International Trade Opportunities

Lord Stoneham of Droxford Excerpts

Thursday 7th July 2016 Lords Chamber

[Lord Stoneham of Droxford (LD)]

My Lords, I congratulate the noble Baroness, Lady Mobarik, on initiating this debate, but I suspect that it was planned in an environment very different from the one in which we have found ourselves since 23 June, and I think that her speech reflected that.

With the growing deficit in our current balance of payments, we should concentrate on an offensive strategy to open up new markets and initiate import substitution, but I am afraid that, with the reality of Brexit, we are in a defensive strategy to protect what we have—that must be our first priority—and to negotiate completely new trade agreements. I remind the House that 44% of our exports go to the EU. If you count all the preferential trade agreements that we have, 57% of our exports are covered by the EU as well, and if we include the agreement that we hope to see with America and Europe by the time we reach exit from the EU, something like 73% of our exports will be covered by agreements and arrangements with the EU.

There are three principal problems with this. Of course, business will adapt to the problems we have created as a country by voting for Brexit. Change and crises galvanise change in business. In companies that I have run, I have always quite liked crisis because it enables you to achieve change more quickly, but I remind the House that many fewer companies than was the case 40 years ago are controlled and owned in the UK. Multinational companies will follow not the national interest of the UK but their own interest. All our motor industry jobs will depend on such companies and the decisions they make. One of the saddest things about the referendum result was the vote in Sunderland, where Nissan is based—a company which is owned not just by the Japanese; a 44% shareholding is owned by Renault. What will happen the next time a new line or new investment is planned for that plant and where will it go?

We need as a country to bring in new skills, because we do not have the skills to negotiate trade deals in great numbers. I am told that we have 40 experienced trade negotiators, most of them already working in the EU. The public comment is that some 500 are now needed. The EU will have a great competitive advantage in these negotiations, because it has the knowledge, the skill and the expertise.

The Government will try to reassure us. They have already said, “Oh, look, the economy now is fundamentally strong enough to deal with this crisis”, but the country is facing a vulnerable situation. We have made some progress on the deficit, but we will now be blown off course by lower growth and greater uncertainty. We are an economy still recovering from its heart attack in 2007-08 and dependent on the life support of artificially cheap money. We are still very unbalanced as an economy. We may now have the competitive advantage of a lower pound, but household debt is still too high and we have not created the export growth that we wanted even with quite a competitive pound during the past four or five years. Business investment is very disappointing. We are bailed out only by flows on the capital account to keep us in a liquid situation on our foreign accounts. Uncertainty will kill business confidence and investment.

As a country that is so dependent on trade, we are woefully unprepared for the decision that Brexit has given us, and I have to question the sheer incompetence of a Government leading us into a referendum to solve their own problem and emerging from it completely unprepared for what we now have to face. If Chilcot thinks that we were unprepared going into Iraq, I hate to think what future historians will say about where the Government now find themselves in dealing with these problems.

There are two issues that we should address in this debate. First, whether we should remain in the single market is completely unresolved. We have had the noble Lords, Lord Lawson and Lord Patten, telling us effectively that we should ignore the single market and just get on with our own arrangements, because they say that the single market would be unachievable without free movement of labour. But it is much more complex than we realise. We have had 40 years of free trade and integrated our supply chains as a consequence. The reason for our not seeing improvements in our balance of trade when the pound goes down is that it simply increases the level of imports of vital parts for our manufacturing and other services, which we then have to sell as exports, so it does not necessarily help our competitive position. I know that they will say, as the noble Lord, Lord Patten, said, that we will simply go to the World Trade Organization and negotiate away the 10% tariff on cars. I fancy the negotiations on agriculture because we now have significant exports of agricultural goods and I imagine that we will have such a strong position against the French and German farmers, negotiating away the 20% or 30% tariffs that those exporters will now face. There will be a complete disruption of supply chains.

The other aspect is all the preferential deals that the EU has negotiated with other countries. What will our position be in those? Do we retain our rights or will we have to renegotiate them? I challenge the Government: what is your preparation and what are your contingency plans on these matters? Most experts think that it will take five to 10 years to extricate ourselves from these sorts of arrangements. Then of course we are saying that we want to do new deals with the USA, China, Brazil and India using the flexibility that we now have to negotiate. But how will we possibly have the time, expertise and experience to do that?

I have a couple of other points. Our competitive advantage as a country depends on a number of factors. I have mentioned supply chains. Last year, I went to Airbus to see how it assembles aeroplanes. We will now have all the complications as parts of the aerospace industry have to go in and out of the single market and out of this economy. We will need to negotiate very carefully in these areas to protect our aerospace industry and our car manufacturing.

Our universities should be the source of all our future hope and prosperity in terms of research and development. It is a big competitive advantage. All that will be completely disrupted by the change in funding. Finally, there are services. Manufacturing is important—my goodness me, it is important to our economy—but services are our future. If we look at the way that people voted in the referendum, those areas of the country that had a big commitment to the service industries—whether London or the motorway links going down to Hampshire and Sussex and up to Cambridge, across to Bristol, Oxford, Manchester and our university bases—were where people saw the threat of coming out of the EU. Services are all-important so, looking forward, are the Government launching an immediate consultation on the single market and the detailed impact, industry sector by sector, service by sector, on the consequences of withdrawal? It is a question of talking not just to other countries, but to sectors and industries in this country. What are our priorities for renegotiating all the other trade deals that the EU has? Are we gearing up not only the diplomatic service but all our trade organisations to deal with this huge task?

I leave noble Lords with one final thought. There is already talk of us becoming the Singapore of Europe. We have already had these initiatives of lower taxes for business. Lower taxes do not actually help investment. They create cash but it does not mean necessarily that that cash is invested back into the UK. It may just simply stay idle if there are no investment opportunities. But believe me, if we are relieving taxes on business, we are putting higher burdens on everybody else. We should be very cautious of anything going forward that undermines our competitiveness. The living wage, training levies and pension contributions are all coming along the pipeline. Going alone is a very dangerous place. We were told that we would be more flexible and more responsive, but I recall the words about going abroad: “Speak softly, and carry a big stick”. Without the single market, our leverage in negotiations will be much reduced and this is a very dangerous, uncertain step into the unknown.