William Cash
Main Page: William Cash (Conservative - Stone)Department Debates - View all William Cash's debates with the HM Treasury
(8 years ago)
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Stephen Hammond (Wimbledon) (Con)
I should say at the outset that I am chairman of the all-party group on wholesale financial markets and services, and that I worked in the industry for a few years before I entered the House.
I congratulate the hon. Members for Leicester West (Liz Kendall) and for Nottingham East (Chris Leslie) on securing this incredibly important debate. We are concentrating on an industry in which we have the greatest comparative advantage. It is important for the economy not just because it means that we can help public services, but because, as the hon. Lady pointed out, it is the lifeblood of many other industries. She has set out the facts about how many people it employs. It is the largest taxpaying sector and the largest exporting sector.
The sector is also the one with the largest trade surplus with the European Union. It is absolutely clear that one reason for that is that we have had access to and membership of the single market. London was always a financial centre, but membership of the single market has allowed it to become the undoubted capital for financial services not just in Europe, but arguably in the world. We have had a common set of regulations, we have broken down barriers, we have attracted huge investments, and global operations have moved to Britain. Leaving the single market or losing access to it would be calamitous for the financial services sector.
Some colleagues have argued that immigration was a key reason why we voted to leave the EU on 23 June, and that freedom of movement must therefore be at the forefront of our thoughts. I have heard colleagues argue that we should say to the EU 27, “Trade on these terms or we will leave on WTO terms.” Such an outcome would make access to the single market impossible. That would be hopeless for financial services, because we are already seeing, in both analysis and actuality, the impact of what has happened. The hon. Member for Streatham (Mr Umunna), who is no longer in the Chamber, mentioned euro clearing. We have already seen euro clearing for currency dealing leaving London, and euro clearing for securities would leave as well. As the hon. Member for Leicester West pointed out, many institutions are drawing up contingency plans for that.
Last night, I attended a meeting of the National Institute of Economic and Social Research. Its most recent analysis shows that if we leave the EU on just WTO terms, which exclude most financial services, London would lose 60% of financial services business with the EU. I do not think that anyone, whatever their view, would regard that as anything other than a calamitous result.
The hon. Lady was right to concentrate on passporting. Passporting is necessary. It is not just a case of putting up a brass plaque on a door somewhere else in Europe; since the change in financial regulations, there is much more to it than that. It would be much more difficult to establish trade functions across Europe if we gave up passporting. The Chancellor told the Treasury Committee two weeks ago that he accepted the importance of passporting, and I hope the Economic Secretary will assure us that the Government recognise that.
Passporting is not only important for the banking industry. The Association of British Insurers put out a brief this week—I also met its representatives this week—about the ability of businesses throughout the UK to carry out insurance business across the world, and how they will be unable to do that if we lose passporting.
Sir William Cash (Stone) (Con)
I am sure my hon. Friend is aware that there is not a single market in insurance, and that 87% of all insurers operate through subsidiaries in the EU, rather than in branches dependent on passporting?
Stephen Hammond
My hon. Friend would be right to claim that about asset management, but I think he is confusing the two industries. The London Market Group said this week that although the number is not as high as that for banking, the amount of business done in the EU is substantially higher than the number my hon. Friend cites. I am happy to ask the LMG to come and discuss that with him.
If the Government are prepared to be rational, a solution can be negotiated, and that is what many people will want to get out of this debate. We might be able to have cross-industry work visas that would involve some limit on access—that would fulfil the requirement of those who want to control freedom of movement—but would also allow us some access to the single market.
As the hon. Member for Leicester West pointed out, an equivalence regime would need to be established, but such regimes are fraught with difficulty. The issue is whether we could establish a bilateral equivalence regime similar to what we have with America. A regime dominated by the European Court of Justice would not be satisfactory for the financial services industry and would wind back our prospects substantially. I would have liked to have said more about that, but I will heed the strictures of the Chair.
It is absolutely clear that the Government must give some guidance on transitional arrangements. The industry cannot wait for the end of the article 50 process. This is a bridge: the Government might not be able to set out exactly where we are going, but they must show that they understand the importance of financial services to this country and our position globally by giving the sector some certainty that after the article 50 period—it is unlikely we will be able to do a deal within two years—they will have transitional arrangements in place. That would mean that wherever we end up, the financial services sector can start its journey over the bridge.
I have no doubt that the Prime Minister and the Economic Secretary understand the importance of this industry to our country. I also have no doubt that we can negotiate a hybrid deal through which we can retain jobs and maintain London as Europe’s financial centre.
Sir William Cash (Stone) (Con)
There seems to me to be a great deal of overstatement and exaggeration in this arena. The media have tended to overstate difficulties in this area to a very significant extent.
This is about confidence. For nearly 400 years, up to our entry to the EU under the European Communities Act 1972, the United Kingdom was able to run one of the most effective—if not the most effective—financial services centres, the City of London. The idea that somehow or other, because of the intervention of the European Union, things will get better is completely outweighed by the disaster area and dysfunctionality that the EU now represents.
Only a few days ago, in Bratislava, I heard the chairman of the European Parliament’s Committee on Budgets saying that the EU needed an “electric shock”, that there was far too much regulation, that it was far too intrusive, and so on. The chairman of ECOFIN said that the EU was facing the biggest economic and political crisis in modern political history. All that is true. The idea that we would not have to leave the European Union—thank heavens the British people made their own judgment about that—and the construal of our leaving the European Union as a disaster in itself simply belie the facts.
The reality is that EU legislation is deeply embedded in the financial services sector. Just to state the obvious, not only are we obliged under sections 2 and 3 of the 1972 Act to absorb all the legislation—I warned in a letter to the Financial Times in 2008 that that would lead to the kind of difficulties we are now experiencing with regard to financial services—but because of the Court of Justice we have to obey all the regulations. The massive regulatory overkill of the whole of the financial services sector as a result of that arrangement is an undoubted disadvantage. There are huge benefits to be gained by being outside the European Union, which I will come to in a moment.
George Kerevan (East Lothian) (SNP)
Surely the hon. Gentleman is aware that most EU bank regulation—especially since 2008—has been at the behest of the G20, so we will be subject to it whether we are in the EU or not.
Sir William Cash
The problem that the hon. Gentleman has perhaps not quite taken on board is that because of the European Communities Act there is a legislative requirement for us to accept those rules. Outside, we will, I hope, be able to benefit not only the United Kingdom but the EU, as I will come on to in a moment.
We only have to look at places such as Singapore and Hong Kong to understand that one does not have to be in the European Union to have a successful financial services sector and compete in the global marketplace. The same applies to New York. The objective must be to keep the financial markets open throughout the European Union as a matter of mutual concern throughout the UK and the other 27 member states. Breaking up the London system would involve much greater costs for everyone. Europe would end up far worse off, in my judgment—and that of many others, too—if the financial sector migrated to New York, Singapore or Hong Kong.
The passport is not specific to any one aspect of the financial services field. It works best in relation to banking accounting for about a fifth of annual banking sector revenue. It works less well in relation to asset management, which my hon. Friend the Member for Wimbledon (Stephen Hammond) mentioned. It is vital to understand that there are subsidiaries set up all over Europe carrying on the business of other countries irrespective of a passport. A significant amount of EU assets are already in Dublin and Luxembourg and their management—this is the key issue—is run from the UK. Indeed, on a recent assessment I have read, only 7% of assets managed in the UK are thought to be threatened by the loss of the passport.
There is not a single market in insurance at all. I appreciate that my hon. Friend might wish to come back to me on that, and I am very happy to talk to the people he mentioned in reply to me, but I simply make the point that we are not always dependent on the passport. There is a special problem regarding Lloyd’s of London, but I am informed that the pool of underwriters across the EU amounts to only 11% of the market’s gross written premium, and only 3% is directly reliant on the passport.
We have three main alternatives: equivalence, bespoke agreements and local arrangements. Equivalence is granted by the European Commission. The Commission is guardian of the treaties and has the legal clout that we will get away from when we vote to leave, so equivalence would not apply to us if we left the EU. But we have the same regulations as the EU, and under the repeal Bill, which I put together just before the referendum and am glad the Government are so interested in, we would be able to run parallel operations where it was in our mutual interests to have regulatory arrangements in the UK equivalent to those elsewhere in the EU—and, indeed, internationally, as well.
As regards bespoke agreements, we have the potential to secure an agreement similar to that with Switzerland, for example. If no cross-border access arrangement is made, firms will still be able to set up subsidiaries. That would, I have to admit, cost money, but it would not be disproportionate. I do not want to go into the details of a private conversation so I will simply say that I got that straight from some very senior bankers the other day. It boils down to this: we can arrive at an arrangement similar to Switzerland’s or at a free trade agreement. Of the two, I must admit I prefer the latter.
Joanna Cherry
Yes, I am concerned about that. Edinburgh’s reliance on financial services is 23.8%, compared with 18.9% in London, 17.3% in Brussels and 17% in Amsterdam. By comparison, Glasgow’s financial services sector is worth about 12.4% to its economy.
This is not fearmongering. Paris and Frankfurt are already angling for some of the jobs that may leave London and Edinburgh if we leave the single market. I attended a briefing last week at which the Irish ambassador spoke. He pointed out that while Britain leaving the European Union poses some problems for the Republic of Ireland, it will also provide some fantastic opportunities for Dublin to attract jobs that we really need in our financial sectors across the UK. In Edinburgh, we really want to hang on to those jobs.
I am happy to say that a lot of people in my constituency are employed in legal and accounting services, which is what I used to do before I came to this place. More than 3,000 of my constituents are employed in the legal services sector. Across Edinburgh, that figure for the legal and accounting sector is closer to 10,000. The Law Society of Scotland has its headquarters in my constituency, and the Faculty of Advocates, of which I am non-practising member, has its headquarters in the neighbouring constituency of Edinburgh East. A lot of lawyers and other people who work in law firms live in my constituency and are worried about the impact of Brexit on legal services. There are many aspects of EU law that have particular relevance to the legal system and professions, including the directive on the mutual recognition of diplomas, the lawyers establishment directive and the lawyers cross-border provision of services directive.
Sir William Cash
Does the hon. and learned Lady recognise—I imagine she might—that there is a certain circularity in her argument? It is not surprising that the legal profession inside the European Union, which is concerned about European law, would want to protect that particular part of their activities. She could perhaps be a little more generous in understanding that those who want to leave might actually end up with laws that are made in this place.
Joanna Cherry
That is not what I am actually talking about. I am talking about the way in which European Union law has enabled Scots lawyers, English lawyers and lawyers across these islands to practise across Europe not for their benefit but for the benefit of their clients. That is the point. It is also to the benefit, as earlier speakers pointed out, of the financial services sector and to the British economy in general. This is not naked self-interest on the part of the lawyers. Lawyers depend on their clients to make a living. If lawyers are not able to practise across Europe easily, they will not be able to provide such a good service to their clients. That does not just apply in the financial sector. It covers all sorts of areas, including, very importantly, child and family law.
In Scotland, the Law Society of Scotland will be urging the UK Government and the Scottish Government to argue in negotiations that the current arrangements for lawyers to be able to practise in the European Union should be retained. It would be very disappointing if the only route for lawyers to be able to practise in Europe in future would be to requalify in other EU jurisdictions and go through the cumbersome processes that we have done away with as one of the many benefits of being in the EU.
Clearly, the best way to protect the legal and financial services in my constituency and in the city of Edinburgh is to remain part of the single market. That would be the easiest way to give comfort to those sectors. Of course, we are not able to give any comfort to those sectors, because the Government “do not want to give a running commentary”. However, it appears, as the result of a legal decision today, that the Government may in due course be forced to come to this democratically elected Chamber and tell us a little bit more about what their plans are. It is worthy of comment that that is not as a result of European judges sitting in Brussels, Luxembourg or Strasbourg. It is the result of English judges sitting in London. As a Scots lawyer, I wish to pay tribute to those English judges for the decision they have reached.
Chris Evans (Islwyn) (Lab/Co-op)
I begin by congratulating my hon. Friends the Members for Nottingham East (Chris Leslie) and for Leicester West (Liz Kendall) on bringing forth this timely debate. They are both known as having been huge talents, and their absence from the Front Bench is unfortunate.
I come to this debate with a sense of frustration. Like the hon. Member for Tonbridge and Malling (Tom Tugendhat), I worked in financial services for a number of years before I came to this place. I get frustrated when I hear politicians characterising bankers as greedy, yacht-going men who live in high-rise apartments, looking for ways to rip off the British public to make themselves even richer. That is not my experience of the banking system, and it is not the experience of the people I meet in my constituency, such as those who work on the high street in Blackwood or people such as Jonathan Brenchley from Barclays, a community relations manager who works hard to improve community relations. I recently had a meeting with NatWest, which is trying to improve IT and promote small IT businesses so that they can grow in Wales.
It is true that financial services are the largest exporters in the world. Some 11.8% of our GDP is in the financial and related sectors. The financial industry employs over 2 million people, and not all of them are based in the City of London. It employs one in 14 people in the UK on average, and two thirds of them are based outside Greater London. In Wales, for example, 54,300 people are employed by the financial and professional services industry. These are people who really believe in their companies; they have a buy-in, and they want to provide the best possible customer service. That is why I am concerned.
Before the referendum of April 2016, PricewaterhouseCoopers conducted an analysis of what effect leaving the European Union would have on the financial services sector. The outcome was grim, forecasting that leaving would result in the loss of 70,000 to 100,000 jobs by 2020, with a slight recovery over time, but remaining with a loss of 10,000 to 30,000 jobs by 2030.
As we have heard, work in the financial services industry involves helping businesses to grow and individual people to reach their potential. Suffice it to say, it is the base industry for everything in this country. The prospect of the UK leaving the EU is a real threat to the financial services industry. Our financial services industry does not operate in a vacuum; rather, it relies on international trade and the flow of capital around the world and particularly the EU.
At the moment, the sector makes extensive use of passporting, as we heard from my hon. Friend the Member for Leicester West. The Treasury Committee’s publication of figures from the Financial Conduct Authority shows that 5,476 companies registered here in the UK depend on these passport rights to do business with the EU.
Sir William Cash
In the light of the hon. Gentleman’s condemnation of the vote to leave, will he remind us how his constituents voted in the referendum?
Chris Evans
The hon. Gentleman has spent 30 to 40 years in this House going on about the European Union. All his birthdays must have come at once on 23 June—that is all I can say! [Interruption.] He knows the answer very well. I think he is trying to create a bit of mischief for me.
Essentially, we need to ask whether this will mean the loss of passport rights. What structures will be put in place to allow people to continue doing business and paying their taxes? Banks and the financial service industry simply need to know that.
I am short of time, but let me say that my second key concern that generates uncertainty is the extent of EU-originated law that now governs financial services. The law itself, of course, is not the issue, but what replaces it and the process by which it will happen is still a mystery. It is hard to find reliable information to quantify the extent to which EU law governs the UK financial services sector. However, since the EU implements many international regulations and agreements relating to the financial services sector and the UK relies on that body of law, leaving the EU can raise questions.
Ultimately—I am running short of time—it is no good for the Prime Minister to come here and, when she is challenged, to say every week, “Brexit means Brexit.” It is no good her saying that she is not going to give a running commentary on the negotiations either. The financial services industry needs certainty. It needs to move on, and it is time that the Government came up with some answers to the questions I have raised today.
Chris Leslie
I do not have time to give way to the hon. Gentleman. Well, I may do so if I am tempted. The clock stopped after he spoke, and it felt like the 19th century.
Let me read out to the hon. Gentleman a list of the products that will be banned after April 2019, the time at which we would be out of the European Union. It will no longer be possible to trade in these services with the other 27 countries unless we secure a transitional arrangement or some solution from the Government.
There will be no deposit taking, regulated commercial lending services, trade finance, finance leasing, regulated receivables financing such as factoring, derivatives, hedging services, credit card services, payment services, consumer credit, mortgage lending, equity and debt capital markets, fixed income secondary market trading, regulated foreign exchange spot and forward trading, securitisation, regulated commodities trading, or clearing and executing brokerage. It will be illegal for British-based firms to trade into those 27 countries after April 2019 unless the Government manage to secure a decent deal.
The challenge to the Minister, who has already heard it from many Members on both sides of the House, is yes, to focus on the right solutions—automatic access rights to the single market must be our goal—but before we reach that stage, in January or February, he must start to ensure that we have some evidence on the transitional arrangement talks. A transitional arrangement must begin before we trigger article 50, in the reporting season, so that banks and other financial institutions can plan ahead. If the Government do not give a clear commitment to seeking a transitional arrangement, we will find that those financial institutions have a “stick or twist” option. Do they stay and risk it, hoping that something will crop up after 2019, or do they twist, leave the UK and try to locate elsewhere? That is too much of a gamble. It should not be so binary. I hope that Ministers will think very seriously about doing the right thing for the sector and those who are employed in it.