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EU Customs Union and Draft Withdrawal Agreement: Cost

Volume 648: debated on Monday 22 October 2018

(Urgent Question): Will the Government make a statement on the additional costs of staying in the EU customs union after 2020 and provide an updated estimate of the total costs of the current draft of the withdrawal agreement?

Every arm of Government is working at pace to firm up and put in place all necessary arrangements to ensure that we are ready to leave and chart our own course as global Britain. The Government will continue to update Parliament on the progress of the negotiations, and the Prime Minister will update the House shortly in this regard in a post-Council statement.

In respect of the customs union, common rules will remain in place throughout the implementation period to give businesses and citizens critical certainty. This will mean that businesses can trade on the same terms as now until the end of 2020. As the Prime Minister has said, a further idea has emerged—and it is an idea at this stage—to create an option to extend the implementation period for a matter of months, and it would only be a matter of months. But as the Prime Minister has made clear, this is not expected to be used, because we are working to ensure that we have a future relationship in place by the end of December 2020.

As the House will appreciate, the length and cost of any extension to the implementation period are subject to negotiations. Throughout the implementation period, we will continue to build our new relationship, one which will see the UK leave the single market and the customs union to forge our own path and pursue an independent trade policy while protecting jobs and supporting growth.

During the progression of our exit negotiations, we reached a financial settlement with the EU that did two things—honoured our commitments made during our membership and ensured the fairest possible deal for UK taxpayers. In December, we estimated the size of the settlement to be between £35 billion to £39 billion, using reasonable assumptions and publicly available data. In April, the National Audit Office confirmed that this was reasonable.

The Government are committed to upholding our parliamentary democracy through honouring the result of the referendum and remaining fully transparent with Parliament on the deal that is reached, in advance of the meaningful vote.

The Treasury should do some calculations, because it would be an act of great rashness to agree to extend our period when we would be in another seven-year financial period for the EU, with all the consequences that might bring. It could cost £15 billion or more for a year and we would probably have to accept liabilities that might extend for the whole seven-year financing period. Why wouldn’t the EU front-load its expenses when we were still in the thing, and why wouldn’t it expect us to meet the forward commitments, as it says it wants us to do as and when we leave under the existing seven-year period?

We are desperately in need of more money for our schools, our hospitals, universal credit and for our defence—[Interruption.] We desperately need money so that we can honour our tax-cutting pledges which we all made in our 2017 manifesto—[Interruption.]

Order. I apologise for interrupting the right hon. Gentleman, whose flow is difficult to stop—and I would not want it to be stopped.

The right hon. Gentleman must be heard. Mr Matheson, you are normally a most cerebral individual. Take a tablet.

Our economy is being deliberately slowed by a fiscal and monetary squeeze that we need to lift. We need tax cuts to raise people’s take-home pay so that they have more spending power. All this is possible if we do not give £39 billion to the EU, and all this will be even more possible if we do not pledge another £15 billion or £20 billion for some time never, if we are now going to give in yet again. When will the Government stand up to the EU, when will the Government say that they want a free trade agreement and they do not see the need to pay for it, and when will the Government rule out signing a withdrawal agreement that is a surrender document that we cannot afford?

I am grateful to my right hon. Friend for a number of Budget representations on that point. What I can confirm is that, when the sum of £35 billion to £39 billion was agreed, it was agreed on three principles: the UK would not make its payments sooner than it would otherwise have done; it would be based on the actual rather than the forecast; and it would mean that we would include all benefits as a member state. I recognise the wide range of concerns in the House, including those raised by my right hon. Friend, but we are at a delicate stage of the negotiations and the Prime Minister will be speaking to the House shortly.

The right hon. Member for Wokingham (John Redwood) has some brass neck. He spent eight years being a cheerleader for austerity and he comes to the House today and says that; it is unbelievable. Amid the Tory quarrelling, the Prime Minister’s negotiations appear to succumb to a new failure every day. She has stood staring at the menu for two years while the Cabinet devours itself. It now seems that it may take a bit longer for her to make up her mind, demanding that the EU give further time in relation to the transition period. What we cannot fathom is how the Government are unable to negotiate our exit within the agreed period, begging instead to make it longer.

Humiliatingly, I have to say, we hear that 95% of the agreement is done, as though that is supposed to reassure us. Perhaps I may remind the Government that 95% of the Titanic’s journey was completed successfully. Meanwhile, the Government have gone from discussing a backstop to discussing a backstop to a backstop, to requesting an extension to the transition. These do not signal a Government who are about to emerge victoriously.

Let me ask a couple of questions, if this 95% deal is done. First, on the EU’s trade policy, during the transition, the common external tariff and customs regime will continue to apply to the UK, but third countries will have no legal obligation to continue to treat the UK as if it were a member state. Therefore, what trilateral discussions have the Government had with both the EU and third country partners, such as Mexico, South Korea, Switzerland and all the other countries with which the EU has preferential trading agreements in place, to ensure that the UK will continue to benefit from these arrangements during the transition period? Secondly, what progress have the Government made towards acceding to agreements facilitating trade, such as the pan-Euro Mediterranean convention that facilitates diagonal cumulation of origin, during the transition period and in any deal thereafter?

These matters, along with the question of the wider trade in goods, are easily resolvable with the transition period that has already been agreed. If the Government had got their act together, there would not be talk of additional time. The only thing that is costing the Government is this useless Government.

It is difficult to discern the precise questions there, but I thank the hon. Gentleman for his comments. The Government are in a negotiation and there are a number of issues that are not yet resolved. With respect to the final state around our future freedom to trade, those are matters that will be reported on to this House before there is a meaningful vote. So he needs to be patient a little longer as we move through that last 5% and deal with those matters.

Order. I gently remind the House that there is a further urgent question afterwards and then a statement by the Prime Minister, so I shall have to take a view as to the point at which we need to move on, but I would be assisted if colleagues were extremely brief.

I am very concerned about the Government’s plans because, essentially, they mean our staying in a customs union in which we will have no say on the rules for a prolonged period, at the very moment that the global economy is facing some significant risks. Can my hon. Friend explain how this is in the UK’s national interest?

I have set forward the Government’s position with respect to the negotiation and the idea about a modest extension in terms of months. It will be for the Secretary of State and the Prime Minister to update the House sooner, but I acknowledge my right hon. Friend’s point with respect to the opportunities that exist beyond the EU in terms of finding a settlement that gives us the freedom to develop our trading relationships.

I was going to start my question by thanking the Chancellor for coming and answering questions on the cost of Brexit, but it is not the Chancellor who is here and I am afraid that the Economic Secretary is not doing a very good job of answering the questions on the cost. Can he tell us please: in the event of no agreement on staying in the customs union and the single market, what will be the loss in productivity to businesses in the UK and in Northern Ireland specifically and how many redundancies does he expect to see in Northern Ireland and in the UK? What is the loss cost to the UK economy of the EU citizens who have chosen not to come here or who have chosen to leave as a direct result of the Brexit vote? Lastly, if he truly believes that we would be better off as a result of the UK leaving the EU without being in the customs union or the single market, can he tell us what his models say about how much better off each of us will be?

No, I cannot give the hon. Lady a cash figure for every member of the United Kingdom, but what I can say is that the Government and the Treasury are determined to make preparations for all eventualities. That is why we are preparing 70 statutory instruments to take through this House in the event of a no deal. The EU should be very clear that we are going to be ready for all eventualities while being committed to negotiating the best possible outcome, as directed by the British people two years ago.

Of course, it is the policy of the party opposite for us to remain in the customs union forever. That is worth bearing in mind. Will my hon. Friend give a bit of detail on what work HMRC has done, in the case that we are in the customs union but outside the EU, on who determines things such as trade preferences and who runs trade defences on behalf of this country in those years?

I can confirm to my right hon. Friend that these are matters with which the Government are engaged intensively in the negotiations at the moment. We are also working towards securing as much autonomy as possible for the British Government in the future. That is the mandate that we have been given by the British people.

The Minister told the House a moment ago that the Government expect the negotiations on the future relationship to be concluded by December 2020. However, when the Government published their backstop proposal for Northern Ireland, they said that they expected those negotiations to be concluded at the latest by December 2021. Which of those two dates represents Government policy?

Government policy is that we have a backstop arrangement in place to fulfil our obligations and we are in negotiation over the timings of that. The Prime Minister will be coming to the House later today and the right hon. Gentleman will have an opportunity to clarify with her the answer to that question.

Can my hon. Friend inform me why he thinks that there is any incentive for the EU to give us a good deal if they think that by dragging their heels they can drag us into being obliged to pay extra money to them?

There is no expectation that this Government will seek to pay more money to the EU. We are in negotiation, as has been set out. We have made considerable progress. We have a small number of items to resolve, but the intention is to get the best possible deal for the British taxpayer in the national interest.

Will the Minister break it gently to the right hon. Member for Wokingham (John Redwood) that, if we stay in the customs union and the single market—and, quite frankly, if we remain in the European Union—we will save our constituents that £81 billion that will be lost to them otherwise? That is not my calculation, but the Minister’s—the Treasury’s own calculations and forecasts from last December say that our constituents will be £81 billion worse off if we leave on the WTO terms of the right hon. Gentleman.

I have to say to the hon. Gentleman that I am not sure that my right hon. Friend the Member for Wokingham (John Redwood) has a lot of faith in the Treasury on this, so I feel there is little point in taking that figure back to him.

What businesses in my constituency want is certainty and reassurance that the border will be as frictionless as possible. This is key to many sectors of prosperity in the north-west. Will the Minister confirm that the costs involved in temporary ongoing membership of a customs union will dramatically be outweighed by the benefits to business?

The Government have to reconcile the decision of the British people to leave the EU with, as my hon. Friend says, the need to make sure that the cost to business is as little as possible. That is why it is absolutely imperative that, when we secure the final outcome of the negotiations, it is good for business, good for the economy and good for jobs.

Could the Minister set out the extra cost to UK GDP of leaving the customs union, and the extra cost to businesses in Wokingham, in particular, of the hard Brexit favoured by the right hon. Member for Wokingham (John Redwood)?

My right hon. Friend the Member for Wokingham has spoken for himself. The reality is that, before the Government come back to the House for a meaningful vote, a whole range of data will be supplied to the House in order to make the discussion about that decision meaningful.

I am sure that my hon. Friend, who is doing an excellent job today, is, like me, an avid reader of the Conservative manifesto, which states that the withdrawal agreement and future relationship will be negotiated side by side. Ninety-five per cent. of the withdrawal agreement has been completed, which is great news. How much of the future relationship agreement has been done?

At this stage, we are clearly in a delicate negotiation. It is important that the two are taken together, and the Prime Minister will be updating the House on our precise position in that negotiation.

I understand that the Minister’s natural courtesy inclines him to look in the direction of the person who is asking him a question, but it is helpful if he faces the House. It is not a serious sin; I am just trying to aid and counsel him in the discharge of his duties.

The Government’s own statistics show that leaving with no deal would put unemployment in the north-east up to 20%. What is their calculation of the effect on unemployment in the north-east of leaving the customs union?

There are a range of assumptions around the implications of different scenarios. The Government seek to ensure that we minimise the downsides and maximise the upsides in the agreement that we come to. I recognise that significant industries in the north-east rely on certainty in that relationship, and that is why it is very important that we get it right.

This modest extension that is only a plan is going to cost £15.6 billion. How will the Minister explain that in Southend, Salisbury and Stockport? Could we not use the money slightly better?

I would be in a position to justify that if it were a firm outcome of the negotiations, but it is not. I have not been conducting the negotiations; the Prime Minister has, and I am sure that my hon. Friend will be able to ask her about that later.

Could I ask what the purpose of any such extension might be? Is it to replace the Irish backstop, or is it in addition to that?

At the moment, this is an idea that has been raised. In terms of the detail of it and where it fits within negotiations, clearly the Prime Minister will be best placed to answer. I say to the right hon. Gentleman that one of the enduring principles of our negotiations is to ensure that we treat the whole United Kingdom as a single united entity. That is an enduring principle that is guiding us through these negotiations.

Succinctness as exemplified, legendarily, by the hon. Member for North East Somerset (Mr Rees- Mogg).

Will my hon. Friend say whether, if we stayed in the customs union, any revenues that came from customs would be considered to be own resources?

I say to my hon. Friend that we need to have a fair settlement that does the right thing by the people of this country.

The Minister is doing his best to accentuate the positive, as the song goes, but he knows that the cost of Brexit is already being paid by every family and every business in this country: higher prices in the shops, a staffing crisis in the NHS and a hit to the public finances of £26 billion a year, before Brexit has even happened. Can I ask him to resist the jingoism and fantasy maths of the English nationalists in the Conservative party and remember that staying in a customs union is a red line for those of us in the Labour party? The value of not returning to a hard border—

Order. Forgive me for interrupting the hon. Lady, but we have got a lot to get through, and we must make progress rather more quickly.

I do not accept that characterisation of any of my colleagues on the Government Benches. We are seeking to secure the best deal in the national interest for the whole of the United Kingdom.

Is the Minister aware that many people on the Government Benches and in the country think that £39 billion is not worth paying, let alone any more?

I imagine that my hon. Friend—like many of his constituents—thinks that no sum is worth paying. Of course, there are a range of views on this matter, but we have to honour our obligations, as this country does, and secure a fair outcome.

Thousands of people across Merseyside, including my constituents, are employed in the automotive and aerospace sectors. Our membership of the customs union is vital for supporting jobs and investment in our regional economy. What assessment has the Treasury made of the effect of leaving the customs union on those sectors? Does the Minister agree that only staying in the customs union will ensure the future of those sectors?

The Government have made an assessment that means it is imperative that we come out with a solution that is right for those employers in the hon. Lady’s constituency and gives the certainty that they need, because that is what her constituents will require.

I think we can agree that any extension to the transition period will be costly—£15 billion, £16 billion or whatever it is—but the problem is that we will have no MEPs to represent us, no say and no influence on any legislation introduced during that period. Does my hon. Friend agree that there should be no taxation without representation?

My right hon. Friend makes a factual point, and no doubt those conducting the negotiations will have that at the top of their mind.

There seem to be a number of questions that the Minister is not able to answer. Is his boss available, or is he also in “the killing zone”?

The extension to the transition period is designed to replace the backstop to the backstop. Given that the Irish Government and Her Majesty’s Government have both said that they are not going to build the hard border, who is?

We need to understand that the backstop is just that—it is not expected that it will need to come into force. We must secure an agreement and come to arrangements that work for both sides.

In January, the Prime Minister promised ahead of the so-called meaningful vote that there would be a full economic impact assessment of the exit deal. Can the Minister guarantee that that will happen? How much time will MPs have to consider the deal before we have to vote on its credibility or the lack of it?

We will have a considerable amount of material before the House. My right hon. Friend the Secretary of State for Exiting the European Union, who is about to come to the Dispatch Box, will have more information on that issue.

When looking at the customs union, would it not also be wise to look at the significant benefits of being in a trading bloc of 500 million people that has delivered wealth through some 40 FTAs with some 70 countries—agreements that the Government have already said they wish to adopt if we are able to, post Brexit?

It is important that we honour the decision of the British people and that we come out with an arrangement that gives us the optimal long-term relationship with the EU and also a chance to exploit the opportunities in the world economy beyond the EU, which is growing faster.

Last October, I asked the Chancellor in the Treasury Committee whether the benefits of feasible future trade deals outweighed the costs of leaving the single market and the customs union. He could not give me a clear response. Is the Minister any closer to giving a clear response today?

Such an answer is dependent on so many conditions and the determination of what is in those trade deals, so I am sorry, but I cannot give a precise answer.

Is the Minister finding withdrawal from the European Union as easy and cost-free as some of those on the Government Benches behind him suggested it would be?

Government is always challenging, and there are always issues that need to be resolved. It is self-evident that this is a challenging set of negotiations.

Will the Minister confirm that the head of HMRC estimates that the cost for British business of leaving the European Union customs union would be £20 billion a year?

I am aware of that assessment. It depends on the assumptions for the final agreement we come to, but clearly the Government are taking a range of concerned parties into account throughout this process.

A lot has been said this afternoon about the strategic cost of Brexit, but every day thousands of civil servants are dedicating their working lives to working to the Prime Minister’s direction, yet the Prime Minister is sacrificing the interests of the country to try to heal the divisions in her party among those on the Conservative Benches. When are the Government going to get a grip and stop wasting taxpayers’ money on delivering the impossible?

The Chancellor has made money available across-Government to help us through this process. I would acknowledge the massive contribution made by our civil service to help across many Departments of Government. The Prime Minister is committed to securing the best deal for the nation.

Leaving the customs union will cost us billions, but it is also costing dear now. Does the Minister not agree with me that, with violent crime rising, the Home Office could have done with the extra money to pay for an extra 4,500 police officers, instead of £500 million for extra customs and border officials to prepare to leave the customs union?

There is a Budget next Monday, and it will be for the Chancellor to set out the spending settlement for Government Departments.

Will the Minister advise the patients of the Golden Jubilee Hospital in Clydebank in my constituency how patient they have got to be to have medicine regulation while Recardio is taking out its health clinical trials for new heart medicines?

The hon. Gentleman makes a very sensible point about the urgency of securing a deal across lots of areas of our country, including the health service, and that is what the Government are engaged in seeking to resolve.

The truth is that this is typical crackpottery by the Brexit extremists on the Conservative Benches, who seem to be running the show over there at the moment. Will the Minister tell us what the effect will be on the aerospace sector and on Airbus next to my constituency of leaving and being outside the customs union, as opposed to remaining in and protecting those jobs?

It is in the interests of aerospace and defence industries across the country for the Government to come to the right long-term solution that secures jobs and certainty about their operating environment in the UK and for trading abroad.

Experts have found that Wales will be hit disproportionately hard, with people and communities up and down Wales hit hardest if the UK leaves the customs union and the single market. Is the Minister prepared to make that sacrifice?

The Prime Minister and the whole Government are committed to finding a solution for the whole of the United Kingdom. I recognise the different distribution of EU funds and therefore the policy challenges that will exist for the Government thereafter.

The Minister has been asked five times to identify the figures for unemployment if we leave the customs union, so let us make it easier for him: will unemployment go up or will it go down?

What I can say is that unemployment in this country is at a record low, demonstrating the coherence of this Government’s economic policy.[Official Report, 12 November 2018, Vol. 649, c. 2MC.]

The Minister looks as though he wishes he was somewhere else, and he has referred most of our questions to the Prime Minister, for which I am sure she is grateful. He must be able to answer this question: does he stand by the Treasury forecast that this country will be worse off outside the customs union, the single market and the EU?

What I stand by is the desire of the Government to find the best possible solution for the United Kingdom—that maximises the advantages to the UK economy of the growth in economies outside the EU. There is a range of assumptions to a range of forecasts, and the Treasury always goes into considerable depth in setting those out clearly.

Manufacturers in my constituency need certainty, yet in recent weeks we have had a backstop, a backstop to the backstop and now an extended transition. Is not the truth that the Government’s chaotic approach to these negotiations is putting jobs at risk?

We have a short amount of time to secure the best outcome for the United Kingdom. It is urgent, and I recognise that the whole country needs to have that solution.

I will take the three remaining questioners if it is a short sentence from each—no more than that. I call Mrs Madeleine Moon.

Ford Automotive in my constituency has made it clear that frictionless trade is essential, but Canada—no matter how many pluses we put on it—is not going to work, so how will the Minister ensure that the 12,000 jobs associated with Ford are not going to be lost?

We will secure that by observing the principles of the White Paper and getting the best deal through the negotiations.

This country voted to leave the EU by a narrow but clear majority. It is the job of Government to deliver on that.

Does the Minister not accept that any firm whose operations span European supply chains will be worse off if we do not have a customs union?

Again, that is why we have to reach a conclusion to the negotiations that leaves the United Kingdom with the best possible outcome in respect of the future economy.