much higher in the poorer parts of the country than in the wealthier parts—notwithstanding the importance of EU structural funding in those areas and the importance of European markets to them.

I campaigned for a remain vote because I see it as essential to our future growth and our standard of living to maintain access to the single European market. Access to that market has now been put in jeopardy. We must take very seriously the warnings from the CBI that firms are putting investment on hold in the short term because of the uncertainties and because of the current political vacuum as we wait for a new Government to define their priorities. Add to this the reported lack of qualified negotiators in the Civil Service, and we can see that these uncertainties could well drag on.

It is, however, the long-term danger to private sector investment that should really worry us. In my home region of the north-east of England there were 43 foreign direct investment projects in 2015. The risk is that companies from outside the EU wanting to invest inside the EU in future will not choose to invest in the UK if we are outside the single market. In establishing what we are asking the EU for in the forthcoming negotiations, it is essential that we gain agreement to staying in the single market.

It is now broadly acknowledged that we could be on the brink of recession. Our trade gap with the rest of the world is worse than anticipated, and all the economic and fiscal indicators seem to be pointing in the wrong direction. I question whether the Chancellor is wise in his plans for corporation taxes. The proposed cut will either increase the deficit or cut public spending further, which would mean more austerity and less money for individual taxpayers, who will have to pay for that reduction in corporation tax. It looks to me to be the wrong decision. The Chancellor is, however, right to abandon the aim of achieving a budget surplus by 2020. We must instead invest in the infrastructure which generates jobs.

However, Governments cannot do everything, and we need the private sector to step up to the task. Employers need to invest more in training our young people to enable them to take on higher-level jobs, rather than relying on cheaper labour from outside the UK. Further, the private sector needs to invest more in infrastructure outside London. As an example of what I mean, I pay tribute to Legal & General, which is investing a very substantial sum in the construction of a major new scientific research centre in Newcastle upon Tyne, in partnership with Newcastle University and the city council, making it the latest of several urban renewal and infrastructure projects that Legal & General has invested in.

The recent Northern Powerhouse Independent Economic Review said that by 2050 many more jobs—perhaps 1.5 million—could be created in digital industries, health innovation, energy and advanced manufacturing across the north. That is welcome, and it can happen, if four conditions are met. The first is a clear private sector commitment to invest outside London. Secondly, access to the European single market should be maintained. Thirdly, infrastructure investment as promised by Government must actually happen. Fourthly, and very importantly, Government Offices should be re-established in the English regions. This is an important issue. Whitehall post-Brexit needs to focus much more on the regions of England, because at present its knowledge base of England is insufficient. It cannot do everything from London; it needs a cross-departmental focus at regional level if the full potential of the English regions in growing our economy is to be realised.

In recent days the Mayor of London has said that London wants to be treated as an equal with Scotland, Wales and Northern Ireland. It wants more devolution and more control over taxation raised in London. It is understandable to take that position, but it is potentially a big problem, because it is not widely understood across the rest of the UK how much tax income raised in London is spent elsewhere in the UK. If London keeps more of it, there will be less for others parts of the UK. This is not a new issue, but we need to keep it at the front of our minds as we consider the implications of Brexit for public spending across England.

Brexit will have a significant impact on local government. Here I should declare my vice-presidency of the Local Government Association. If there is a recession there is a probability of lower business rate income for councils, the danger of more cuts by the Chancellor, and a possible slowdown in the devolution agenda as the sources of project funding are reassessed. Add to those risks the possible loss of EU structural funding, and there is clearly a need to plan for all outcomes. In the immediate term local government needs a guarantee that councils will still receive all the money expected by 2020—amounting to £5.3 billion in regeneration funding—on which much local growth depends. This, of course, also applies to other recipients of EU funding, such as the voluntary and cultural sectors, and our universities, whose research funding is so heavily dependent on EU support. There is also a need for Government to offer an assurance that the existing legal basis for contracts signed with suppliers and contractors under EU procurement laws will apply for the duration of a contract.

Then there are the implications of Brexit for European Investment Bank funding. Very substantial funds, with long-term borrowing implications, have come from the European Investment Bank—€29 billion over the past five years—and we need to know what might happen to EIB funding in the future.

I referred earlier to a reported lack of trained negotiators in the Civil Service. May I suggest that the Cabinet Office look at the capacity in local government, and in our universities, to help them? It is substantial, particularly in relation to EU law and EU funding. Local authorities need to be engaged directly in the process, because that would be of direct help to Whitehall.