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

Lord Whitty Excerpts

Tuesday 16th January 2018 Lords Chamber

[Lord Whitty (Lab)]

My Lords, I rise to move the Motion in the name of the noble Lord, Lord Jay, who regrettably is now unable to be here. As a member of his committee, I am therefore introducing this report. The speech I am about to make is, in fact, the speech of the noble Lord, Lord Jay, with only minimal interpolation by me. However, I wish to record my appreciation of the work the noble Lord has done on the Select Committee as acting chair. He replaced the noble Lord, Lord Boswell, for the period when he was unable to be here. I am happy to report that the noble Lord, Lord Boswell, is now back in harness and has just chaired a meeting of the committee. Your Lordships will also be gratified to hear that speaking in the place of the noble Lord, Lord Jay, means that I will not be speaking in my place in the list as well. Any remarks I have, I shall leave until the end.

This report was published only last month, and I am therefore grateful that the usual channels have found a place for it early in the agenda. It also means that we have not had a government response, although I am looking forward to receiving one shortly. Indeed, the day after our report was published, on 8 December, a new deal between the Government and the European Commission was reached on the key withdrawal issues. Time is therefore moving on.

Our report covered two key issues, both of which remain in the forefront of our minds. They are, first, the consequences of a potential no deal outcome, and, secondly, the nature of any transitional period that may follow Brexit on 29 March 2019.

First, on no deal, there are some who believe that no deal, a complete break with the EU and a resort to trading on WTO terms, is the right outcome for the UK. The views of that group were represented to our inquiry by John Longworth, of Leave Means Leave, who urged the Government to act now to, as he put it, “crystallise” the benefits of Brexit. That was a minority position, and even many convinced pro-Brexit experts, such as Ruth Lea, of the Institute of Directors, who gave evidence to our inquiry, believe that agreeing a trade deal is vital to our national interest in the post-Brexit era.

Still more striking, of the 40 written responses to our open invitation to submit evidence, not one argued that no deal would be the preferred outcome. We did not ask them to comment on whether Brexit was a good thing or a bad thing; we simply asked them to assess, on the assumption that Brexit was going to happen, the impact of no deal. The conclusion, contained in paragraph 56 of our report, is clear:

“It is difficult, if not impossible, to envisage a worse outcome for the United Kingdom”,


than no deal.

Last December’s agreement between the Government and the rest of the EU was a necessary first step to reaching a deal to avoid this damaging outcome, and I hope that the Minister will reassure us tonight that the agreement covering the rights of UK and EU citizens, the implications of Brexit for Northern Ireland and Ireland and the UK’s honouring of financial commitments it has voluntarily entered into is irreversible. What businesses and people across the country now need is an absolute assurance that there will indeed be a deal at the end of this process.

[Lord Garel-Jones (Con)]

Does the noble Lord agree that one of the characteristics of this country is that we do not have a written constitution, that the non-constitution is summed up by the words “Parliament is supreme”, that therefore the Supreme Court was right to rule that the referendum has taken place because it was authorised by Parliament and that Parliament has not authorised the outcome, which is, at the moment, unknown?

[Lord Whitty (Lab)]

My Lords, I am not, in my limited capacity tonight, going to argue with the Supreme Court or, indeed, the noble Lord. Clearly, there is a parliamentary process which, no doubt, noble Lords in the course of this debate may well refer to, and which I may refer to in my final remarks. However, the position of Parliament and how binding the role of Parliament in the final vote would be—a meaningful vote, which is now being debated in the other place on the withdrawal Bill—did not form part of this report.

What businesses and people across the country now need is an absolute assurance that there will indeed be a deal at the end of this process, and both sides need to realise that tone is as important as substance. As we say, government statements that no deal is better than a bad deal are not helpful. Last week’s spat between the Secretary of State, Mr Davis, and the Commission over the EU’s preparations for a no deal outcome was a case in point. Once the Government raise the possibility of no deal, of course the Commission is equally justified in advising those who will be affected by such an outcome of how it will affect them. In fact, our report attempts to do the same thing.

The evidence we received was that no deal would be deeply damaging to key sectors of the British economy: financial services, the agri-food sector, freight and transportation, higher education and research. Against this overwhelming evidence, it makes no sense for the Government to talk about retaining no deal as an option. We say that in paragraph 57. As last week’s events so clearly demonstrate, this kind of language,

“risks becoming a self-fulfilling prophecy”.

It does not make any sense to threaten the EU that we will shoot ourselves in the foot if we do not get what we want. It is we who will end up limping.

No deal will affect not just the economy; co-operation on security, counterterrorism, foreign policy—co-operation that is hugely in our interest—would be affected, too. That is no doubt why David Davis spoke to the committee about a so-called bare-bones deal covering some of these non-economic issues, but even if it were possible to negotiate such a deal, the damage to the rest of the economy of not reaching a trade deal would remain, so I hope the Minister will reassure the House, when he replies to this debate, that the Government are wholly and unambiguously focused on achieving the best possible deal, one that will benefit both the United Kingdom and the EU.

The second major theme of our report was transition, or implementation as the Government prefer to call it. This is an altogether more complex, though equally important, issue. Almost everyone, including the Government, agrees that we need a transition period; we cannot simply switch off the system of EU law, which has underpinned so many aspects of our national life for 45 years, at 10.59 pm on 29 March next year. There will have to be a transition, a bridge to lead us safely from where we are today to our as yet unknown final destination.

The Government continue to insist that transition will be merely an implementation phase, a time-limited period that will allow for a phased adjustment to the terms of the new UK-EU relationship, but if that is to be the case, the terms of that new relationship will have to be agreed, in full, before exit day in March next year. The committee agrees, at paragraph 123, that an “early and comprehensive” agreement would be the best outcome, but we have to be realistic, and the fact is that almost no one outside Her Majesty’s Government thinks that achieving agreement on this timescale will be possible, so unless there is extraordinarily rapid progress in the coming weeks, sooner or later the Government will surely have to acknowledge that transition will, in fact, be made up of at least two distinct elements. There will have to be an initial standstill phase, where everything stays pretty much as now, while negotiations to finalise the terms of the future relationship continue, and there will then be a period of adaptation or implementation.

We cannot say much about adaptation or implementation at this stage, since the negotiations on future relations have yet to start, but so far as the initial standstill phase is concerned, we cannot afford to wait. Uncertainty over the terms of UK trade with the EU from 30 March 2019 onwards is already having an impact on many sectors of our economy, for instance in the financial services sector, where insurers will soon be issuing policies which, by their very nature, extend beyond that date. So the forthcoming negotiations on transition really need to be concluded quickly and decisively. We cannot afford any lingering impression that the transition period is contingent upon reaching agreement on the future relationship. That would be damaging for business confidence and the wider economy. Instead, we need a commitment from both sides that, in effect, the legal framework for trade will remain unchanged between 29 and 30 March next year. In other words, we want to confirm that it is the Government’s intention that the transition period will be a standstill period in all respects, save that the UK will no longer be party to EU institutions.

My next point may appear more technical, but it is equally important. Both the Government and the Commission have indicated that they envisage transition forming part of the withdrawal agreement under Article 50 of the Treaty on European Union. The fact that both sides agree on this is welcome, but the ultimate arbiter of EU law is neither the UK Government nor the Commission, but the Court of Justice of the European Union. There is every likelihood that the ECJ will be asked to review the compliance of any proposed withdrawal agreement with EU law before March 2019.

As the report therefore points out, there remains a possibility, however remote, that even if political agreement is reached on transition, the court could strike it down before it comes into force. We recommend that the Government, as a matter of urgency, and if possible in agreement with the Commission, set out their view on the legal basis for transition. I hope that the Minister, if he cannot set out those views tonight, will at least assure the House that the Government will accept that recommendation.

Finally, I touch on the last paragraph of our report. There are two legally watertight ways to achieve a time- limited standstill period to buy more time to finalise the details of the agreement on the future UK-EU relationship. These are clearly set out in Article 50 itself: either to extend the two-year negotiating period or to post-date the withdrawal agreement so that it takes place later than March 2019. I recognise that neither side is currently contemplating such an extension of our EU membership, but the committee suggests that we should not rule it out, if only as a last resort—not to thwart Brexit, but in order to make it as smooth as possible.

We now have 14 months before we leave the European Union. I welcome the agreement the Government reached with the EU in December, although the substance of an agreement on Ireland remains dangerously opaque. The most difficult phases of the negotiations lie ahead. Time is short. The objective must be an orderly and legally certain transition to a new and lasting partnership between the UK and the EU. I beg to move.

--- Later in debate ---

[Lord Whitty]

My Lords, I thank the Minister and all noble Lords who have taken part in the debate. The noble Baroness, Lady Neville-Rolfe, said that it has been both enlightening and entertaining. That is certainly true. It was kicked off in high style by the noble Lord, Lord Hamilton of Epsom, which led on to rather more critical comments on this report, albeit from a minority of the speakers, than is normal in the Chamber. Select Committee reports are usually dealt with with a degree of deference, respect and gentility, even if there is some disagreement. Having had greatness thrust upon me and having therefore sat through the whole debate, which is not my wont, I feel that I need to reply to some of these contributions. Indeed, had I been in my own position in the speakers list, I would have spoken immediately after the noble Lord, Lord Hamilton, and I would have disagreed with him roughly on the same lines as did my noble friend Lord Davies, who is no longer in his place, and my noble friend Lord Liddle, who explained that we did not look at the damage to the EU primarily because the balance of advantage in these negotiations lies with the EU, because of the proportionate effect on the economies of both sides. It is also true that the report makes clear—I refer the noble Lord to paragraph 50—that no deal would also have a damaging effect on the EU. Indeed, Michel Barnier admitted as much when he gave evidence to us in July and we point that out.

I conclude from that, since we all at least make obeisance to wanting to make sure that whatever comes out of this Brexit process is good for the EU as well as for the UK, that our conclusion would have been that the damage of an absolute no deal would be to the EU as well as to ourselves. I doubt if a whole litany of German industrialists would have made that conclusion any different. As to British industrialists, we had responses from 20-odd sectors, all of which reached the conclusion that no deal would be the worst outcome for their sector. We cannot ignore that degree of evidence.

I was rather afraid at various points during this debate that we were refighting the Brexit referendum. Let me make clear that the committee accepted Brexit as its starting point. We also actually accepted what appears to be the Government’s negotiating position; that they want to move to a comprehensive agreement in the new stage—the second stage of these negotiations —which will mean, on the trade front, some form of free trade agreement. That comprehensive agreement, incidentally, should also cover some of the points that the noble Lord, Lord Blair, raised towards the end of the debate, on security and on co-operation on foreign policy.

What concerned us was that the timetable that the Government seem to have got themselves into would preclude being able to reach a decent and detailed free trade agreement effectively by this October. We are now in the middle of January. The Government hope to reach a deal on transition this March and an agreement on a free-trade deal covering the anxieties of every sector of our economy by October. We did not consider that sensible. We therefore go along with the Government’s objective that there will be a transition period and we regard that as being a period not just of standstill, during which we are still subject to EU regulation, but also as a period when we can finalise a full-scale free trade agreement. That seems to us sensible as a timetable.

The clock is seriously ticking on reaching agreement on a transition and on a free trade agreement, and getting a comprehensive new partnership with the EU. We were also concerned that negotiations so far have not filled us with as much confidence as we would like. The noble Lord, Lord Teverson, and my noble friend Lady Hayter pointed out the shortcomings of some of the negotiation stances. We over-eagerly accepted the sequencing put to us, which leads to some illogicalities. We ruled out many alternatives very early on. We exposed our negotiating position by disclosing our red lines very early. I have spoken about this before in the House. But what we are interested in today and what much of the debate has been about is whether a threat to walk away and have no deal actually enhances your negotiating position.

I have engaged in a few negotiations in my time—some successful, some not. Yes, people want to walk away in most forms of negotiation, and threaten to do so. At the end of the day sometimes they do walk away. But in most negotiations in business, industrial relations—and life—when you walk away, when the deal falls, you go back to the status quo ante. In this case there is no status quo ante because we have already determined that we are moving in an entirely different direction. That is why no deal appears to us to be so damaging. We are not going back to a position whereby we can start negotiating again if these particular talks fail. We are in an entirely different position in terms of the world economy as a whole, let alone our specific relationship with the EU.

Threatening to walk away, let alone what appears to have been suggested by some government spokespeople —that no deal could actually be a preferred outcome—does not do our immediate negotiating position any good whatever. I think that the mainstream of the Government—if I can put the Minister in that camp—feels broadly the same. That is the thrust of our report and why, for all the objective reasons that my noble friend Lady Hayter spelled out, an actual outcome of no deal would be so damaging, but the use of the no-deal option in these negotiations is of itself damaging to those negotiations and the preferred outcome that the Government are seeking.

I will make one final point before I let your Lordships go home. We say in the report—this has been picked up by a number of people, and the noble Baroness, Lady Wheatcroft, actually said that she favoured this outcome—that there is the option of extending the date of leaving the European Union. We also say that there is doubt about the legal form of transition and whether that can be dealt with in the withdrawal treaty. Other noble Lords have complained about us envisaging that we might change that date, but the alternative—which is the alternative that is most likely to happen now—is that we will reach an outline agreement, I hope, by October this year for implementation after March 2019 and then there will be a transition period, when we are still in a standstill period, obeying European rules but without any influence in the European institutions. That is preferable to us not having a transition period, but an easier and more logical way of doing that—a smoother way of moving towards Brexit—would be to extend the date so that the negotiations to complete the comprehensive agreement and the free trade agreement could take another couple of years, and within those couple of years we would be a full member of the EU, with full rights within the EU, rather than being a total and complete rule-taker during that two-year period. That seemed to us to be a more desirable outcome and in many respects an easier way of dealing with this.

Of course, the difficulty is—and I remember saying this quietly to the noble Lord, Lord Jay—that there are elements in the governing party who would not accept this. More importantly, possibly, there are very large elements within the British media which would not accept it. Although we decided that we would put it in the report, my hesitation has been borne out tonight by those noble Lords who have portrayed this as a betrayal. That was not the intention. As a committee, we accept the Brexit decision, whatever our individual views may be, but a logical way out of the dilemma we are now in would be to extend the date.

I will end on that. It has been a very entertaining and enlightening debate, as the noble Baroness said. Once again, my thanks go to everybody and I will pass on your Lordships’ good wishes to both the noble Lord, Lord Jay, and the noble Lord, Lord Boswell. The committee will be back in normal working order, I hope, very soon. I beg to move.

Motion agreed.