Brexit: Deal or No Deal (European Union Committee Report)

Lord Wallace of Saltaire Excerpts

Tuesday 16th January 2018 Lords Chamber

[Lord Wallace of Saltaire (LD)]

My Lords, unlike the noble Lord, Lord Hamilton, I think this is an excellent report. I strongly endorse its conclusion, which the noble Lord, Lord Whitty, has already quoted:

“It is difficult to envisage a worse outcome for the United Kingdom than ‘no deal’”.


No deal, a complete and abrupt break with the EU, leaving the UK to go trading on WTO terms, or perhaps even to embark on a policy of unilateral free trade, now seems to have become almost the preferred outcome of the most embittered Brexiteers. Their argument, as recently put by Boris Johnson, is that a soft Brexit with an association agreement is not an attractive option; it would leave us with obligations to the EU but without influence. The stark choice that we face is therefore between staying in and breaking away.

That is not what the leave campaign was saying before the referendum. I have just looked back at the briefing book for Business for Britain that leave campaigners carried with them to debates during the referendum campaign. It is a hefty and authoritative volume, edited by a distinguished group that included Matthew Elliott of the TaxPayers’ Alliance, Mark Littlewood of the Institute of Economic Affairs and our own noble Viscount, Lord Ridley. It sets out a range of options, from Norway through Switzerland to Canada, assuring us that co-operation across a wide range of sectors can continue after we leave. Were the voters deliberately misled, or had the leaders of the leave campaign not thought through the detailed implications—

[Viscount Ridley (Con)]

I wonder if the noble Lord would give the title of that volume. It was called Change, or Go.

[Lord Wallace of Saltaire]

It was called Change, or Go: How Britain would Gain Influence and Prosper outside an Unreformed EU. I have the summary version with me.

[Viscount Ridley]

The point is that it was published before the renegotiation, so it was all about how we should go into the renegotiation. It was a quite different situation.

[Lord Wallace of Saltaire]

I merely remark that I was given this during the referendum campaign when it was being extensively used by speakers from Business for Britain, so it was very much part of the briefing for the referendum campaign itself. I rest my case on that.

I feel that the extent to which Britain’s achievement in 40 years of membership, and the whole corpus of regulation that has grown up in that period, has been achieved by engagement with our neighbours, including what was after all Mrs Thatcher’s greatest European achievement, the European single market. There is little new in the evidence presented to the committee for this report on the implications of a hard Brexit. Most of it has been reported in successive exercises and inquiries over the last few years, most comprehensively in the 32 balance of competences papers, which were the outcome of an extensive consultation conducted by the coalition Government at the insistence of Conservative Eurosceptics.

As the noble Lord, Lord Hamilton, has just demonstrated, Brexiteers and remainers still seem to be living in parallel universes in how they see Britain’s relationship with our European neighbours. One of the noble Lord’s colleagues on the Conservative Benches told me the other day that the British had been misled when we were taken into the European Community and not told that this was a political project to build a united states of Europe—what I see the Daily Mail now calls a “European empire”. Britain, he added, must regain its independence; the details of our future co-operation scarcely matter. However, as the report makes clear, the details matter a great deal.

The easy promises and illusions of the leave campaign that we could go back to the relationship that we had before 1973 ignore the transformation in the global economy since the 1970s: the impact of new technology, the communications revolution and the accompanying transformation of international security and global threats. Data protection and exchange, air traffic regulation and pharmaceutical and financial regulation have all become far more complex. Britain has helped to shape the European framework for these regulations. If we leave the EU completely, we will have to choose between whether we go back to following American regulation, which is what we did before we joined and before the European single market, or follow European regulations in order to have continuing open access to its markets. I note that the London Chamber of Commerce evidence told the committee:

“For the aviation sector, there is no World Trade Organisation ‘fail safe’”.


There is no fail-safe either for phytosanitary regulations, which are vital for our food and agricultural industries, or for managing tensions between free data flows, data protection and efforts to combat cross-border crime and terrorism. The leave campaign seems to be still back in the 18th century world of David Ricardo, where tariffs were the only things that mattered and regulations and standards hardly existed.

However, it is the focus on timing that is the most important part of this report. The report notes the closeness of the intermediate deadlines that we face, well before the Government’s self-imposed deadline of March 2019. The Government have stated that they wish to reach agreement on a transition or implementation arrangement no later than March 2018, now a matter of weeks away. In order to leave the EU in March 2019, they also state, the UK and other European Governments need to reach agreement by October 2018 to allow sufficient time for domestic approval and ratification in the UK and other states. The Government have boxed themselves in by insisting, to placate the hardliners in their party, that the UK will formally leave the EU in March 2019 and that any period of implementation after that will be as a third-country non-member. So time is extremely short.

The noble Lord, Lord Hamilton, suggests that we should ask the Germans to provide an answer, to define the future relationship for us, but if the Government cannot define what they want, negotiation is impossible. The Prime Minister herself is still unable to define what she means by a “deep and special partnership” with the EU, without which it is difficult to negotiate any such relationship. The Cabinet, we are told, held its first discussion on the definition of the future partnership with the EU that we should seek to negotiate on 19 December, a few weeks ago, and it was reported in the Times that the discussion did not enter into much detail. The Cabinet clearly disagrees on the nature of the transition or implementation agreement we are asking for.

The noble Lord, Lord Hamilton, suggests that we should immediately stop paying for the European budget, which is clearly a source of great grievance to the Brexiteers. He will no doubt recall that enlargement of the European Union to eastern Europe was, again, one of Margaret Thatcher’s greatest priorities in the 1980s and 1990s and that a substantial part of our net contribution to the EU budget goes to fund the economic development of eastern Europe and the eastern neighbourhood and is thus a contribution to European security. I hope that the Government want to continue to contribute to European security in various ways. The foreign policy implications of leaving the European Union have not been fully addressed, except in the excellent position paper we received last September.

The Cabinet clearly still disagrees. Perhaps if the Government had placed their best Ministers in charge of negotiations, we might have made more progress. Perhaps if the division of responsibilities between the Cabinet Office and DExEU had been clearer and the turnover of staff within DExEU had been lower, the Government might also have made more progress. Perhaps if the Prime Minister had paid more attention to Britain’s long-term national interest than to holding her bitterly divided party together, we might by now be in a different place. As it is, we have lost a year, including an unnecessary general election, and we are in danger of running out of time to negotiate an acceptable agreement with the rest of the EU rather than collapsing into a chaotic no-deal outcome, which would be a tragedy and a disaster for this country.

--- Later in debate ---

[Viscount Trenchard]

I fully take on board the noble Lord’s point but it is a different point. I said that we would have introduced much of the regulation that has been introduced anyway. I was rather drawing attention to examples of regulations that I think were wrong and where we were overruled.

MiFID II is another case in point and is currently causing massive cost increases and damage to many asset management companies, particularly smaller ones. I do not like the terms “hard Brexit” and “soft Brexit” but I firmly believe we need a Brexit that allows us fully to resume our status as an independent nation on the world stage and a positive influence for free trade within the WTO and other international institutions. This will not be a Brexit that seeks to maintain absolute regulatory alignment with the EU in any principal sector. We start from the position of full alignment but if other potential trading partners around the world believe we have neither the freedom nor the will to diverge to any significant extent, it will mean that we have no credibility as a potential trade partner, either for third countries or for other international trade associations such as the Trans-Pacific Partnership or NAFTA.

If we were to agree to a Brexit that guarantees full alignment with EU rules, there is no point in leaving the EU since we would be prevented from taking advantage of any of the opportunities that leaving offers. As the people have decided to leave, let us leave on a basis that maximises the opportunities for our future prosperity. If the EU decides to insist on a deal whose price is too high, in terms of either payment for divorce or a continuing requirement to adhere completely to European rules—and the only reason it would wish to do that would be if it put political objectives first and decided to punish us for leaving pour encourager les autres—it would be in our interests to leave without a deal.

As noted by the committee, Barnabas Reynolds of Shearman and Sterling believes that a no-deal outcome might even enhance the gravitational pull of the City of London’s markets. I do not believe that Oliver Wyman’s analysis that up to 35,000 jobs in the financial services sector are at risk in the event of a no-deal Brexit is taken seriously in the City. Rather, some firms that have already decided to move some people to France, Germany or Holland have done so prematurely and unnecessarily. I therefore ask my noble friend the Minister whether he agrees that it would be helpful if the Government talked more—and talked more positively —about the future of our own markets and how attractive and open they will be, to both our EU partners and the wider world, and how keen we are to establish mutually beneficial free trade agreements with other partners as well as the EU. At present, the perception is that the Government’s top priority is to maintain access to Europe’s markets on the same basis as now. I do not believe that access is in any real danger, even under WTO rules. The bright future for our own markets is the most exciting aspect of Brexit and it would be helpful if the Government talked more about that and provided more leadership to the City. The City of London and the Metropolis of Tokyo entered into a memorandum of understanding last December to work together to deepen further the exchange and collaboration in financial services. It would be helpful if we could hear similar sentiments expressed by Mr Barnier and his colleagues in Brussels. Will my noble friend confirm that the Government agree that future regulation of trade in financial services between the UK and the EU could best be conducted within a framework of dual regulatory co-ordination and mutual recognition of standards, as advocated by the Legatum Institute and others?

Obviously we should continue to work closely with our European neighbours where it is in our mutual interest to do so. I believe 17 non-EU countries participate in the Horizon 2020 science programme. I expect we will wish to continue with this and others, such as the Erasmus educational exchange programme.

It is manifestly in the interests of the EU and the UK to enter into a free trade agreement that enables the current level of trade in goods and services to continue, and to continue to grow. It should by no means be impossible for our negotiators to agree this if both sides put economic good sense ahead of political objectives. However, if the EU is not prepared to agree to such a deal and to agree the basic framework of our future relationship over the next few months, we need to be ready to leave without a deal. After all, Article 50 stipulates that the terms of withdrawal should be negotiated taking account of our future relationship with the EU.

Anyone with any experience of negotiations knows that the most important points are usually agreed at the 11th hour and that there is no incentive to agree important points before that. Therefore, the Prime Minister’s preferred option of an implementation period is greatly preferable to a transition period where we do not even know the broad framework of the end state. I look forward to hearing the views of other noble Lords.

[Lord Wallace of Saltaire]

The noble Viscount repeats what the noble Viscount, Lord Ridley, said: we should demand that the EU puts economics ahead of politics in its approach to these negotiations. Is he sure that what the Brexiteers are doing is putting economics first and politics second? Or are we asking the European Union to behave differently from us?

[Viscount Trenchard]

I am very sure that I am putting economics ahead of politics. When I worked in Brussels for our financial services industry, I very much regretted that I found that in the Parliament and other institutions many people on the European side put politics ahead of economics.

--- Later in debate ---

[Baroness Deech]

My Lords, it does not sound like it.

When we contemplate no deal, it means a default position of reverting to WTO rules. It does not mean that, in the event of a vote in Parliament on the final deal going against it, we would then seek to revoke Article 50 and be readmitted to the Union. That latter scenario is obviously what is sought by those who table elephant-trap amendments about a final vote. They want to stop Brexit by rejection of the deal. We should be clear about that. The EU, by putting forward a bad deal to provoke rejection by such a vote, would get what it wanted: a return by the UK, with its tail between its legs, and possibly Schengen and the euro to boot. It would be an affront to democracy and a permanent stain on this House.

The UK was a founder member of the WTO. Lots of countries trade with the EU under WTO rules; others have dealt with that. We might be free to set low or zero tariffs on what we import from the rest of the world and from the EU, with a consequent benefit to UK consumers, who would pay less in many instances. This would not stop trade—far from it. All nations have access to the single market provided that regulatory standards are met, which we do. The US and China conduct billions of dollars of trade with the EU without a free trade agreement. We could accompany that with massive deregulation, and there are lawyers who can reshape our laws and regulations in that event.

As for the dreaded scenario of grounded flights, many European airlines use our airports. They need a deal or their tourist trades would collapse. Memoranda of understanding could hold the position until new agreements are reached. The use of phrases such as “cliff edge” and “crashing out” are not merely inaccurate but designed to scare and confuse. Predictions made recently about losses that might occur in 2030 if we are not in the single market do not seem to be any more reliable than the inaccurate predictions for finances right after the referendum.

Set against the positive view of no deal is the refusenik approach:

“And always keep a-hold of Nurse

For fear of finding something worse”.

But clinging on will risk paying a great deal of money for an arrangement worse than the present one, stuck in the prison of the customs union and the single market without a say in them, and still under the ECJ. It is a mistake to pay a great deal to gain access to the single market, let alone for an extended transition period—like a couple who are divorced but remain together because they cannot afford to sell the house. Countries all round the world have that access without paying for it.

[Lord Wallace of Saltaire]

I am trying to see where there can be a comparison between a single market, the basis of which is open access, and a prison, the basis of which is closed doors. Can the noble Baroness explain why she thinks there is a parallel between the two?

[Baroness Deech]

Prison is what it begins to feel like when we find it so very difficult to cut our ties with the EU. A transition period where things continue as they are will look to many people as if we are locked in, temporarily or possibly for ever.