Leaving the EU: North-East Exports

Philip Hollobone Excerpts

Tuesday 25th October 2016 Westminster Hall

[Several hon. Members rose—]

[Mr Philip Hollobone (in the Chair)]

Order. The debate runs until 5.30 pm. The guidelines for speeches by Front Benchers are five minutes for the Scottish National party spokesman, five minutes for Her Majesty’s Opposition’s spokesman and 10 minutes for the Minister. There will then be three minutes at the end for Phil Wilson to sum up. I therefore need to start calling the Front Benchers no later than 5.07 pm. Between now and then, the debate is open to Back Benchers. Three Members have stood to catch my eye. There is a galaxy of parliamentary talent before me, and it will be led by Hannah Bardell.

[Hannah Bardell (Livingston) (SNP)]

I am delighted to head up that galaxy of parliamentary talent, as you so eloquently put it, Mr Hollobone. I congratulate the hon. Member for Sedgefield (Phil Wilson) on securing the debate. As he says, I am sure there will be many more such debates and opportunities to drill down and have an ongoing conversation. If the Government are not going to have an ongoing commentary on the EU, we Back Benchers certainly will.

As the hon. Gentleman said, the UK’s relationship with the EU is significant for the north-east, which in 2015 exported £7 billion of goods to the EU—58% of its total, which is well above the UK average of 48%. This debate is about the north-east, but I hope he and you, Mr Hollobone, will indulge me if I touch a little on the impact on Scotland and the rest of the UK.

The value of the pound has dropped significantly since the announcement of the referendum result. Although that offers a short-term gain for some, such as those looking to buy property in the UK, increasingly expensive imports and exports will hurt the UK and all the countries in it in the long term. I noted with interest the Financial Times article yesterday that stated that the percentage of foreign buyers in London’s property market had increased from 23% to 29%. It seems obvious to me that that creates further problems for local people, who were already struggling to get on the property ladder. Not only are their savings being devalued by the falling pound, but they will be up against an increasing number of foreign buyers and investors. The weakening of the pound since the Brexit vote has helped Tata Steel’s profits, but as we well know, such companies rely on imported iron ore and coking coal, so they will be negatively affected if tariffs increase in the longer term.

The hon. Gentleman mentioned the impact on Nissan’s Sunderland factory, which ships nearly 75% of its cars to the EU and relies on parts from outside the UK. The north-east economy cannot flourish without the automotive industry, or even with a damaged one. Failing to negotiate trade deals quickly will cause repercussions years down the line. I suggest that the Tory Government’s much-vaunted northern powerhouse is fast becoming more of a northern power cut.

Scotland will feel the impact of the UK leaving the customs union just as the north-east will. In 2014, 42% of Scotland’s international exports were to the EU, and 58% of Scottish exports to the EU are in the food, tobacco and beverage manufacturing industries. I have spoken to several companies in those industries and will address some of their concerns shortly. Last year in Scotland alone, there were more than 2,300 foreign owned companies, employing nearly 314,000 people and turning over £90 billion. When the Government create uncertainty for those companies—I know there will be others in the north-east—hundreds of thousands of workers are uncertain about their futures.

With such uncertainty, it is not unreasonable to ask for a clear plan and an open debate. At the moment, we are expected simply to have faith in the Government—a Government who promised to double exports to £1 trillion by the end of the decade but saw them fall to £511 billion just last year. If those numbers are moving in the wrong direction, how are we to believe that the EU trade negotiations will move in the right direction for the UK economy and its workers, especially given that at a recent European Council meeting, the Prime Minister was given just five minutes—at 1 am, after the dinner plates had been cleared—to set out her view on Britain’s exit from the EU?

We had a debate on the Government’s industrial strategy just last week. The conclusions could not have been clearer. It is nearly impossible to debate industry, trade and the economy when the Government have neither the outline nor an inkling of a plan. There is a lot that we need to debate about the impact on the north-east and Scotland, and I hope we will have many more such debates and the opportunity properly to scrutinise the plans when they come forward.

Let us take the UK’s membership of the EU customs union and common tariff. Beyond the party political and theoretical points are some gritty IT issues that need to be looked at more closely—we know about the UK Government’s track record on IT. If Britain leaves the EU customs union, it will have to go through its own system of customs declarations and security checks whenever trading with the EU. After the Brexit vote, the EU began looking at increasing its capacity for customs declarations from 50 million to 350 million a year to account for future customs forms from the UK. Changing that system will take time, and before it is finalised we will not know how delays will be managed. I recently met the Scotch Whisky Association, which emphasised the importance of the excise movement and control system, a trading system by which all exports are tracked and managed. Staying part of that is key, but we have had no answers about it. Perhaps the Minister can enlighten us.

On the other side, the UK’s current system for importing and exporting non-EU products, which following Brexit will have to be used for all products, is about 25 years old and due to be replaced. However, its replacement, the customs declaration services system, is expected to be functioning by December 2018, just before the UK is expected officially to leave the EU. The CDS system is designed for managing about 100 million declarations a year, rather than the now expected 350 million that will be required once the UK leaves the European Union. That puts us two years behind already.

Desmond Hiscock, who runs the UK Association for International Trade, said that the system

“will not be able to cope and there is not much confidence that the untested and still incomplete replacement…will fare much better.”

[Mr Philip Hollobone (in the Chair)]

Order. I am listening to the hon. Lady’s remarks with great interest. She will be aware that two Members of the House who represent constituencies in the north-east also want to contribute and that, within 30 seconds, she is coming up to having used a third of the allocated Back-Bench time. She might, out of politeness, want to think about drawing her remarks to a close.

[Hannah Bardell]

Thank you, Mr Hollobone. I will wrap up my comments, because of course I want to let colleagues in. If the Prime Minister truly wants to find the best trade deal for the north-east and for the rest of the UK, she would do well to engage actively across all parties and all countries within the UK.

--- Later in debate ---

[Barry Gardiner (Brent North) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Sedgefield (Phil Wilson) on securing this vital debate. Had he not, I know that my formidable colleagues, my hon. Friends the Members for Sunderland Central (Julie Elliott) and for Houghton and Sunderland South (Bridget Phillipson), who both spoke with such clarity, would certainly have initiated the debate otherwise. It is good to see a strong contingent from the north-east here in defence of their region.

The north-east is the major goods-exporting region of this country, with more than £12 billion of goods exported last year. It is therefore a powerful indicator to the rest of the country about the impact that the Government’s approach to Brexit will have. Let us be clear: 58% of voters in the region voted to leave, and all of us who have spoken from the Labour benches have said that we respect that—and we do. We must now all rise to the challenge of delivering that departure from the EU, but that departure must not undercut our industry, our labour rights or our prosperity. That is our clear message to the Government today. We have heard from several hon. Members about the destabilising effect on industry in the north-east of a divided Cabinet and a Secretary of State for International Trade who is pushing his own ideological agenda that will disrupt investment and threaten jobs in the north-east.

Of the £12 billion-worth of goods exported last year from the north-east, £7 billion were exported to the EU. That is 50% of the region’s total exports, making the region one of the most highly exposed to the uncertainty arising from the Government’s refusal to set out a clear plan and approach to the negotiations with the EU Parliament, or indeed to make that clear to the public. The value of north-east exports to the EU grew 30% from 2005 to 2015, yet in July, after the vote to leave, companies across the north-east suffered the sharpest rate of decline in business activity in four years, leading to scaled-down activity and jobs being laid off. Lloyds bank attributed that downturn to

“post-referendum vote market uncertainty”,

which caused the number of new incoming orders to the region to fall at the fastest pace in almost seven and a half years.

We know the Government will not provide a running commentary, and we do not ask for that, but perhaps they will provide some much-needed clarity to business about their futures. That is what I think all Members here are really asking of the Minister. What guarantees will the Government provide to businesses in the north-east about access to those markets in the future, and how similar will those terms be to the current ones? James Ramsbotham, chief executive of the North East England chamber of commerce, said:

“With the automotive sector being such a major part of the business community in the North East the future of the car-making is of crucial importance to our economy and employment prospects.”

What assurances will the Minister provide to car manufacturers about continued access to import parts from the EU to their supply chains, and to export cars, tariff-free, into mainland Europe?

My hon. Friend the Member for Sunderland Central raised that issue, but there is also a need for the Minister to answer the question about non-tariff barriers. Country of origin rules may well mean that, in the future, if we are outside the EU we cannot provide goods from this country—indeed, from many of the smaller companies in the north-east that my hon. Friend spoke of—that feed into supply chains in Europe for products that are then sold into third countries. They will not be admitted into the supply chain in the first place. The Minister knows that those supply chains are 18 months’ long, which means that decisions will be taken in Europe within the next six months on whether to source items for the supply chain from the UK. This is of vital and urgent importance, and it is critical that the Minister provides some answers on it for business.

What assessment have the Government made of the contribution that skilled workers coming into the UK make to the north-east export industries? Skilled workers in these industries are vital. Have the Government conducted a survey to find out what the skills base is in the north-east and to determine how they will continue to ensure that skills supply in the future?

While the weakened pound has given a short-term boost to certain exports, the steel industry is not benefiting from a low pound. The deal to buy the Tata pipe mill in Hartlepool is clouded with uncertainty, and the suggestion is that it would have been completed by now if it were not for the referendum result. That puts hundreds of jobs at risk. We have heard from my hon. Friends about the household brands that are facing difficulties, but we must not forget the small and medium-sized enterprises and the family businesses that are finding it impossible to invest in their own future in the region until the Government provide a clear plan. Ministers continue to drop heavy hints about their preferred—often contradictory—directions of travel. That is causing these businesses absolute turmoil with their investment profiles.

The priorities of manufacturing bodies are clear. The Society of Motor Manufacturers and Traders, EEF, the Chemical Industries Association, the British Ceramic Confederation and the UK Petroleum Industry Association—all representing phenomenal industries based in the north-east—are demanding guaranteed access to the single market to continue exporting without the extra costs that will make it harder to keep doing business there. Almost two thirds of the north-east’s exports to the EU are reliant on road vehicles, medical and pharmaceutical products and organic chemicals.

It is not just the goods exporters calling for this. A fast-growing marketing and PR agency based in Newcastle told my colleague, the MEP for the region, Jude Kirton-Darling,

“Creative and digital service industries like ours don’t export in the traditional way that goods companies do—but we benefit just as much from...membership and could be impacted badly by exit”

from the single market. Service industries are asking the same questions of Government. What analysis has the Department conducted of the impact on the trading balance in the north-east of different post-Brexit trading arrangements with the EU? Have the Government quantified the impact of losing access to the single market on the north-east economy? Will they do so before making a firm decision on their negotiating priorities? If we default to WTO tariffs post-Brexit, what impact will that have on exporters in the north-east? Bearing in mind the strong dependence on the single market of north-east exports and the regional trade surplus, what special measures will the Government consider to diversify export options for the region and avoid negative employment impacts that might arise?

The Government must clarify what will happen to the UK’s European Investment Bank status. Will we continue to be a shareholder and have unrestricted access to funding, or will we be considered a third country and thus only be eligible for the 10% of the fund made available for third countries? The Government’s webpage entitled “UKTI North East: helping companies export and grow overseas” was last updated in May this year. It reads:

“We’ve helped…create 346.5 new jobs through the European Regional Development Fund (ERDF) project”

and

“secure a further 1,014 jobs with our trade support activities for the ERDF project”.

That fund was actually proposed by the United Kingdom in 1972, but it is available only to European member states. We need to know what access we will have to those funds in future, because they are vital for industries in the north-east.

The Government might want to update their website, but it might also help if they provided their new strategy. The Government’s strategy has relied on EU funds to boost exports to BRICs markets and create jobs in the north-east. They must now provide answers about how they will ensure jobs and exports are maintained in the future through support for new projects once we have left the EU. The Chancellor’s guarantee of funding while we remain a member state, and for projects agreed before this year’s autumn statement, does not go far enough in giving answers to families, businesses and investors in the north-east. Can the Government commit to continued investment in trade promotion measures for the region post-2020?

[Mr Philip Hollobone (in the Chair)]

Order. I am enjoying the hon. Gentleman’s speech hugely, but he is almost twice over the guideline limit. If he carries on much longer, he will speak for longer than the Minister. He may, out of politeness, want to draw his remarks to a close.

[Barry Gardiner]

I would not wish to leave the Minister too little time to answer all the questions that my hon. Friends and I have asked this afternoon.

I will simply conclude by saying this. The danger is that the favoured trade model will not give control back to voters who told us that that was what they wanted. If the Government wanted to make the UK a great trading nation, they would not be putting forward options that would decisively cut ties with the world’s largest free trade area. The Government are not pursuing a free trade agenda. It would appear that they are using the vote to leave to embark on a ruthless deregulatory agenda, which will threaten jobs, public services, labour standards and environmental protections in the north-east and the rest of this country. The Minister must provide answers and clarity for business and the public.

[Mr Philip Hollobone (in the Chair)]

If the Minister could conclude his remarks at no later than 5.27 pm, Phil Wilson will have time to sum up.