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Exiting the EU: Public Finances

Volume 624: debated on Tuesday 18 April 2017

7. What recent assessment he has made of the potential effect of the UK leaving the EU on the public finances. (909622)

8. What recent assessment he has made of the potential effect of the UK leaving the EU on the public finances. (909623)

We’ll see how lucky, Mr Speaker.

The Government have undertaken a significant amount of work to assess the economic and fiscal impacts of leaving the EU, and they continue to carry out that work. This is part of a continuing programme of analytical work covering a range of possible exit scenarios, including sectoral analysis, but I have to say to the House that we are seeking the best possible deal for the United Kingdom, recognising that there is a range of possible outcomes to the negotiations, and the work being done reflects this. The Government have also committed to keeping Parliament informed, but it would not be appropriate to publish analysis that risks undermining our negotiating position.

Throughout the last seven years, the needs of the British people have had to play second fiddle to the needs of the Conservative party. As a result, the Chancellor has been forced to disown the manifesto commitment to balance the Budget in this Parliament. Is it not the truth that today’s announcement about a general election is another example of this Government putting their party’s interest ahead of the country’s interests at a time when there is a desperate need for stability in this country?

The question is about the departure from the EU and the effect thereof on the public finances.

In terms of the effect on the public finances, the decision that the Prime Minister made today is very much in the national interest, to strengthen her hand as she goes into the negotiation with the European Union, to provide a clear mandate for the type of exit that she set out in the letter she wrote to President Tusk two and a half weeks ago, and to ensure that the UK can negotiate its exit from the European Union, execute that exit, and then transition to the new arrangements with a clear run before the next general election.

After that party political broadcast on behalf of the Conservative party, may I ask the Chancellor a very serious question? Many billions of pounds of EU structural funds are invested annually in the UK, particularly in our deprived areas and regions. Wales, and Merthyr Tydfil and Rhymney, have benefited significantly from this funding. What steps will he take to replace this essential investment when we leave the EU?

As we have said on many previous occasions from this Dispatch Box, we recognise that alternative arrangements will have to be put in place. We will no longer be making large subscriptions—payments—into the European Union, but on the other side of the equation we will no longer be receiving some of the funding that we have been receiving for many years, including the structural funds. That places the opportunity back in the hands of this House—this Parliament—to decide how we should use our taxpayers’ funding to achieve the objectives of the UK Government and to achieve economic development in the way that is most appropriate for the UK.

Does my right hon. Friend look forward to getting net £10 billion a year into the Exchequer, and does he note that the claims for tens of billions of euros from our friends in Brussels merely illustrate the financial incontinence on the continent?

Any Chancellor would always welcome any net tens of billions of pounds, or even any net billions of pounds, from pretty much any source whatsoever. In terms of the numbers bandied around in Brussels relating to the so-called exit charge, we should recognise them for what they are: an opening gambit in what will be a long and complicated negotiation—nothing more, nothing less.

Does the Chancellor agree that, whether inside or outside the European Union, the best way of delivering strong public finances is a strong economy supported by low tax and low regulation, and is that the future we can look forward to?

The only way of delivering strong public finances is through a strong economy, with sensible and balanced regulation. We have a very large financial services sector in this country, which is a very important contributor to our fiscal balances, and its success depends on our getting that regulatory equation exactly right: too much regulation and we would drive away industry from London; too little regulation and we may lose our reputation as a safe and secure place to do business. We have to get it right.

The Chancellor recently said that Brussels had set out a very aggressive starting line on the UK’s bill for quitting the EU. What assessment has he made of the worst case scenario, reported to be in the region of €60 billion, and what impact would that have on public finances?

I am not sure what the worst case scenario that the hon. Lady is talking about relates to. We have heard various figures bandied around in Brussels in terms of an exit charge. The work that the Government have been doing—which I was asked about earlier—relates to the economic and fiscal impact of different possible exit scenarios. The numbers being bandied around in Brussels are simply a question of a potential demand which would be raised in the negotiating process, but they are simply that: a negotiating strategy.

I agree with the Chancellor that one of the biggest contributors to the UK’s public finances is the tax revenue that we receive from the financial services sector. Now that we have had the triggering of article 50 and the Government’s White Paper, will he tell us whether he is confident that that revenue will not be significantly reduced, either through the loss of jobs or the loss of any major areas of financial activity?

Yes; the negotiating strategy and the objectives that we have set out in the article 50 letter would create an environment in which the financial services industry in the UK would be able, by and large, to continue the levels of commercial activity that currently take place with the European Union 27. But of course that will depend on negotiating the right arrangements with the European Union, and it is essential that we go into these discussions in constructive mode, recognising that there are real issues on both sides and that the UK’s financial services industry is an asset not only of the UK but of the whole of the continent of Europe. European businesses depend on those financial services.

I share the Chancellor’s assessment that there is a mutually beneficial deal for us and the EU to agree on, if this Government have the ability to deliver it. Will he therefore state unequivocally that, as a result of the deal that the Government will seek to negotiate, there will be no significant loss of jobs in any major financial institutions, no removal of any major City-wide functions such as clearing, and no relocation of any EU-wide regulatory agencies such as the European Banking Authority?

On the hon. Gentleman’s last question, the location of the European Union’s agencies is clearly a matter for the European Union. We cannot credibly seek to leave the European Union and at the same time dictate to it where it should locate its agencies. On the initial items on his list, it will indeed be the UK Government’s objective, as we go into the negotiations, to protect our financial services sector.

Since the EU referendum, the substantial sterling depreciation has seen exports increase and the balance of trade deficit reduce from £13.7 billion in quarter 3 of last year to £5 billion in quarter 4. However, the Chancellor has repeatedly said that he is not concerned about the exchange rate. Is it not just plain wrong to dismiss the significance of the exchange rate?

I have never said that I was not concerned about the exchange rate. I have said that the Government do not take a view on what the appropriate exchange rate should be; that is very much a matter for the markets to determine. I am sure that the hon. Gentleman will have been delighted to note that my right hon. Friend the Prime Minister’s statement this morning has sent sterling up in the markets, demonstrating the confidence that the markets have in a future for this country under a Tory Government with a new mandate.