European Economic Area: UK Membership

Stephen Timms Excerpts

Monday 6th November 2017 Commons Chamber

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

rose—

[Stephen Timms (East Ham) (Lab)]

rose—

[Stephen Kinnock]

I will take one more intervention from my right hon. Friend, but I will take an intervention from the hon. Member for Bromley and Chislehurst (Robert Neill) later.

[Stephen Timms]

Has my hon. Friend seen the recent forecast that a WTO-based Brexit would cost the UK economy 75,000 jobs in the financial services sector alone? Is he not absolutely right to talk about the grave dangers that that would pose to the British economy?

[Stephen Kinnock]

I agree that the financial services sector is critical to this debate, because passporting is required. There would be no passporting arrangements in a WTO deal, so the impact would be catastrophic. We must remember that the financial services sector is not just about the City of London; it supports 1 million jobs across the entire United Kingdom—in Edinburgh, Leeds and so on.

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[Stephen Kinnock]

I think my hon. Friend’s point touches on what sort of reforms to the free movement of labour we think we need. Opinion is divided. In terms of the upstream reform, the argument is in favour of a quota-based system; downstream reform would be based on registration, but perhaps that is for another debate. My point is that EEA membership enables a lot more flexibility over both an emergency brake and the use of industry-by-industry quotas.

I turn now to the vexed question of ECJ jurisdiction. Here the position is relatively simple, as EEA-EFTA members are not subject to ECJ jurisdiction. The EEA is administered by the EFTA arbitration court and the EEA joint committee, and disputes are managed by the EFTA surveillance authority. These bodies adjudicate only on matters relating to the EEA internal market and any violations of its principles and have far less clout than the ECJ. Moreover, while EU member states’ courts must refer legal issues to the ECJ, EEA states are not obliged to refer them to the EFTA court.

The EEA model is sometimes criticised because EEA members are cast as rule-takers as opposed to rule-makers, but that criticism does not stand up to scrutiny. EEA members have the right to participate in the drawing up of EU legislation by the EU Commission, and the EEA joint committee determines which EU laws and directives are deemed relevant for the EEA and whether any adaptation is necessary, so EEA membership would in fact provide the UK with a seat at the table when EU regulations and directives are being shaped.

Clearly EEA membership is one step removed from the heart of decision making in Brussels, but the reality of the referendum result is that our influence in Brussels and across the European capitals has, and will inevitably be, diminished. The only valid question now is how to maximise democratic control and influence while minimising economic damage. I contend that an EEA-EFTA-based transition deal would clearly achieve those ends. The stakes are high.

[Stephen Timms]

I am listening with great interest to my hon. Friend’s argument. Will he confirm whether I have understood him correctly? Would the way forward he is advocating require the UK to rejoin EFTA? Is that his proposition?

[Stephen Kinnock]

There are a variety of views on this. Carl Baudenbacher, the head of the EFTA arbitration court, has said that he would favour a docking system and an interim arrangement that puts British judges on the EFTA arbitration court in preparation for finalising a deal—in a sense, a bridging into EFTA. I would advocate joining EFTA as part of moving into the EEA.

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[Stephen Timms (East Ham) (Lab)]

The hon. Member for Gainsborough (Sir Edward Leigh) has been courteous and thoughtful, but I just remind him that he won his seat in 2015 on the basis of a commitment to keep the benefits of the single market for the UK.

I warmly welcome this debate, and I congratulate my hon. Friend the Member for Aberavon (Stephen Kinnock) on the motion he has proposed. A German Foreign Office official told me earlier this year, “If you want the benefits of the single market, you have to obey the rules of the single market.” Ever since the referendum, Ministers have been telling us that we will have the benefits of the single market but that we will no longer have to obey the rules. Unfortunately, that will not be the outcome of these negotiations. If, by some extraordinary fluke, the Secretary of State for Exiting the European Union was able to persuade Michel Barnier to agree to such an outcome, it would immediately be voted down by other European Parliaments—certainly by the Bundestag—and by the European Parliament as well.

I think that that recognition is starting to dawn on Ministers. At the start of this process, they told us we would get barrier-free access to the single market, but I notice they do not use that phrase any longer; they now say we will have access with a minimum of friction—whatever that turns out to be. We are not, sadly, going to get the barrier-free access they said at the start that we would get, but we need barrier-free access. If we are to leave the European Union, we need to find a way, in conformity with the rules, to maintain the economic benefits—the very large economic benefits—for the UK of our membership of the single market, so my hon. Friend is on to something extremely important.

Membership of the European economic area comprises an EU pillar and an EFTA pillar. With the UK exiting the European Union, membership of EFTA is, as we have heard from the hon. Members for Carlisle (John Stevenson) and for South Suffolk (James Cartlidge) and from my hon. Friend, certainly something we should consider, and it may well prove to be the right way forward. However, there are some disadvantages to EFTA membership, and my hon. Friend the Member for Ilford South (Mike Gapes) touched on them. In particular, because EFTA countries are not in the customs union, the grave problem at the land border with the Republic of Ireland would not be resolved by joining EFTA. The Government are telling us two things about that: first, that we will not be in the customs union; and secondly, that there will be no infrastructure at that border. Sadly, those two assertions are contradictory; they will not both be true, and one of them will have to not be true. We have a serious problem at that border, and joining EFTA would not deal with it.

I was interested by a proposal made in a paper presented recently to the Confederation of Norwegian Enterprise by Sebastian Remøy, who used to be an official in the EEA co-ordination unit in the EFTA Secretariat, suggesting that, alongside the EU pillar and the EFTA pillar in the EEA, there should be a third pillar—a UK pillar—which would allow greater flexibility and overcome the disadvantage of EFTA membership. It might also deal with some of the difficulties that Norway might raise about the UK joining EFTA and unbalancing the current structure and modestly sized secretariat. I just put that idea on the record—I do not know whether it is the right one, but it needs to be looked at, alongside membership of EFTA, as a way forward.

In the referendum, leave campaigners dismissed serious concerns about the economic consequences by describing them as “Project Fear”, but as we have heard in the debate, those fears are starting to be realised. The letter from business organisations said they needed certainty about the transition by the end of this calendar year, but they are not going to get that.

[Wera Hobhouse]

Does the right hon. Gentleman agree that it is time we dropped the term “Project Fear” and replaced it with the term “Project Reality”?

[Stephen Timms]

We certainly need some hard-headed economic realism as we face the decisions ahead—the hon. Lady is absolutely right.

We are not going to get certainty by the end of the year. The Secretary of State said to the Select Committee that we would have details of the transition by the end of March 2018 and that he hoped that for the sake of three months businesses would hold off implementing their back-up plans until then. But for much of the financial services sector, an announcement of plans by politicians in the absence of legal certainty is completely useless. They have to—the regulator requires them to—put in place their back-up plans if there is no legal certainty about the transition by the end of March next year. We are going to start to lose significant numbers of jobs. I mentioned the figure of 75,000 that is an estimate of the number of jobs that the financial services sector will lose from a hard Brexit. It looks as though—I have seen an estimate—15,000 of those will go if we do not have legal certainty about the transition by the end of March next year. That will impose a grievous economic blow upon us. My hon. Friend the Member for Aberavon is making an extremely important case that the House needs to heed.