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Financial Services

Volume 615: debated on Thursday 20 October 2016

1. What discussions he has had with the Chancellor of the Exchequer on financial services and negotiations on the UK leaving the EU. (906687)

10. What progress his Department has made in engaging with the financial services sector on the potential effect on its revenues of the UK leaving the EU. (906697)

The Chancellor and I are both determined to ensure we get the best possible deal for our financial services sector—a crucial part of our economy—and not just for the City of London but for the country more widely. Two thirds of financial services jobs are outside the capital, including 150,000 in Scotland. We are determined to ensure that this UK-wide industry continues to thrive. The Chancellor and I have met to discuss this, and, as one would expect, agree that financial services will be of great importance in these negotiations, that we must remain in a position to attract the brightest and the best in the global battle for talent, and that we will seek the best possible terms of trade for our financial services in the European market. We are also working together to maximise opportunities for financial services arising from our exit from the European Union. We have already met representatives of the financial services industry and expect to do so again as we shape our negotiating position.

Will my right hon. Friend make securing agreement on a transitional period for financial services an urgent priority for Brexit negotiations to avoid the risk that firms feel they have to start making decisions to change their businesses now based on a worst-case scenario because compliance obligations mean that they cannot wait to see what the final deal will look like?

We are seeking to ensure a smooth and orderly exit from the European Union, and it would not be in the interests of either side—Britain or the European Union—to see disruption. To that end, we are examining all possible options, as one would expect. We are approaching these negotiations in good faith and with good will towards our negotiating partners—we hope the same applies in reverse—focused on the mutual interests of the UK and the EU, including financial stability. I would say that having London as the No. 1 global financial centre sitting at the heart of the global capital markets is not just in the UK’s interest but in the European Union’s interest. I am confident that everyone will see the value of not undermining that.

In his answer to my right hon. Friend the Member for Chipping Barnet (Mrs Villiers), the Secretary of State talked about all possible options. Yesterday in the Treasury Committee, I asked the Chancellor whether he accepted the likely need for transitional arrangements. Has my right hon. Friend met regulators to discuss systemic risk, and major financial institutions to discuss loss of business, if those transitional arrangements are not put in place?

The Chancellor’s response was much the same as mine will be. Yes, we have been talking to the European institutions, in particular, about this matter, and they take the same view as we do.

We look forward to hearing from the Secretary of State once the new Select Committee has been established. May I press him on transitional arrangements, which are absolutely fundamental to the task in hand? He will be only too well aware that uncertainty about our future trading relationships, including for the financial services industry, is the major concern of business. Can he give the House an assurance that if we have not been able to negotiate a new trade and market access agreement with the European Union by the end of the article 50 process, the Government will seek a transitional arrangement, because if they do not say that now the business uncertainty will continue, and businesses may begin to take decisions because they do not know what the future holds?

I congratulate the right hon. Gentleman on his new post. I am very pleased that he is the Chairman of the Brexit Committee, and look forward to a great deal of discussion with him on these subjects. He is quite right—we have to treat as absolutely central to what we do maintaining the stability of the City but also of the European financial markets, which have been a little fragile over the past few years. We will therefore do anything necessary. In the financial sector, as in other sectors, at the point of exit from the European Union, all the standards, conventions and regulations will be identical, so the transition should be capable of being managed very clinically. We will do everything necessary to maintain that stability.

Can the Secretary of State confirm, in relation to press reports earlier this week, that the Government may in future pay the European Union, in some form or another, for access for financial services? Is it the Government’s position that under no circumstances will they in future pay for market access for financial services?

I do not comment on leaks. I am not going to comment on that newspaper report or, indeed, on its veracity or otherwise. On the accountability of Government activity, I said during last week’s debate that I want to be as accountable and open as possible with the House of Commons, but the Labour party accepted enthusiastically the amendment to the motion, which said that we would do nothing to undermine or prejudge our negotiating position, and that is what we will do.

Rather disgracefully, the Treasury did its best to play a prominent role in the remain campaign, including the release of a highly dodgy dossier predicting economic doom and gloom. Is my right hon. Friend confident that the Treasury has now caught up with the result of the referendum and that it is singing from the same page as his Department?

I am afraid that I do not agree with my hon. Friend. The simple truth is that the Treasury is looking at all the options, just as we are. Forecasts of the sorts that he described are contingent entirely on the assumptions that are put under them. If a lot of deleterious assumptions are made, they will result in a deleterious outcome. If serious policies are introduced to correct any of the risks and maximise the opportunities, they will result in a very much better outcome, and that is what we will do.

The Secretary of State has said that he does not want to discuss leaks, but it is important that we get factual information out there. According to the Financial Times, the Government are to spend billions on keeping the City of London in the single market. Will the Secretary of State confirm what steps he is taking to ensure that the people of Scotland get a similar deal?

As I have said, I do not comment on leaks, but what I will say is this: I said at the beginning that a very large number of financial services jobs are outside London and many of them are concentrated in Scotland. It has been a fundamental part of Scotland’s advantage down the years to have strong financial services, and we will do every bit as much to protect Scotland as we will to protect London.

Tens of thousands of jobs in Britain depend on euro-denominated clearing. The United States has secured equivalence for its clearing houses. How confident is the Secretary of State that euro-denominated clearing will be permitted in the UK after we have left the European Union?

The right hon. Gentleman identifies a very important point, as I would expect from him, and that is certainly one of our major aims. I reiterate the point that I made to the new Chairman of the Brexit Committee: we start at the point we leave with absolute equivalence, because we meet all of the requirements at that point, and I would seek to ensure that that was maintained.

The discussions on financial services are intended, as I understand it, to build consensus on the Government’s plans. Eight days ago, the Government gave a clear commitment from the Dispatch Box that

“there should be a transparent debate on the Government’s plans for leaving the EU”.—[Official Report, 12 October 2016; Vol. 615, c. 414.]

Yesterday I wrote to the Secretary of State to ask a very simple question: when will the plans be made available? That is an important question because we need time to debate and scrutinise the plans before article 50 is invoked, and no doubt the new Brexit Committee will want to see them. The Secretary of State replied promptly to my letter, but failed to answer that central question, so I ask him again: when will the Government plans for leaving the EU be made available to this House?

I could not have been clearer that I consider engagement with Parliament on the process of exiting the EU to be of paramount importance. That was the whole thrust of my speech in last week’s debate and of everything I said previously to various Select Committees and to the House. That is why I supported the Opposition’s motion last week that

“there should be a full and transparent debate on the Government’s plan for leaving the EU”.

That was the hon. and learned Gentleman’s wording.

It has always been our intention that Parliament should be engaged throughout. However, the House also agreed a vital caveat that such a process must respect

“the decision of the people of the UK when they voted to leave the EU on 23 June and does not undermine the negotiating position of the Government”.

There will be a balance to be struck between transparency and good negotiating practice, and I am confident that we can strike that balance. Over the course of the coming—[Interruption.] Whether it is six months or less, I do not know, but over the course of the coming period before the triggering of article 50, much information will be put out and I think that the House will be in no doubt about our aims and strategic objectives.

The question was: when will the plans be made available? For the second time, it has not been answered. The plans are important not only so that this House can hold the Government to account, but so that some certainty can be provided. There has been so much evidence of uncertainty. I met representatives of the Council, Commission and Parliament in Brussels yesterday, and it is absolutely clear that the Prime Minister’s words about Brexit at her party conference have been widely interpreted as an indication that she wants the UK to leave not just the single market, but the customs union. I have no doubt that that will come up in her discussions in Brussels this evening, but will the Secretary of State assure the House that that is not the Government’s starting position for the article 50 negotiations?

Actually, it is a good example of the reason why we are taking our time to come to a conclusion on this. [Laughter.] No, these matters have serious implications, whichever way we go with them. Being inside the customs union gives some advantages but cuts off, to some extent, free trade areas around the rest of the world. Being outside the customs union creates some handicaps but opens up those other benefits. That decision is not part of what the Prime Minister has said to the European Union.