European Affairs

Robert Neill Excerpts

Thursday 15th March 2018 Commons Chamber

[Mel Stride]

The hon. Gentleman will understand that both are an extremely high priority. We will be pursuing both avenues vigorously.

As my right hon. Friend the Chancellor made clear in his Canary Wharf speech last week, financial services is a sector that calls for close cross-border collaboration. The Chancellor also reiterated that it is simply not credible to suggest that a future deal could not include financial services. It is in the interests of both parties to ensure that the EU can continue to access and enjoy the significant benefits afforded by our financial services hub, because it is a regionally and globally significant asset, serving our continent and beyond, and near-impossible to replicate.

The UK can claim excellence in many areas, but in trade in financial services we are truly the global leader. We manage €1.5 trillion of assets on behalf of EU clients, and 60% of all EU capital markets activity is conducted here in the United Kingdom. Around two thirds of debt and equity capital raised by EU corporates is facilitated by banks right here in the UK. The huge economies of scale have led to London’s dominant position in EU financial services. As the Chancellor made very clear last week, we should be under no illusions about the significant costs if this highly efficient shared market is fragmented—costs that will ultimately fall to consumers and companies right across Europe.

[Robert Neill (Bromley and Chislehurst) (Con)]

My right hon. Friend is making a very important point. As the Chancellor set out, those costs are many billions of pounds. One example is the proposed relocation of clearing houses, with an effective cost of some £25 billion a year. Does my right hon. Friend agree in addition that it is critical to have continuity for the legal instruments that underpin financial services, and that continuity of access for legal services must therefore be inextricably linked?

[Mel Stride]

My hon. Friend raises an important point about the significance of financial services, not just to us but to our European partners. On his specific point about regulatory continuity, we are considering the detail of that at the moment. We will certainly look at the prospect of returning to the matter on Report of the relevant Bill.

The UK stands ready to engage on a future trade agreement—one that includes financial services. Our overarching vision is for an economic partnership—including a future trade agreement—that delivers the maximum possible benefits for both our economies in all sectors, respects the integrity of each other’s institutions and seeks to strengthen, not weaken, the prosperity of Europe as a whole. Despite that, some still question the possibility of reaching such an agreement or insist that a trade deal cannot include financial services. The Chancellor addressed those sceptics in his speech last week, when he said that

“every trade deal the EU has ever done has been unique”.

The existing models do not represent the best way forward; nor do they provide a useful precedent to form the basis of any future agreement. Joining the EEA would not give the UK enough control, and a CETA-style deal would present too low a level of market access. The EU and the UK come to the negotiating table from the unique position of having the same rules and regulations on day one, not to mention our deeply interconnected economies. Unlike when other countries negotiate free trade agreements, this is not about aligning two totally different systems. Any new trading agreement should reflect the starting point of deep and historic convergence. We understand that, over time, there will be points of inevitable divergence, so we recognise that any future agreement should set out a clear approach to that aspect.

Our country seeks the deepest and broadest agreement possible—a bold economic partnership that is of greater scope and ambition than any comparable arrangement in history. The ambition of our vision reflects the scale of our mutual interest, our shared history and all that we can achieve together as good friends and trusted neighbours. Leaving the European Union represents an opportunity to chart a prosperous future. Along with my colleagues in Government, I have the greatest faith in our country and in our ability to work with others to achieve a deal that provides and endures for us all.

--- Later in debate ---

[Mr Leslie]

In some areas we buy more of their goods than we sell, and in others we sell more goods than we buy. We have a significant surplus in financial services. We do financial services particularly well in this country. The Investment Association is exceptionally worried about the lack of co-operation agreements, which is a particularly technical term. We currently have such agreements by virtue of our membership of the European Union, but they will lapse on exit day. To what extent are the British Government seeking new or rolled-over co-operation agreements with each of the other 27 member states—perhaps the Under-Secretary of State can get advice on this from his officials by the time he winds up—so that the activities of some financial services are even legal in those countries?

The single market is also about goods, because some goods contain services aspects. Medical products require certification in order to be sold around the European Union. On the automotive sector, the Society of Motor Manufacturers and Traders has referred to the dangers of non-tariff barriers: regulatory alignment or divergence could be thrown into chaos if we leave the single market. I think about the single market benefits that consumers in the UK gain because they have safe products, a right of redress and enforcement on consumer goods. That is why the single market matters, and there are other issues besides.

[Robert Neill]

The hon. Gentleman is making an important point. An obvious example are goods that are sold with an insurance policy attached, which is a classic case of an area in which we are world beaters. Once we start to disentangle one part of the financial ecosystem, then we of course damage the whole lot, whether in trade with the EU or elsewhere.

[Mr Leslie]

The hon. Gentleman gives a perfect illustration. Let us imagine a driver, with insurance cover, departing from Belfast and crossing the border. At present, doing so does not require any particular change by the time he or she arrives in Dublin. After exit day, however, the applicability of the insurance product might be null and void, and it will certainly require adaptation. This is not just about physical goods or the transfer of manufactured products, because some of these invisible products matter massively as well. If there was a car accident during that journey from Belfast to Dublin, where does the liability rest and who will enforce it? All such questions have been left entirely unanswered as the Government barrel headlong towards March 2019.

Of all the things that a single market would affect, the Good Friday agreement is the one I feel most strongly about, because I cannot see a solution to that particular problem that does not require the UK staying in and participating in the single market and the customs union. I say to all Members, including my Front Benchers and especially Conservative Members, that we cannot just assume that a customs arrangement for hard goods crossing borders will be adequate to maintain the principles maintained in the Good Friday agreement.

The red lines chosen by the Prime Minister were hers; they were not on the ballot paper in the referendum. Indeed, Daniel Hannan MEP and others have said that nobody even questioned the single market during the referendum campaign. It is now for Parliament to say politely to the Prime Minister that those red lines are not correct. If the Government have the courage to take forward the trade Bill and the Customs Bill, and certainly when the European Union (Withdrawal) Bill comes back from the House of Lords, they will have to confront the fact that there is a majority in Parliament for a customs union and, I believe, for a single market. Let us get on with it, and sort this problem out.

--- Later in debate ---

[Robert Neill (Bromley and Chislehurst) (Con)]

I have a lot of sympathy with what has been said by the hon. Member for Bridgend (Mrs Moon) and my right hon. Friend the Member for Broxtowe (Anna Soubry). I will put my case slightly differently and, perhaps, a little more succinctly.

I take the view that this country made an error. It was a democratic error, but it was an error. And because we are democrats, we have to live with the consequence of the error until such time as I hope may one day be the case, when the future generation reverses that error in some way. However, I am also a realist and know that that is not likely to happen any time soon. Therefore, we must ensure that we respect the outcome of the referendum—like it or not—but that we do so in a way that mitigates, to the greatest extent possible, the damage that will inevitably flow from it. The Prime Minister at her Mansion House speech was frank and honest, as I have always found her to be, about the fact that there is damage and that we must therefore mitigate the risk.

I do not do my politics in belief and faith; that is appropriate for the confessional, but not government and litigation. I do my politics in hard-headed reality, which is why I want to talk about services. Financial services underpin the economy of this country. We are a service economy or we are nothing. The position on services is worrying. My constituents are dependent on services, as 36% of them work in the financial and professional services sector—the 16th highest proportion in the country. Other hon. Members have already set out the massive contribution that the financial services make to our economy, beyond any other.

Anything that damages financial services damages the economy, the tax take, our public services, and the lives of every man and woman in this country. It directly damages the lives of my constituents. I will not support anything that materially damages the lives, the wellbeing and the services of my constituents. I want to help the Prime Minister to avoid that happening. To do that, I want to give her flexibility. As soon as she expresses realism, seeks flexibility and recognises that there must be compromise, some of my hon. Friends promptly appear with another pot of red paint. They are the ones who make her life harder, not those of us who support her in the realism and honesty that she set out in her Mansion House speech.

Let us then look specifically at what needs to be done to achieve the result that we need for financial services. First, we have to find for the City of London, if possible—it is a big if, and whether it will be achieved I know not, but let us set it out very clearly—a means, where mechanisms exist, to enable maximum access for financial services firms and for the legal services firms that underpin them: the two go together. There has to be an early transitional arrangement, or implementation—what’s in a name?—to ensure day-one continuity.

Secondly, there has to be—I want to hear from Ministers how we take this forward and a reassurance that it is central to their view—mutual market access built on the existing position of regulatory convergence. Moving away from that would damage market access; it is not in this country’s interest. That should be based on a commitment—frankly, an ongoing commitment—to mutual recognition and regulatory co-operation, with a joint UK-EU mechanism to ensure that regulation and principles of supervision are monitored as they evolve over time.

There would have to be a dispute resolution mechanism. We can call it a court or a tribunal—I do not much mind. We ought to think about the costs of a plethora of arbitration tribunals, although perhaps remaining within EFTA, or the EEA, will give us a ready-made dispute reconciliation mechanism through the EFTA court. It might be unwise to rule that out.

[Anna Soubry]

Is my hon. Friend concerned about the cost of all the provisions that will have to be made to govern all these various sectors and to manage all these new arrangements? Would he like the Government to produce, before any final meaningful vote in this place, the actual costs of delivering the Brexit deal?

[Robert Neill]

My right hon. Friend makes an entirely fair point. We should do that, because there is going to be an administrative cost that will ultimately be borne by consumers and taxpayers.

The industry itself has done analysis of the costs in some areas of financial services. For example, the wholesale banking industry estimates that if there is regulatory fragmentation, it is likely that $30 billion to $40 billion of extra capital will need to be raised. The London Stock Exchange Group calculates that changing the location of clearing houses—we must try to retain euro clearing, which is critical for the sector—will have a potential cost of some $25 billion, not just to us but to the EU27. It is in our mutual interest, on both sides, to get an agreement. No analysis of costs has been done: we should be honest about that and do so. We have to get these agreements.

We must ensure, too, that there is the ability to hire talent across the board and to move it seamlessly. It has to be possible that people can move staff from an office in Brussels, Paris or Frankfurt to London without any hold-up or delay—not even the need for the slightest bit of paperwork. That has to be achieved sensibly. Again, it is in our interest because otherwise we damage the ecosystem of the global financial hub that London is. As the Chancellor rightly acknowledged in his speech last week, the depth of the London capital markets frees not only businesses but sovereign debt for the EU27 nations. Too much rigidity from either side makes that difficult and puts it at risk.

The other thing that underpins this is the legal structure that goes with the professional services. Our legal services are second to none. We are the venue of choice for international litigation and dispute arbitration. That itself is a great gainer of income for this country. The legal services sector was worth £26 billion to the economy in 2015-16—1.5% of GDP—and is responsible for about £4 billion of exports, about 55% of which goes to the EU.

Fly-in fly-out arrangements are critical to that. We need an arrangement whereby, post the establishment directive, lawyers can have their qualifications mutually recognised in the EU27 states, can move seamlessly from one office to another, have the professional standing to advise their clients in EU27 countries and—this is very important but not often mentioned—have their client legal privilege recognised and protected, which can happen only where a lawyer’s qualification is recognised. Without a deal on that, British lawyers will not be able to advise clients or firms in EU27 countries—because professional privilege will not apply—appear in their courts or have the right to arrive in those countries and be present for negotiations with clients in important commercial contracts. It is critical, therefore, that we do not forget the need to get the legal services sector absolutely squared off in our future arrangements.

We must ensure the recognition and enforcement of judgments. A derivative contract—something we lead the world in—is worth while only so long as it can be enforced. We must ensure that they and all other commercial contracts have certainty of enforcement, not only over the transition period, but going forward, as they are typically written for three to five years. At the moment, we do that with one simple EU directive. It would be most unfortunate if we had to replicate that with each country plus those with which the EU has reciprocal arrangements. We can mitigate that by immediate action to join the Hague convention, but that is a back-up, not an ideal situation; we have to go further. I ask the Minister to detail what meetings he and his departmental officials have had with the Bar Council, the Law Society and, where appropriate, the senior judiciary to discuss the practical steps we need to take to safeguard the position of Britain’s legal services sector going forward and how it underpins the broader financial and professional services sector.

[Several hon. Members rose—]