Brexit: Preparations and Negotiations

Lord Skidelsky Excerpts

Monday 23rd July 2018 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, it is very cold in this spot at the moment. That is a comment not on the Cross Benches but on the fierceness of the air conditioning—but I shall struggle through.

I have heard with increasing incredulity the efforts of noble Lords in this House, some of them my good friends, to reverse the results of the referendum of 2016. It may have been a mistake to hold a referendum on such a complex issue, but, having asked the question and promised to treat the answer as binding, it seems to me inconceivable that responsible politicians can disregard it. This is the answer to the noble Lord, Lord McNally. David Cameron gave repeated assurances that he would respect the result of the referendum, and I do not think we can ignore that.

So although I voted remain, I agree with the Prime Minister that our exit from the EU must be taken as given. As she writes in the foreword to the White Paper,

“the British people voted to leave the European Union. And that is what we will do”.

What I have to say is shaped by my view that any attempt not to leave would be to take serious risks with our democracy at a time when a revolt against the elites is sweeping across Europe and the United States.

The White Paper presents the Government’s proposals for the permanent future relationship between the United Kingdom and the European Union. It envisages a bespoke association to be agreed by Parliament and the European Union negotiators before we leave, and then a 20-month implementation period. The implementation period is simply designed to put in place the association agreement.

The Prime Minister’s belief that she can get the White Paper proposals through Parliament and Europe by the exit date seems completely unrealistic for three reasons. First, it expects too many complicated and contentious matters to be agreed in too short a time. Customs arrangements, arrangements for financial services, a new mobility contract and Ireland are very difficult issues all to be settled within the next two or three months. Secondly, Michel Barnier has already rejected the Government’s association plan as unworkable. Only on Friday he simply dismissed the proposals dealing with access for our financial services. Finally, there is no majority for the White Paper proposals in the other place. The White Paper makes too many concessions for the Brexiteers and not enough for the remainers, and I do not see the politics of coming to a conclusion on how they will work themselves out.

Precisely because it is highly possible that we will leave the EU in March 2019 without a final agreement, it is essential for the Government to develop a reserve position which will protect our domestic polity and external relations from disastrous damage.

The noble Lord, Lord Newby, made an eloquent argument that there is no good leaving option, and therefore we should not leave. He expects or hopes that that decision will be ratified by another referendum. Other noble Lords argued for a middle way, a reserve position—I am thinking of the noble Lords, Lord Mandelson, Lord Tugendhat and Lord Haskel.

I think that there is a good reserve position, which is simply for Britain to remain a member of the European Economic Area. It was conceived by Jacques Delors in 1989 as a way for EFTA and ex-Communist states to transit into the European Union, and Britain could use it to transit out of the European Union. Continuing membership of the EEA would put into touch for two or more years after we leave the most explosive obstacles to an agreement today—the border between Northern Ireland and the Irish Republic, access for financial services and the permanent immigration regime—while leaving us free to negotiate our own trade agreements with third countries.

As a member of the EEA, Britain would continue temporarily with the same tariff arrangements as at present. Under Article 112, it could impose temporary restrictions on immigration, immediately regain control of agriculture and fisheries and join the EFTA side of shared rule-making.

The question is: could Britain stay in the European Economic Area after it left the customs union? That is legally obscure. The Government’s original position was that it would automatically cease to be a member. Then it was urged that the UK was a contracting party to the EEA in its own right, so its membership would not automatically lapse. The latest twist is that on 26 February, the Prime Minister informed the noble Lord, Lord Owen, that Britain would be,

“seeking continued application of the EEA Agreement for the duration of the implementation period”.

So where are we in all this? The bottom line seems to be that no one can force us to leave the single market when we leave the EU, and membership of it will give us important safeguards in the transition out of the customs union. However, it is most important to insist that the EEA is not a permanent resting place. Britain would leave the customs union on 31 March and give a year’s notice of its intention to leave the EEA. In my view, this is the only way to respect the decision of the referendum while avoiding a politically calamitous exit—and I have stuck to my time.

--- Later in debate ---

[Lord Callanan]

My Lords, I am profoundly grateful for the many contributions that we have had to this wide-ranging debate. I had almost forgotten how much I missed spending my Monday evenings debating our exit from the EU with fellow EU obsessives—the noble Lord, Lord Adonis, is still here, which is good—following the passage of the EU withdrawal Act. I shall try to address as many of the points raised this evening as possible. I apologise if it is not possible to respond to every point raised by noble Lords, but I am conscious of the late hour.

The White Paper sets out detailed proposals for a principled and pragmatic future relationship with the EU, delivering on the result of the referendum and taking back control over our money, laws and borders. We have made significant progress on the withdrawal agreement, including on citizens’ rights and the terms of an implementation period. As my noble friend Lord Bridges noted, both sides must now work at pace to deliver a mutually beneficial, sustainable deal later this year.

Our proposed free trade area for goods, including agri-foods, would be enabled by: a common rulebook covering only those rules necessary to provide for a frictionless border; participation in EU agencies that provide authorisations for goods in highly regulated sectors; and a new facilitated customs arrangement. In designing this model, the Government have responded to feedback on overcoming the shortcomings of both the new customs partnership and the highly streamlined customs arrangement. Unlike previous models, the FCA allows many businesses to pay the correct tariff at the start so that they will not need to interact with the repayment mechanism at all. For businesses that do not qualify, HMRC has committed to making the rebate process as simple and streamlined as possible. Even then, the rebate mechanism is voluntary. Businesses will be able to choose whether they wish to take advantage of any lower UK tariffs.

Noble Lords, including my noble friend Lord Forsyth and the noble Lord, Lord Liddle, raised the Government’s acceptance of new Clause 36 of the customs Bill in the other place. The clause would prevent the implementation of a new arrangement that would see HMRC collecting duty on behalf of the Government of another territory or country, unless it was reciprocal. The Government have been clear that under the FCA the UK and the EU would agree a mechanism for the remittance of relevant tariff revenue. We proposed a reciprocal tariff revenue formula, taking into account goods destined for the UK entering via the EU and goods destined for the EU entering via the UK. This clause is therefore consistent with the White Paper. To my noble friend Lord Forsyth, I reaffirm that we are not proposing that the EU applies the UK’s tariffs at its borders for goods destined for the UK.

In response to the noble Lord, Lord Hannay, yes, the FCA model is consistent with WTO law. The UK will be an independent member of the WTO and we will be able to set our own tariffs. We will be able to pursue trade agreements in line with the UK’s interests.

In response to my noble friend Lord Bowness, we want to be part of the network of the EMA but it has to be on the right terms and meet the objective set out in the White Paper of our being an active participant and making an appropriate financial contribution. That is why we decided to oppose the amendment. However, we will revisit it when it comes to this House.

In response to the argument made by the noble Lord, Lord Howarth, and my noble friend Lord Farmer, under the terms of the withdrawal agreement the UK will be free to negotiate, sign and ratify free trade agreements during the implementation period and to bring these into force from January 2021.

A number of noble Lords raised our proposals on services. As the White Paper sets out, we want an ambitious deal on services and digital that allows us to exercise greater regulatory freedom for the UK’s world-leading services-based economy. In response to the points on financial services raised by noble Lords, including the noble Baroness, Lady Hayter, my noble friend Lord Hunt, the noble Lord, Lord Mandelson, the noble Baroness, Lady Kramer, and my noble friend Lady Wheatcroft, we are proposing a new economic and regulatory partnership based on binding bilateral commitments.

We have listened carefully to the EU’s concerns and we agree that, particularly for reasons of financial stability, market access should be a decision that remains autonomous for each party. However, this could work only with improvements to the current EU system to reflect the fact that equivalence as it exists today is not, in our view, sufficient to support the close relationship that we seek. The UK will continue to be the most open financial services market in Europe, with the best environment for innovation, an unparalleled talent pool and a legal system that is respected around the world. Furthermore, we will have the flexibility to agree new global financial partnerships with other countries.

I say to the noble Lord, Lord Green, and others that the Government are clear that free movement will end and that we will take back control over the number of people who come to live in the United Kingdom. However, in reference to the points raised by my noble friend Lord Heseltine and the noble Baroness, Lady Smith, we are not closing our borders to the talent that an outward-looking global Britain needs to succeed. The UK will remain an open and tolerant nation, and we will want to continue to attract people from the EU and elsewhere to work here.

The noble Lords, Lord Boswell and Lord Hannay, also touched on the future immigration system. The UK will design an immigration system that works for all parts of the UK. To inform this, the Migration Advisory Committee report due in September will provide important evidence on patterns of EU migration and the role of migration in the wider economy.

On leaving the EU, we will end the jurisdiction of the Court of Justice of the European Union in the UK. The proposal set out in the White Paper delivers on that commitment. No longer will UK courts refer cases to the CJEU; nor will the CJEU arbitrate disputes between the UK and the EU. Additionally, the CJEU will no longer have the power to make laws for the UK, and the principles of direct effect and of the supremacy of EU law will no longer apply to the UK.

The noble and learned Lord, Lord Hope, raised the resolution of disputes. We have proposed a robust and appropriate mechanism, including through a joint committee and, in many areas, binding independent arbitration. In response to the remarks of the noble Lord, Lord Hannay, on the proposed framework, these arrangements are proportionate and necessary for the depth of the relationship with the EU that the UK envisages. They will ensure that the co-operation functions properly and that the relationship is transparent and accountable.

Where we have a common rulebook and there is a dispute between the UK and the EU, the joint committee, by mutual consent, or an independent arbitration panel will be able to ask the CJEU to give a binding interpretation of the rules in question. It will be for the joint committee or the arbitration panel to decide the dispute, consistent with the essential principle that the court of one party cannot resolve disputes between the two.

In areas where we have a common rulebook—a question raised by noble Lords including my noble friends Lord Bridges and Lord Cavendish—it will be important for the UK and for EU businesses and citizens that they are interpreted and applied consistently. This will be done in the UK by UK courts and in the EU by EU courts, because preliminary references from UK courts to the CJEU will have ended. Therefore, where the UK agrees to retain a common rulebook, our courts will pay due regard to the relevant CJEU case law when deciding a case. In practice this is what our courts would do anyway. But it will be for UK courts to decide the cases before them, applying UK law.

In response to the points raised by the noble Lords, Lord Adonis and Lord Bew, I should say that the Government’s proposal for a principled Brexit will deliver for our union—for England, Scotland, Wales and Northern Ireland—while protecting the economic and constitutional integrity of the United Kingdom. Our proposals mean that goods and agri-food will flow freely between Northern Ireland and Ireland, so the backstop would not have to be used. In response to the noble Lord, Lord Hannay, I should say that we remain committed to agreeing a legally operative backstop in the withdrawal agreement, and we are continuing to negotiate that with the EU over the coming weeks.

In response to the points made on the security partnership by the noble Lords, Lord Wallace and Lord Browne, I emphasise that. although there is no off-the-shelf model for third countries, the UK is indeed no ordinary third country. We have been intimately involved in the evolution of EU security architecture, we will continue to be a European neighbour, facing the same threats and sharing the same values and interests, and it is clearly in our mutual interest to stand united in our efforts to ensure the collective security of UK and EU citizens.

On foreign policy co-operation, the UK proposes continued consultation and combining efforts to the greatest effect where it is in the EU’s and the UK’s shared interest—for example, in the application of sanctions. The EU discusses foreign policy issues with a number of third countries, which can provide the basis for this new relationship. But the UK’s proposals are for a broader and deeper dialogue, underpinned by the exchange of information and expertise.

Noble Lords including the noble Lords, Lord Razzall and Lord Browne, raised the issue of Galileo. The UK is home to a world-leading space technology sector which has helped drive the EU space programmes. Our clear preference remains to participate in Galileo in a new balance of rights and obligations after we have left the EU. The programme must also, of course, offer value for money to justify an ongoing UK contribution. As a logical consequence of the exclusion and uncertainty surrounding future UK participation, the UK is exploring alternatives to fulfil its needs for secure and resilient position, navigation and timing information.

Many noble Lords, including the noble Lords, Lord Birt and Lord Liddle, and the noble Baroness, Lady Hayter, raised the prospect of leaving without a deal. The Government are confident that, with the good will of both sides, we will achieve a deal, but, as a responsible Government, we must prepare for all scenarios, whatever the outcome of the negotiations. As I said earlier, we have been working on nearly 300 no-deal plans for nearly two years, and to prepare businesses and citizens for a no-deal scenario we will make more of this planning public by issuing a series of technical notices over August and September. Rest assured that the Government are clear that a mutually beneficial deal is in the interests of both sides, and that our firm objective is for our negotiating teams to reach an agreement by October.

I will respond to the point made by the noble Baroness, Lady Falkner, by saying that both the UK and the EU have been clear that the withdrawal agreement and the future framework form a package. If either side should fail to meet its commitments—although we certainly do not expect that to be the case—this would have consequences for the package as a whole that we agree.

Many noble Lords have returned to their favourite topic. They include the noble Lord, Lord Newby, the noble Baronesses, Lady Ludford and Lady Kramer, my noble friend Lord Heseltine, the noble Lords, Lord Taverne, Lord Butler and Lord McNally, my noble friend Lady Wheatcroft, the noble Baroness, Lady Randerson, and the noble Lord, Lord Skidelsky. We are back on to the subject of a second referendum—or, as it has now been renamed, the people’s vote—which leads me to wonder who voted in the first referendum. Aliens, perhaps, or farm animals?

[Lord Skidelsky]

I should not be on that list.

[Lord Callanan]

I did not think I had mentioned the noble Lord, but I apologise.