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Brexit: Financial Services Sector

Volume 788: debated on Tuesday 23 January 2018

Private Notice Question

Asked by

To ask Her Majesty’s Government whether they still intend to publish a position paper setting out their priorities and preferred trading relationship for the financial services sector after the United Kingdom’s withdrawal from the EU, and if so when.

My Lords, I beg leave to ask a Question of which I have given private notice. In doing so, I declare an interest as chairman of your Lordships’ EU Financial Affairs Sub-Committee.

My Lords, the Government have set out their objectives for financial services. The Secretary of State and the Chancellor have each done so in recent speeches. We are engaging extensively with both industry and EU partners to hear their views and set out our arguments. In any negotiation there is a careful judgment and a delicate balance about when and how to set things out in public, and we will keep under review the best way of doing this.

The noble Baroness will be aware that I have been engaged in correspondence with the Chancellor, on behalf of the sub-committee, about the need for a transition period. The Government have, indeed, set out their position in that regard. What is lacking is a position paper telling the financial services sector what it should expect to get at the end of the transition period; in other words, what it should implement and plan for when the transition period is over. There are more than 1 million jobs at stake in this industry, which has huge strategic importance for the United Kingdom. Seven position papers have been published so far, but not the long-promised one on the financial services sector. When do the Government expect to do so?

I have to correct a misapprehension on the part of the noble Baroness. She will be aware of the reply that my honourable friend the Minister, Robin Walker, gave to the other place in November. He made it clear that there was extensive engagement with a number of sectors. There had been numerous round-table and bilateral meetings. In particular, he said that, at that point, there was no position paper and that we shall continue to review the situation to determine how best to set out our position, which we will do as appropriate. That continues to be the Government’s position.

My Lords, at the weekend the noble Lord, Lord Bridges, wrote that if we are not careful and do not know where we are going, the transition will be a gangplank leading to nowhere. It is over a year since the noble Baroness’s report on the financial services sector and Brexit was produced. We have no clear view of what the Government think. Is it that they do not know, that they dare not tell, or is it, as Nicky Morgan suggests, that they are not up to the task?

The noble Baroness’s criticism might have more authority if it did not come from the Benches opposite, where the Labour Party’s position on Europe can only be described as shambolic, and that is a euphemism. I remind the noble Baroness of precisely what has been happening. As I said, there has been extensive engagement and consultation and we are seeking a bold and ambitious free trade agreement between the UK and the EU. In so far as the financial services industry is concerned, this will require detailed technical talks, as she is no doubt well aware. However, the UK is an existing EU member state so we have regulatory frameworks on both sides and we have standards that already match. As recently as last week, the Prime Minister, the Chancellor and my honourable friend Mr Robin Walker met senior representatives of the financial services industry to engage on exit issues, so there is an ongoing dialogue. This is a delicate and sensitive time and the Government must be the arbiter of when it is appropriate to declare their position in particular areas.

My Lords, have the Government not repeatedly made it clear that what they seek for the financial services sector is the maximum possible access, similar to what we have now, whether it is based on either equivalence instead of passporting or third-party rights, as is allowed for under some of the financial measures already enacted by the European Union? Is it not utterly absurd in a negotiation to demand detail beyond that and to ask a Government who are attempting to negotiate a deal to say where they expect to end up? That is not realistic.

My noble friend articulates more succinctly and cogently than I can exactly what the sensitivity of these negotiations is. These sensitivities are well understood on the part of the Government; I just wish they were better understood elsewhere.

My Lords, I spent the morning working with a large number of people in the financial services sector. Does the Minister understand how outraged many people are who have held back on their contingency planning in the expectation that there was to be clarification through this paper, and the number of people who practically pinioned me to the wall to pass her the message that this confirms to them that the Government are so internally riven that they do not have a negotiating position on this key area, and they are on their own?

The noble Baroness seems to imply that the Government are operating in some kind of vacuum. They are not for two reasons, as was made very clear in December when we moved on to phase 2, the critical component of the negotiations when the very issues that so concern the noble Baroness will be the subject of discussion. It is not as though there is no engagement with the financial services industry; there is very close engagement. As my noble friend Lord Lamont made clear, this is a sensitive time in the discussions. It would be completely inappropriate to show hands and declare positions. The financial services industry is aware of what the Government seek in terms of their objectives. We take comfort from the position of London in the global financial world. The Z/Yen consultancy declared in September that London is the leading financial centre, ahead of New York which is second, Hong Kong, third and Singapore, fourth. Yes, we know what people in the financial services industry feel. Yes, we are cognisant of that and, yes, we are doing everything we can to robustly represent the best interests of the financial services industry.

My Lords, I should not need to remind the noble Baroness that financial services in this country go further than the City of—

My Lords, we have time for both speakers who have been on their feet. We shall start with the Conservative Benches and then go over to the Labour Benches.

My Lords, does my noble friend the Minister agree that the range and diversity of markets and services in the City of London, and the extent to which overseas institutions participate in them, means that it would be very difficult to produce a paper of the sort that the noble Baroness opposite has demanded without going into a gross oversimplification, and that it would be much better—as my noble friend Lord Lamont said—to allow these negotiations to progress?

Yes. I thank my noble friend for that intervention. As I have already said, this will involve detailed technical talks—there is nothing straightforward or simple about this. I entirely agree with him that that it would be exceedingly dangerous to yield to the temptation, to which some seem to be in danger of yielding, that we can reduce this to simplistic terms. These are challenging and complex issues and they should be addressed appropriately.

My Lords, is it not interesting that we have heard three Conservative speakers, including the noble Baroness from the Dispatch Box, obviously thinking that our negotiators are amateurs and that they cannot conduct a negotiation when the broad outlines are set out before them? I served under the chairmanship of the noble Baroness, Lady Falkner of Margravine, on the Select Committee, where it was made plain to us by 40 witnesses, time and again, that they need certainty. Ideally they wanted certainty by the end of 2017; they are now begging for it before the end of the first quarter in March. I should not need to remind the Minister that the City of London is only a small part of the United Kingdom’s financial services industry. A very large part of it is in Scotland, Bristol and Leeds. These jobs are at risk, and this is not the time to play games.

I respect the noble Baroness and understand that she is a significant contributor to the proceedings of this House, but she is a little harsh in her terminology. There is no question of the Government playing games, and that is recognised in Brussels and by the EU. It is recognised that these are complex, challenging negotiations and that by their very nature a degree of sensitivity surrounds them, and that involves also the need to observe a degree of confidentiality. The financial services industry is aware of the Government’s broad objectives in these negotiations; as I said last week, senior representatives of the industry met with the Prime Minister, the Chancellor and my honourable friend Robin Walker. So there is clarity on the part of the industry as to what the Government wish to try to achieve. When the Government think it appropriate, as my honourable friend Robin Walker said in the other place, we can consider how to set out our position.

My Lords, how can we possibly continue to enjoy a position similar to that which we enjoy the moment, as the noble Lord, Lord Lamont, suggested, when we are determined to withdraw from the single market and the customs union?

We have made it clear that we are determined to negotiate an ambitious free trade agreement. We want to do everything we can to facilitate access to the markets and to enjoy the arrangements that currently obtain. However, the Government have been clear that we cannot commit to being in the single market or the customs union, because to do so per se is not to leave the EU. On the financial services markets, this has been explored, and it is clear that passporting is not the only way to access EU financial services markets. That is why these negotiations are so critical and why we have to leave the negotiators in peace to get on with their important work.