Motion to Take Note
My Lords, I rise to move the Motion in the name of the noble Lord, Lord Jay, who regrettably is now unable to be here. As a member of his committee, I am therefore introducing this report. The speech I am about to make is, in fact, the speech of the noble Lord, Lord Jay, with only minimal interpolation by me. However, I wish to record my appreciation of the work the noble Lord has done on the Select Committee as acting chair. He replaced the noble Lord, Lord Boswell, for the period when he was unable to be here. I am happy to report that the noble Lord, Lord Boswell, is now back in harness and has just chaired a meeting of the committee. Your Lordships will also be gratified to hear that speaking in the place of the noble Lord, Lord Jay, means that I will not be speaking in my place in the list as well. Any remarks I have, I shall leave until the end.
This report was published only last month, and I am therefore grateful that the usual channels have found a place for it early in the agenda. It also means that we have not had a government response, although I am looking forward to receiving one shortly. Indeed, the day after our report was published, on 8 December, a new deal between the Government and the European Commission was reached on the key withdrawal issues. Time is therefore moving on.
Our report covered two key issues, both of which remain in the forefront of our minds. They are, first, the consequences of a potential no deal outcome, and, secondly, the nature of any transitional period that may follow Brexit on 29 March 2019.
First, on no deal, there are some who believe that no deal, a complete break with the EU and a resort to trading on WTO terms, is the right outcome for the UK. The views of that group were represented to our inquiry by John Longworth, of Leave Means Leave, who urged the Government to act now to, as he put it, “crystallise” the benefits of Brexit. That was a minority position, and even many convinced pro-Brexit experts, such as Ruth Lea, of the Institute of Directors, who gave evidence to our inquiry, believe that agreeing a trade deal is vital to our national interest in the post-Brexit era.
Still more striking, of the 40 written responses to our open invitation to submit evidence, not one argued that no deal would be the preferred outcome. We did not ask them to comment on whether Brexit was a good thing or a bad thing; we simply asked them to assess, on the assumption that Brexit was going to happen, the impact of no deal. The conclusion, contained in paragraph 56 of our report, is clear:
“It is difficult, if not impossible, to envisage a worse outcome for the United Kingdom”,
than no deal.
Last December’s agreement between the Government and the rest of the EU was a necessary first step to reaching a deal to avoid this damaging outcome, and I hope that the Minister will reassure us tonight that the agreement covering the rights of UK and EU citizens, the implications of Brexit for Northern Ireland and Ireland and the UK’s honouring of financial commitments it has voluntarily entered into is irreversible. What businesses and people across the country now need is an absolute assurance that there will indeed be a deal at the end of this process.
Does the noble Lord agree that one of the characteristics of this country is that we do not have a written constitution, that the non-constitution is summed up by the words “Parliament is supreme”, that therefore the Supreme Court was right to rule that the referendum has taken place because it was authorised by Parliament and that Parliament has not authorised the outcome, which is, at the moment, unknown?
My Lords, I am not, in my limited capacity tonight, going to argue with the Supreme Court or, indeed, the noble Lord. Clearly, there is a parliamentary process which, no doubt, noble Lords in the course of this debate may well refer to, and which I may refer to in my final remarks. However, the position of Parliament and how binding the role of Parliament in the final vote would be—a meaningful vote, which is now being debated in the other place on the withdrawal Bill—did not form part of this report.
What businesses and people across the country now need is an absolute assurance that there will indeed be a deal at the end of this process, and both sides need to realise that tone is as important as substance. As we say, government statements that no deal is better than a bad deal are not helpful. Last week’s spat between the Secretary of State, Mr Davis, and the Commission over the EU’s preparations for a no deal outcome was a case in point. Once the Government raise the possibility of no deal, of course the Commission is equally justified in advising those who will be affected by such an outcome of how it will affect them. In fact, our report attempts to do the same thing.
The evidence we received was that no deal would be deeply damaging to key sectors of the British economy: financial services, the agri-food sector, freight and transportation, higher education and research. Against this overwhelming evidence, it makes no sense for the Government to talk about retaining no deal as an option. We say that in paragraph 57. As last week’s events so clearly demonstrate, this kind of language,
“risks becoming a self-fulfilling prophecy”.
It does not make any sense to threaten the EU that we will shoot ourselves in the foot if we do not get what we want. It is we who will end up limping.
No deal will affect not just the economy; co-operation on security, counterterrorism, foreign policy—co-operation that is hugely in our interest—would be affected, too. That is no doubt why David Davis spoke to the committee about a so-called bare-bones deal covering some of these non-economic issues, but even if it were possible to negotiate such a deal, the damage to the rest of the economy of not reaching a trade deal would remain, so I hope the Minister will reassure the House, when he replies to this debate, that the Government are wholly and unambiguously focused on achieving the best possible deal, one that will benefit both the United Kingdom and the EU.
The second major theme of our report was transition, or implementation as the Government prefer to call it. This is an altogether more complex, though equally important, issue. Almost everyone, including the Government, agrees that we need a transition period; we cannot simply switch off the system of EU law, which has underpinned so many aspects of our national life for 45 years, at 10.59 pm on 29 March next year. There will have to be a transition, a bridge to lead us safely from where we are today to our as yet unknown final destination.
The Government continue to insist that transition will be merely an implementation phase, a time-limited period that will allow for a phased adjustment to the terms of the new UK-EU relationship, but if that is to be the case, the terms of that new relationship will have to be agreed, in full, before exit day in March next year. The committee agrees, at paragraph 123, that an “early and comprehensive” agreement would be the best outcome, but we have to be realistic, and the fact is that almost no one outside Her Majesty’s Government thinks that achieving agreement on this timescale will be possible, so unless there is extraordinarily rapid progress in the coming weeks, sooner or later the Government will surely have to acknowledge that transition will, in fact, be made up of at least two distinct elements. There will have to be an initial standstill phase, where everything stays pretty much as now, while negotiations to finalise the terms of the future relationship continue, and there will then be a period of adaptation or implementation.
We cannot say much about adaptation or implementation at this stage, since the negotiations on future relations have yet to start, but so far as the initial standstill phase is concerned, we cannot afford to wait. Uncertainty over the terms of UK trade with the EU from 30 March 2019 onwards is already having an impact on many sectors of our economy, for instance in the financial services sector, where insurers will soon be issuing policies which, by their very nature, extend beyond that date. So the forthcoming negotiations on transition really need to be concluded quickly and decisively. We cannot afford any lingering impression that the transition period is contingent upon reaching agreement on the future relationship. That would be damaging for business confidence and the wider economy. Instead, we need a commitment from both sides that, in effect, the legal framework for trade will remain unchanged between 29 and 30 March next year. In other words, we want to confirm that it is the Government’s intention that the transition period will be a standstill period in all respects, save that the UK will no longer be party to EU institutions.
My next point may appear more technical, but it is equally important. Both the Government and the Commission have indicated that they envisage transition forming part of the withdrawal agreement under Article 50 of the Treaty on European Union. The fact that both sides agree on this is welcome, but the ultimate arbiter of EU law is neither the UK Government nor the Commission, but the Court of Justice of the European Union. There is every likelihood that the ECJ will be asked to review the compliance of any proposed withdrawal agreement with EU law before March 2019.
As the report therefore points out, there remains a possibility, however remote, that even if political agreement is reached on transition, the court could strike it down before it comes into force. We recommend that the Government, as a matter of urgency, and if possible in agreement with the Commission, set out their view on the legal basis for transition. I hope that the Minister, if he cannot set out those views tonight, will at least assure the House that the Government will accept that recommendation.
Finally, I touch on the last paragraph of our report. There are two legally watertight ways to achieve a time- limited standstill period to buy more time to finalise the details of the agreement on the future UK-EU relationship. These are clearly set out in Article 50 itself: either to extend the two-year negotiating period or to post-date the withdrawal agreement so that it takes place later than March 2019. I recognise that neither side is currently contemplating such an extension of our EU membership, but the committee suggests that we should not rule it out, if only as a last resort—not to thwart Brexit, but in order to make it as smooth as possible.
We now have 14 months before we leave the European Union. I welcome the agreement the Government reached with the EU in December, although the substance of an agreement on Ireland remains dangerously opaque. The most difficult phases of the negotiations lie ahead. Time is short. The objective must be an orderly and legally certain transition to a new and lasting partnership between the UK and the EU. I beg to move.
My Lords, I join the House in saying how sorry I am to hear about the noble Lord, Lord Jay. I hope he recovers quickly.
I wish I could go along with the customary congratulations that the House normally pays to reports and say what a good report it is, but I would be both dishonest and hypocritical if I said I thought this was a good report. It is a very weak report. The only thing I can say is that it is slightly better than one I debated some time ago, about the time of the referendum, which failed to address any of the issues that were coming up in that referendum. It was quite interesting that in that debate, unlike in this one, only one member of the European standing committee actually attended the debate, the noble Lord, Lord Boswell. Obviously all the others were so humiliated by the quality of the report that they did not bother to come.
The reason this is a very bad report is that at the end of the day, we are assessing the effect of no deal on the United Kingdom, but we should face the fact that no deal will affect not just the United Kingdom but the EU as well. As the EU sells one and half times as much to us as we do to it, if there are any adverse effects of no deal, they will be felt more powerfully in the EU than in the UK. In the absence of the noble Lord, Lord Jay, I would like to ask the noble Lord, Lord Whitty, when he winds up, why the committee did not call for evidence from, for instance, the German car manufacturers’ association. There is not a single German car that we buy in this country which is not assembled outside the United Kingdom. If we resort to the WTO, there will be a 10% tariff to pay on those cars. It would surely be interesting to know how German car manufacturers would react to that. Maybe they think we would pay anything for our German cars; maybe they think that because they already sell cars to us, despite the devaluation of sterling against the euro, they will therefore continue to do so. But it is a matter of interest, is it not, to know what the EU may actually feel about selling its cars to us?
I am grateful to the noble Lord for giving way. Would he not agree that in trade negotiations, the leverage of one side or another is a function of the proportion of the GDP of that party which is exposed to trade with the other country in question? I am sure the noble Lord is very well informed on these matters and knows that, in the case of the British relationship with the other 27 members of the EU, we have 14% of our GDP exposed to the EU—that is the proportion exported to the EU—while in the other direction, with the exception of the Republic of Ireland, no single member of the EU sells to us more than 4% of its GDP. So in fact our dependence on them is much greater than their dependence on us.
That is one way of looking at the balance between the United Kingdom and the EU. But at the same time, I think the noble Lord, Lord Davies, would accept that if we are putting at risk 10,000 jobs in the United Kingdom, we are putting at risk 15,000 jobs in the EU; if we are putting at risk 100,000 jobs in the United Kingdom, we are putting at risk 150,000 in the EU. There are two ways of looking at this, and it would have been a good idea if the committee had also called some Commissioner—I am sure there is one—responsible for employment in the EU and asked how they would react to seeing very large numbers of their own citizens made unemployed by the fact that they cannot reach a deal with the United Kingdom. Would that not have been helpful? The noble Lord, Lord Davies, would be the first to accept that EU levels of unemployment are running at between 8% and 9% at the moment, compared with just over 4% in this country, so the EU has double the rate of unemployment that we do. You would have thought that in those circumstances they would think the jobs of people in the EU were quite important and would not want to sacrifice them by having no deal with the United Kingdom. It is important to ask that question.
One of the problems with the argument being made by the noble Lord, Lord Hamilton, is that he sees the EU 27 as one unitary decision-making body. He may be surprised to hear that employment law is not an EU competence but a member state competence. I am a member of the committee, and the answer to his question about calling German car manufacturers is that we did not need to do it, for two reasons. First, we know what German car manufacturers say: the German chamber of commerce and the German employers’ federation both came out early and told the German Government that they stood behind their negotiating position and would not seek exceptional deals. So we knew the answer to that, which is why we did not call them. Secondly, when he is talking about these figures, the noble Lord also needs to think that there are 27 member states, not one.
Certainly, there are 27 member states, but you could produce that argument for not calling anybody to give any evidence whatever to the committee. You could say, “We know what their position is anyway”. Come on, this is ridiculous! You have to call evidence from people just to have their position confirmed. You can also cross-question them and ask them what they think the significance would be for car sales to this country if a 10% tariff barrier was imposed under WTO regulations. They would tell you whether they thought their turnover was going to go up or down, or whether they thought they were going to sell more or fewer cars, and they might be able to tell you about the impact it would have on employment in Stuttgart. The noble Baroness is making an absolutely ridiculous claim, if she does not mind me saying so: that you do not call somebody because you know what their views are already.
The other thing wrong with the committee’s findings on all this is that at the end of the day we have only one ace card in our hand: if we reach no deal with the EU, we stop paying. We are under no obligation whatsoever to pay towards the EU’s budget. There are perhaps a few side-effects on pensions and things, but the main payment would stop on the day that we actually reached no deal. As we know, the EU is absolutely obsessed with getting hold of our money because it really does not know what it is going to do. Juncker has already made noises about others among the 27 nations of the EU contributing more. I will tell your Lordships what is going to happen: all the poor countries of the EU are going to say Germany should pay because it is the richest country, so the Germans are not very keen on this either.
It therefore strikes me that if we completely discard the idea of no deal we are completely undermining our negotiating position. On top of that, it is not inconceivable that we may be unable to reach a deal. On both those counts, it is very important that we actually work on no deal and take steps to provide more customs posts and generally put in the logistics that would be needed for no deal. If we do not, we are going to be in a very weak position in negotiating with the EU. If we want a good deal, we have to have the threat of no deal permanently there. If anyone is actually saying that under no circumstances should we entertain the idea of no deal—indeed, there are people in the Government saying it—they are guilty of undermining our negotiating position with the EU.
The other day a German ex-ambassador called Mr Thomas Matussek said the EU’s position on the negotiations is that it wants as soft a Brexit as possible but at the same time, it does not want to encourage anyone else to go down the same route as the UK. Germans, of course, believe in the two-headed eagles that have the great ability to face in opposite directions at the same time. When you come to think of it, those two statements are completely contradictory. My best guess as to what is going to happen is that we are going to reach heads of agreement terms by October or November this year, and then there will be a two-year transition period while the detailed negotiations go on.
I hope we have learned by now that dealing with the EU is actually very difficult. We started off these negotiations rather like someone playing tennis on a vicarage lawn, lobbing soft furry balls over the net. Unfortunately, what came back were cricket balls hurled with great vehemence and accuracy and designed to injure and break bones. I hope we have learned by now that negotiating with the EU is not going to be easy in any circumstances. We must therefore keep our position as carefully as possible, with options. If we do not have options, we are going to end up with a very bad deal.
That transition period is going to be the start of some very difficult negotiations; whatever deal is reached by October or November of this year may be much easier. So we must keep “no deal” as an option if we want to have a good deal, and anyone who suggests otherwise is undermining this Government’s negotiating position.
What should Parliament be voting on at the end? It will be voting at the end of the Article 50 process on whether to accept the deal for the transition period that is then possible. The “no deal” may kick in later if we cannot reach agreement during the transitional arrangements.
My Lords, unlike the noble Lord, Lord Hamilton, I think this is an excellent report. I strongly endorse its conclusion, which the noble Lord, Lord Whitty, has already quoted:
“It is difficult to envisage a worse outcome for the United Kingdom than ‘no deal’”.
No deal, a complete and abrupt break with the EU, leaving the UK to go trading on WTO terms, or perhaps even to embark on a policy of unilateral free trade, now seems to have become almost the preferred outcome of the most embittered Brexiteers. Their argument, as recently put by Boris Johnson, is that a soft Brexit with an association agreement is not an attractive option; it would leave us with obligations to the EU but without influence. The stark choice that we face is therefore between staying in and breaking away.
That is not what the leave campaign was saying before the referendum. I have just looked back at the briefing book for Business for Britain that leave campaigners carried with them to debates during the referendum campaign. It is a hefty and authoritative volume, edited by a distinguished group that included Matthew Elliott of the TaxPayers’ Alliance, Mark Littlewood of the Institute of Economic Affairs and our own noble Viscount, Lord Ridley. It sets out a range of options, from Norway through Switzerland to Canada, assuring us that co-operation across a wide range of sectors can continue after we leave. Were the voters deliberately misled, or had the leaders of the leave campaign not thought through the detailed implications—
I merely remark that I was given this during the referendum campaign when it was being extensively used by speakers from Business for Britain, so it was very much part of the briefing for the referendum campaign itself. I rest my case on that.
I feel that the extent to which Britain’s achievement in 40 years of membership, and the whole corpus of regulation that has grown up in that period, has been achieved by engagement with our neighbours, including what was after all Mrs Thatcher’s greatest European achievement, the European single market. There is little new in the evidence presented to the committee for this report on the implications of a hard Brexit. Most of it has been reported in successive exercises and inquiries over the last few years, most comprehensively in the 32 balance of competences papers, which were the outcome of an extensive consultation conducted by the coalition Government at the insistence of Conservative Eurosceptics.
As the noble Lord, Lord Hamilton, has just demonstrated, Brexiteers and remainers still seem to be living in parallel universes in how they see Britain’s relationship with our European neighbours. One of the noble Lord’s colleagues on the Conservative Benches told me the other day that the British had been misled when we were taken into the European Community and not told that this was a political project to build a united states of Europe—what I see the Daily Mail now calls a “European empire”. Britain, he added, must regain its independence; the details of our future co-operation scarcely matter. However, as the report makes clear, the details matter a great deal.
The easy promises and illusions of the leave campaign that we could go back to the relationship that we had before 1973 ignore the transformation in the global economy since the 1970s: the impact of new technology, the communications revolution and the accompanying transformation of international security and global threats. Data protection and exchange, air traffic regulation and pharmaceutical and financial regulation have all become far more complex. Britain has helped to shape the European framework for these regulations. If we leave the EU completely, we will have to choose between whether we go back to following American regulation, which is what we did before we joined and before the European single market, or follow European regulations in order to have continuing open access to its markets. I note that the London Chamber of Commerce evidence told the committee:
“For the aviation sector, there is no World Trade Organisation ‘fail safe’”.
There is no fail-safe either for phytosanitary regulations, which are vital for our food and agricultural industries, or for managing tensions between free data flows, data protection and efforts to combat cross-border crime and terrorism. The leave campaign seems to be still back in the 18th century world of David Ricardo, where tariffs were the only things that mattered and regulations and standards hardly existed.
However, it is the focus on timing that is the most important part of this report. The report notes the closeness of the intermediate deadlines that we face, well before the Government’s self-imposed deadline of March 2019. The Government have stated that they wish to reach agreement on a transition or implementation arrangement no later than March 2018, now a matter of weeks away. In order to leave the EU in March 2019, they also state, the UK and other European Governments need to reach agreement by October 2018 to allow sufficient time for domestic approval and ratification in the UK and other states. The Government have boxed themselves in by insisting, to placate the hardliners in their party, that the UK will formally leave the EU in March 2019 and that any period of implementation after that will be as a third-country non-member. So time is extremely short.
The noble Lord, Lord Hamilton, suggests that we should ask the Germans to provide an answer, to define the future relationship for us, but if the Government cannot define what they want, negotiation is impossible. The Prime Minister herself is still unable to define what she means by a “deep and special partnership” with the EU, without which it is difficult to negotiate any such relationship. The Cabinet, we are told, held its first discussion on the definition of the future partnership with the EU that we should seek to negotiate on 19 December, a few weeks ago, and it was reported in the Times that the discussion did not enter into much detail. The Cabinet clearly disagrees on the nature of the transition or implementation agreement we are asking for.
The noble Lord, Lord Hamilton, suggests that we should immediately stop paying for the European budget, which is clearly a source of great grievance to the Brexiteers. He will no doubt recall that enlargement of the European Union to eastern Europe was, again, one of Margaret Thatcher’s greatest priorities in the 1980s and 1990s and that a substantial part of our net contribution to the EU budget goes to fund the economic development of eastern Europe and the eastern neighbourhood and is thus a contribution to European security. I hope that the Government want to continue to contribute to European security in various ways. The foreign policy implications of leaving the European Union have not been fully addressed, except in the excellent position paper we received last September.
The Cabinet clearly still disagrees. Perhaps if the Government had placed their best Ministers in charge of negotiations, we might have made more progress. Perhaps if the division of responsibilities between the Cabinet Office and DExEU had been clearer and the turnover of staff within DExEU had been lower, the Government might also have made more progress. Perhaps if the Prime Minister had paid more attention to Britain’s long-term national interest than to holding her bitterly divided party together, we might by now be in a different place. As it is, we have lost a year, including an unnecessary general election, and we are in danger of running out of time to negotiate an acceptable agreement with the rest of the EU rather than collapsing into a chaotic no-deal outcome, which would be a tragedy and a disaster for this country.
I think it is a very good report, and it is clear that the noble Lord, Lord Whitty, would make a superb FCO Permanent Secretary. Since the report came out, the story has moved on a little. It is now clear that no deal would be even more damaging than the report suggests, but it is also clear that the risk of no deal is now rather lower than it suggests. I mean because of the Prime Minister’s agreement in December, approved by the European Council in December. On citizens’ rights there are still a few “t”s to cross and “i”s to dot, but it seems wildly unlikely that a file which should never have been brought into the negotiation at all will now not be successfully closed, whatever else happens in the negotiations. As the report states, it is really time that the Government stopped saying that:
“Nothing is agreed until everything is agreed”.
It is clear that, on citizens’ rights, we have the outlines of an agreement.
We have more than that on money. The Prime Minister and Presidents Tusk and Juncker have shaken hands on a finance deal. However much some in London may try to present the deal as the price of future market access, that is not how it was computed. With a little more to come on pensions and if guarantees are called, there is now a mutually agreed computation of the costs to which we were already committed, and to which we are now doubly committed.
I have to tell the noble Lord, Lord Hamilton, that I see no chance that any UK Government would disown the deal and refuse to pay—no chance whatsoever. If we did, there would be serious bond market and credit-rating consequences: ask Argentina, ask Venezuela. There would be legal consequences, and I cannot see how we could win in court or before any arbiter. There would be trade consequences for UK enterprise, because it could hardly expect open market access to the EU if the UK was in default of a financial obligation to the EU. There would be wider trader consequences: in the WTO, we need unanimous approval of our revised tariff schedules and quotas, and I am not sure that the EU would be totally co-operative in that exercise. In short, default would be a disaster. A deal is a deal, and a deal done at prime-ministerial level is a doubly done deal.
At least two files in the negotiation are now in practice closed. Of course, on money, rash suggestions in London that the finance deal was not legally binding but merely “a direction of travel” have led the 27 to insist that the first bit of business this term is to turn the deal into a legally binding text, but it was politically and morally binding the moment the Prime Minister shook hands on it and the European Council approved it. I had thought there was a risk of no deal precisely because I worried that the Prime Minister might listen to her Foreign Secretary and decide that, on money, the right course was to tell the 27 to “go whistle” for it. They would undoubtedly then have refused to move on to discuss anything else and there would have been a very high chance of no deal, but that has gone.
As for what happens now, I think a standstill agreement will be quite easily reached, and quite soon. It will not be an implementation agreement because there is nothing to implement; it will not be a transition agreement because there is nothing to transit to. The eventual deal, if we leave, will be reached only after we have left. The sequence on standstill would be very similar to the one which played out last year on money. The Commission will produce a draft mandate—actually, it already has it in the 29 April text of last year. The 27 member states will toughen it up a bit, as they did on the money. According to today’s Financial Times, that process has already started. We will huff and puff but, in the end, we will basically come to heel. The 27 will tell us that, provided it is for a limited period, a transition agreement—a standstill agreement—can be written on an Article 50 legal base, but the key will be that it should be a very short deal, so it is a part of the withdrawal process rather than a continuing new relationship between a third country and the EU. That is probably the answer to the legal conundrum that the report raised and the noble Lord, Lord Whitty, highlighted. They will say, “Of course you can, if you want to, for a limited period after you’ve left, retain precisely the full market access you now have, provided that you apply the whole acquis, respect ECJ jurisdiction in full and respect the four freedoms, all four of them—and all that despite your having no votes, no MEPs, no judges and no Commissioner. But if that’s what you want, you can have it for a strictly limited period—and it has to be limited, because the lawyers will insist”.
We will huff and puff. Mr Johnson will say, “Ah, but there are no new EU regulations or laws”. Mr Gove will say, “Ah, but no CFP”. Mr Fox will say that he wants to be free to undercut the common commercial policy—but the other side will say that we cannot cherry pick. We will come to heel in the end, probably quite quickly, because it is very important to avoid the cliff edge next year. We will not avoid it, but we will postpone it while the debate moves on to whether we may cherry pick in respect of the future pound arrangement, and Mr Barnier will offer us Canadian terms. At least we will not be able for much longer to talk bafflingly about a bespoke arrangement without explaining what it is or saying what we want.
As it becomes clear in the end that we cannot have our cake and eat it, maybe we will stop and think about whether it all makes sense—whether a standstill period when we have to take all EU rules but have no say in making them, and an eventual partnership arrangement where our principal export services are systematically disadvantaged, is really what we want. I do not think that the question is now “deal or no deal”. That question has been overtaken. On money there is a deal, and this country does not break its word. The question now is whether any future deal can be a good deal, a deal as good as the one that we now have as a full member of the world’s largest single market and free trade area. If it were to emerge that the answer is no, at least we can remember that an Article 50 notification can always be withdrawn.
My Lords, I welcome this most timely of debates, and I thank the committee and the noble Lord, Lord Jay, for presenting the report and the noble Lord, Lord Whitty, for introducing it. Deal or no deal is, for me, an absolutely critical question. I respect the referendum vote to give up our membership of the EU, although I do so with the utmost of bad grace. However, we cannot ignore that vote or rerun the same question, even if Mr Farage, for his own reasons, seems to be advocating that.
During the referendum, Mr Farage and his Brexiter colleagues repeatedly emphasised that, of course, we would get a deal, a very good deal, because, we were told, it was in the interests of all the 27 other member states that such a deal was achieved. So, fine—if we do, indeed, get a good deal. For me and for the vast majority of my former colleagues in manufacturing industry, and for the livestock farmers of Wales, this means a deal that enables them to trade with the single market without any physical barriers or tariffs whatever. For the tourism industry in Wales, it means free movement of people, both visitors and employees, and for the NHS it means having no disincentives to recruiting staff at all levels of work. That is the core of a good deal.
Having no deal fails to deliver those key requirements. Indeed, today, to my mind, with this report, the Brexit chickens have finally come home to roost. A no-deal scenario represents an utter disaster for the countries of Britain. The Government are criminally irresponsible to present no deal as a viable option, and to use it as a bargaining counter, as Brexit Ministers come close to admitting, risks having the Government’s bluff called, to the ultimate detriment of both sides. Millions of people who voted for Brexit on the basis sold to them by Brexiters that of course a deal would be done would most certainly think twice before endorsing a no-deal Brexit. That is why, to my mind, if the no-deal outcome is what finally transpires, Parliament should insist that it cannot go ahead without there being a confirmatory referendum. I hope that, even at this late stage, MPs will have the foresight to build this into the Brexit Bill. If they do not, we in this Chamber should most assuredly do so.
A very real danger, as this report highlights, is that a no-deal outcome happens almost by default. Both sides may call the bluff of their antagonists, and that could go right up to the wire. That is the stark reason why building into legislation a fixed and immutable deadline late at night on 29 March 2019 is sheer madness. The hands of the negotiators in Brussels on both sides and the hands of Parliament itself must not be tied by unnecessary macho posturing. The issues at stake are far too important for them to be put at risk in a game of Euro-bluff.
Let us remind ourselves what a no-deal really means if it comes about by default, with negotiations possibly going up to the wire on 29 March and collapsing without agreement. On 30 March next year, it would mean that the border between the Irish Republic and the six counties will be closed, with a requirement to control the movement of goods, people and money. It would mean chaos in the Irish dairy industry, as the report highlights, with the possibility of a 44% tariff on Irish cheddar. It would mean that, on that Saturday morning, all the lorries going through the ports would have to be checked, with all the extra staff in place to handle such an eventuality and with potential chaos in Holyhead, not to mention Dover, where the report says there could be tailbacks of 17 miles. It would mean exporters having to adjust their prices to reflect, as the report mentioned, an additional 4% tariff on manufactured goods, up to 10% on cars—and such tariffs would apply to 90% of the UK’s manufactured exports.
Over 70% of Britain’s food exports go to the EU. On 30 March, farmers could face an instant tariff of between 40% and 80% on beef and lamb in various carcass forms. Imported food prices would instantaneously rise by over 20% if, on that black Saturday morning, we had to fall back on WTO rules. If at that point in time, when nothing is agreed because everything is not agreed, on that morning the London Chamber of Commerce warns, on page 15 of the report,
“flights from the UK … will be grounded on exit day”.
As Johnson & Johnson warned the committee, on page 14:
“A no deal scenario could potentially disrupt the supply of medicines”.
On that Saturday, UK citizens in EU countries and EU citizens in Britain will be in limbo. No deal means no deal. For the service sector, there is no succour from falling back on WTO rules, because, as the report notes, they do not apply to the vital financial sector.
It would be criminally irresponsible for the Government to allow the slightest possibility of a no-deal Brexit emerging at the last minute. They have to do at least three things, to my mind, which emerged from the report. First, they have to step back from the crazy policy of “nothing is agreed until everything is agreed”, as demanded in paragraph 106 of the report. They will need a phased approach. Secondly, a withdrawal agreement on the future UK-EU relationship needs to be agreed by October this year, separately from the deal on future relations. That is in paragraph 122. Thirdly, the Government need to spell out urgently what they expect in terms of the proposed transitional agreement, clarifying the legal basis for every element in such a transition package, as asked for in paragraph 132. I would also highlight the comments in paragraph 134 that:
“The consequences of a ‘no deal’ outcome would be so damaging that a fall-back position is now needed”.
There I rest my case. A damaging no-deal outcome, to my mind, demands that there be a confirmatory referendum. That is the only way that so damaging an outcome can be legitimised or, better still, buried once and for all. Let this unelected House resolve to allow the electors to have a final say on that most damaging prospect, which confronts us in the context of the report, of a no-deal Brexit.
My Lords, we should congratulate the noble Lord, Lord Jay of Ewelme, and the European Union Committee on securing this debate so relatively shortly after publication of this excellent report. It is, perhaps, an acknowledgement that time is running out and crucial decisions on this momentous subject have to be taken soon. The most important decision that needs to be taken, and very soon, was raised in the report and mentioned by the noble Lord, Lord Whitty. The Government should stop talking about transition and ask for an extension of the negotiating period. Transition, or implementation, comes later.
The evidence that no deal would be the worst possible deal is now overwhelming, yet the risk of the country hitting the self-imposed deadline of March 2019 without a workable deal is real. The Government have maintained so far that nothing is agreed until everything is agreed, but it is obvious that everything will not be agreed by the time that the withdrawal agreement has to be finalised this coming autumn, nor by March 2019, when our membership of the EU is scheduled to end.
The risk is that the rhetoric of “nothing is agreed until everything is agreed” will change, and it will be proposed that we leave the EU and enter into a limbo period in which negotiations will continue. This cannot be the implementation period which used to be discussed, since there will not be any clarity over what should be implemented. It would, undoubtedly, be a transition period, but Britain would be transitioning to we know not what.
There would be a bare-bones deal. Planes would still fly, but the future terms of trade would be up in the air, as would so many aspects of life. Having left the EU, our negotiating position would be weakened. Business would not have the clarity it craves, and it is highly unlikely that the UK would be free to negotiate the much-vaunted trade deals with the rest of the world while we were in transition.
The dictionary definition of limbo is,
“An uncertain situation that you cannot control and in which there is no progress or improvement”.
Some theologians suggest that it can go on indefinitely. None of us, not business, not citizens, want to enter into limbo. I accept that a time-defined period of negotiation does not provide the certainty that we all seek. However, to leave without knowing where we are going cannot make sense. Protracted negotiations do provide the chance of negotiating the best deal possible for future generations, and that, surely, should be our aim.
The overwhelming weight of economic evidence is that Britain will lose by leaving the single market. The estimates vary—they are produced by economists—but the conclusion is the same. The independent Rand Corporation modelled the outcome of various scenarios and found that Britain would be significantly worse off outside the EU in all but one set of circumstances. This nirvana where we would be better off would involve the UK negotiating a free-trade deal with the EU, and the EU and the UK concluding the TTIP agreement with the US. The likelihood of this seems slender: negotiations on the Transatlantic Trade and Investment Partnership have been going on for many years and have made no progress since 2016. Issues such as the American fondness for chlorinated chicken have proved hard to overcome and they would be, even when we tried to negotiate our own trade deal with the US.
Rand concluded that, in the absence of this dream scenario, the UK would suffer by as much as $140 billion over 10 years. It admits that its modelling took no account of the drift of EU workers out of the UK, a consequence of Brexit which is already becoming apparent. Only this week we heard of the estimated cost to the Scottish economy of leaving the EU. The Scottish Government say that even a Canada-style deal would cost their economy 6.1% of GDP by 2030.
We need a good deal. The Cabinet Secretary, Sir Jeremy Heywood, has told the Public Administration and Constitutional Affairs Committee that his troops are doing work on a no-deal eventuality, as they must. For clarity’s sake, will the Minister confirm that the Government do not, however, have a “Minister for No Deal”, as had been suggested before the reshuffle? Government has to be prepared for the worst case but must try to engineer the best, and Parliament must know the implications of what is being planned. How else can it do its job?
I would therefore also be grateful for clarity on the issue of impact assessments. We were led to believe that nearly 60 of these were being prepared in order to assess the impact of Brexit on various sectors. They were so detailed that they could not be made public for fear of jeopardising negotiations. Then they seemed to metamorphose into sectoral analyses that could be unveiled. As a snapshot of a sector as it currently operates, they may suffice, but they do not attempt to analyse the potential effects of Brexit.
I refer noble Lords to the Agriculture, Animal Health, and Food and Drink Manufacturing (including Catering, Retail and Wholesale) Sector Report. The title gives a hint of the somewhat broad-brush approach. It includes revelations such as:
“The sector is vital for consumers”.
Yes, but enlightenment over the impact of leaving the EU is there none. How can we take sensible decisions on a massive issue such as this without evidence of the potential effects? Are there actually more detailed impact assessments which Parliament is not being allowed to see? Might the coyness be because so many sectors will be seriously damaged if we leave the single market?
I have been a consistent supporter of the need for Parliament to have a meaningful vote on the outcome of our negotiations with the EU 27. I am delighted that we seem to be moving in that direction. I firmly believe that if taking back control has any meaning then it means that the sovereignty of Parliament should prevail. It would be a tragedy if Parliament were asked to approve legislation that would see the country leave the EU for limbo land. We must ask for an extended negotiating period. If it proved impossible to negotiate a good deal that the British public could find acceptable, we would still be in the EU and able to take advantage of the absolute assurance from the noble Lord, Lord Kerr, that Article 50 is unilaterally revocable.
My Lords, as a member of the EU Select Committee, I add my thanks to the noble Lord, Lord Jay, who very ably prepared and chaired this inquiry. I also thank the secretariat, who cut through a very complex issue and produced a very able and well-argued report—I disagree with the noble Lord, Lord Hamilton.
This speech will be a bit of a first for me. It is the first time I have disagreed with the noble Lord, Lord Kerr of Kinlochard, on a European matter. I believe there is still a horrible danger of a no-deal outcome to these negotiations. I wish I shared the noble Lord’s optimism that we are on course for some kind of beneficial outcome, but I fear not.
It is worth remembering that the soundbite, “No deal is better than a bad deal”, was one of Theresa May’s more politically misjudged lines in her Lancaster House speech last January. It was the Prime Minister who gave life to this soundbite and opened up in the Conservative Party the view that no deal might be a viable stratagem for this country. For the past 12 months, she has spent an awful lot of her time trying to soften the impact and reduce the significance of what she said then.
There are many in the Conservative Party who still appear to believe that this is a viable threat to make. The poor Chancellor of the Exchequer was attacked for awarding only £250 million to be spent on preparations for no deal. He had to up that to £3 billion in the Budget. Perhaps that was the price of him keeping his job in the reshuffle.
As we heard from the noble Lord, Lord Hamilton, the hard Brexit camp is united that Britain must talk up walking away from the negotiations as a realistic possibility. But how big is this threat to walk away? Of course, there is a lot of pub talk where you hear businesspeople say, “In any negotiation I go into, I always have to have the possibility of walking away from it”. That may be true if you are buying a house or a car: if you think the other side is asking far too much for it, you walk away. That is fine, but the reality is that you do not lose very much by walking away because you can always go out and find some other car or house that you want to buy.
However, if Britain were to walk away from the Brexit talks, the result would not be the status quo that we have now of membership of the biggest free trade area in the world. Our walking out would result in a breakdown of our main trading relationship and, on some accounts, would mean that planes flying to the continent would be disrupted, nuclear materials could not be transported across borders, pharmaceutical regulations would no longer be operative, many EU citizens would become illegal foreigners in this country and there would be massive legal uncertainties about all kinds of business and insurance contracts. That seems to me a pretty appalling prospect.
The committee analysed the possibility of walking away and concluded that it is a credible threat only if it is made well in advance of the leaving date. That point had not struck me until it was pointed out. The nearer you get to the deadline, the less credible the threat of walking away becomes because the resulting chaos would be so much greater that you would not be able to cope with it.
I am most grateful to the noble Lord. I read the report over the weekend. He lists all the Armageddon consequences, as he sees it, that would accrue to this country if we left without a deal. Could he explain why his list of disastrous consequences does not mention any of the things that would be disastrous for European countries, and why the report did not look at that?
The evidence is overwhelming. I could point the noble Lord to many research reports which show that, in the event of no deal, the damage to British GDP would be far greater than to the GDP of the EU 27.
Why is no deal still a possibility in my view, despite what was agreed in December? It is basically because the Cabinet cannot make up its mind on its long-term vision for the economic relationship between Britain and the EU. The Prime Minister talks about a bespoke trade deal for Britain despite Mr Barnier having made clear many times that the choice is either a Norway-style deal, where we are close to the single market or in it, or a free trade deal on the Canada model. Those are the limits of the choice. The Cabinet seems unable to make that choice. It is fundamentally divided between those who want to keep as close to EU rules as possible and believe that can be negotiated, which might be difficult—such as the Chancellor, for example, who wants to do that—and those who want to break free.
We are in very perilous political circumstances that might come to a crisis as early as March this year, when the European guidelines for the trade talks emerge. Those who favour a hard Brexit may be close to resolving in their mind that Britain should choose a very different future from the one we now enjoy. They may decide that Britain should go it alone. Goodness knows what the politics of that would be. I think it would mean a split in the Cabinet and the Conservative Party to match that of 1846 and the dispute over tariff reform in 1903. I say to my own Front Bench that in those circumstances there would be a very heavy responsibility on the part of the Labour Party to act in the national interest.
My Lords, one of the many virtues of committees of your Lordships’ House—I congratulate the European Union committee on this report—is that they examine issues in depth and bring out important points not hitherto recognised. I remember the surprise that I and other members of the Financial Affairs Sub-Committee under the noble Baroness, Lady Falkner, felt during our inquiry last year when we were advised that if the EU failed to reach an agreement with the UK, it had no enforceable means of extracting a divorce payment from us.
In my contribution I want to concentrate on not the merits or prospects of a deal versus no deal but on a procedural point in the Select Committee’s report, which, if I have understood it right, surprised me and seems to me important. It relates to what the Government have described as the implementation period following the UK’s departure from the EU in March 2019, and others have described as the transition period. I had assumed—I think this is common ground among those who have spoken this evening—that whether or not the EU and the UK reach a comprehensive agreement by March 2019, everything will continue as now during the transition period subject to the fact that the UK will have left the EU. In other words, there would be a standstill before any divergence began to take place. Those of us who were sceptical about whether a comprehensive agreement on the future relationship could be reached by March 2019 thought that further negotiations could take place during that transition period. That, again, seems to be widely accepted.
The point that has emerged from my reading of the committee’s report is that whatever we may pass into UK law, Article 50 may not by itself allow our partners to provide us with a standstill period after March 2019. If the House will allow me, I shall quote from paragraphs 131 and 132 of the committee’s report:
“it is not clear whether, in the absence of an agreement on future relations, Article 50 would provide a legal basis for an open-ended ‘standstill period’ … It also seems unlikely that Article 50 could provide a legal basis for the implementation of the agreement on future relations, which the Government has conceded will have a separate legal base in EU law, such as Article 218 … Any or all of these questions could fall to be determined by the CJEU, following references by the European Parliament or by a Member State, before withdrawal takes effect”.
The committee continues:
“We therefore recommend that, as a matter of urgency, the Government should set out its views on transition, including on the bases in EU law for the various elements that make up transition. If possible, the Government should secure agreement on these issues with the EU’s Chief Negotiator”.
The Select Committee goes on to suggest that, unless we can reach a comprehensive agreement on the terms of our future relationship before March 2019, the only reliable basis for a standstill transition period may be by seeking to postpone our departure from the EU. If that is correct, it explains why the Government have asserted that, to leave in March 2019, they will reach a comprehensive agreement on the basis of our future relationship before then, and why they describe the period after March 2019 as an implementation period. However, it is generally accepted that this requires the negotiations to be successfully completed by this autumn to allow time for approval by the UK and European Parliaments. That is widely regarded by commentators, including the Select Committee, as unrealistic. If it is unrealistic, it throws into doubt the repeated assertions by government spokesmen that the UK will leave the EU in March 2019 with a standstill period for implementation thereafter.
Can the Minister therefore address the following question in his reply? Is the Select Committee correct in saying that Article 50 is a doubtful legal basis for a standstill transition period after March 2019 and that, absent a comprehensive agreement on our future relationship, the only secure basis for such a transition period will be to seek a deferral of the UK’s departure from the EU? I noted that the noble Lord, Lord Kerr, was reassuring on the legal point, but it would be good to have the Government’s view.
My Lords, I have to say I got the impression on reading this report that the committee mostly started with its conclusions. I do not imagine there was a lot of changing of minds, or indeed challenging of minds.
I will focus on the assertions in the report that:
“It is difficult, if not impossible, to envisage a worse outcome for the United Kingdom”,
than no deal, and that,
“the Government’s assertion that ‘no deal is better than a bad deal’ was not helpful”.
With respect to the latter claim, I point out that saying the opposite, during the early months of 2016, was what was not helpful. It is now clear that the failure of the renegotiation prior to the referendum was guaranteed by the Government’s insistence that they would recommend a remain vote however little the EU conceded. So we should have said, “Change or go” at that point. In any case, I find it far from impossible to envisage a worse outcome than no deal if no deal means no free trade agreement. A deal in which we agree to giving Brussels continuing control over our borders, our money and our laws indefinitely without any say, so that we are effectively stuck inside the EU for ever but with no say and no rebate, would be worse than no deal.
No deal means no free trade agreement, and it is not the same as “walking away” and failing to settle administrative issues such as mutual recognition agreements on goods and aircraft landing rights. No one is advocating that, and it is not going to happen, because under international trade law, discrimination is illegal. EU denial of “equivalence” to our banks when the same is granted to US banks would be illegal. Customs formalities and mutual standard recognition have to be provided seamlessly by both sides under WTO rules; any failure to do this is, again, illegal. Say what you like about the EU, but it is not about to start breaking the law on that scale.
The report cites evidence of problems at customs and ports if there is no deal. However, it ignores the evidence given by Jon Thompson, the head of HMRC, to both the Public Accounts Committee and the EU Committee in the Commons that 99.5% of non-EU imports are not physically inspected. Mr Thompson could not be goaded by members of the committee into the kind of doom-mongering that we have heard this evening about what would happen at ports.
If we were to fall back on WTO terms, then, according to no less an authority than the director-general of the World Trade Organization himself, Roberto Azevedo, speaking last November to Liam Halligan of the Telegraph,
“it’s not the end of the world if the UK trades under WTO rules with the EU … About half of the UK’s trade is already on WTO terms—with the US, China and several large emerging nations where the EU doesn’t have trade agreements”.
“If you don’t have a fully functioning FTA with the EU, there could be rigidities and costs”,
introduced into that trading relationship,
“but it’s not like trade … is going to stop. There will be an impact, but … it is perfectly manageable”.
The committee report says that,
“no deal would also have a damaging impact on the EU”.
This is the understatement of the century and it is a pity the report did not explore this in great detail. As others have said, it is baffling. According to Professor Patrick Minford’s calculations, under no deal, the EU loses around £500 billion in net present value. That is because, first, it loses our financial support during the implementation period; secondly, the tariff revenue levied by us would be effectively paid by EU producers, who must keep their UK prices in line with world competition to sell anything here; and thirdly, we would conclude free trade deals with the rest of the world earlier than otherwise. In contrast, according to Professor Minford’s calculations, the UK would gain around £650 billion in net present value from this outcome, mainly through lowering the external tariff—a point largely ignored in the report.
You can dispute these actual numbers, but it is hard to argue with the general point that this would hurt them more than it hurts us. Claims to the contrary are almost always based on models that fail to assume current government policy; for example, that we will agree free trade agreements with non-EU countries that account for 60% of our global trade. Despite 60 years of trying, Brussels has failed to sign free trade agreements with China, Brazil, India and America. Many of its 50 or so trade deals are with tiny entities such as Jersey and the Isle of Man. Again, Mr Azevedo, the director-general of the WTO, explains why this is:
“Trade deals are difficult but there is an additional complicating factor for the EU, which is agriculture … Once you start negotiating with a big agricultural exporter, they want market access—and, for the EU, that’s a sensitive sector, both politically and economically”.
It is still at the early stage of negotiation. It is a long process and the agreement with India is nowhere near ready.
Do not get me wrong. Of course I think we should strive for a good trade deal with the EU. If we fail, it will not be for lack of trying on our part. But look across the table. Mr Juncker and Mr Barnier refuse even to talk about a trade deal until March, showing no urgency on behalf of the people and businesses of the European Union. We are in a very odd situation here. The party that needs the deal most wants it least. Punishing the UK seems to be a higher priority for Mr Juncker than looking after the interests of the EU 27 economies and people. How do you negotiate a deal with the other side when it is interested not in what is best for its side but only in causing pain?
My Lords, perhaps I could point out that neither Mr Juncker nor Mr Barnier write the script; it is written by 27 member states’ Heads of Government. They are the people who decide what is right or wrong, and they are chosen by their electorates.
I agree with the noble Lord, Lord Hamilton of Epsom, that the EU committee should look at the other side of this argument as well. That would be a very useful report. He also said that perhaps we should speak to one of the European Commissioners. However, he is probably aware that, particularly during phase 1 of the negotiations, neither the Commission nor national Governments would enter into any discussion because they were maintaining their one-channel negotiation through the Commission representative. However, I agree with him entirely that perhaps the EU committee could look at the other side of this argument.
Where I disagree with the noble Lord completely is on negotiation strategy and leverage. The clear thing in my mind and in my analysis is that our Government gave away their position, their negotiating plan and all their advantages at the very beginning of this process because they declared all their red lines. They said to the EU, before it even asked, “We’re not going to be in the single market; we’re not going to be in the customs union; we’re not going to ask for any help from the European Court of Justice; and we are going to be out by 29 March 2019 whether you like it or not. We are setting our own deadline for coming out of this organisation”. I ask myself what the European Union would have said to us if it really wanted to punish us. It would have said straight after the referendum, “You’re not going to be in the single market; you’re not going to be in the customs union; we’re not going to give you any resort to the European Court of Justice; we’re going to have a deadline of 29 March 2019; and by the way, if you don’t co-operate, we’re not going to give you any deal at all”. That would have been the punishment that the EU would have inflicted on us.
It is those red lines and declaring that strategy at the beginning that has caused us to self-mutilate in the negotiations that have taken place since. Of course, the EU’s response is, “Okay, guys, if that is what you want, that equals a Canada deal. Done”. In fact, I disagree with my colleagues. The Government have not been in any way vague about the outcome that they want. They have been completely clear: they want a Canada deal, which includes a deal on free trade but no services. That is what we have gone for.
But what have we done in the negotiations? I suggest that we have agreed to everything. First, we have agreed the phased agenda, which we said we did not want. We have agreed that the timetable has to be completed by October this year. We have effectively agreed the financial payments. We have given a completely open agreement on the Irish border—that if we cannot solve it, we will stay in the single market and the customs union ever after. And we have said that we will probably agree to end transition by December 2020 at the end of the multiannual financial framework, rather than give ourselves even two years. I have tried to think of another negotiation that has been more one-sided and the only example that I can think of in history is the Delaware native Americans selling Manhattan island to the Dutch, although at least in that instance they got $24 in goods in return, which is more than we have.
To be quite honest, the most important thing has been the time pressures. On the day after the referendum, we might as well have sent an email to Mr Barnier saying, “We agree everything. Let’s get on to phase 2 of the negotiations around the final deal”. If we carry on with this level of performance, then once we go out into the real outside world and start negotiating with the hard-nosed trade negotiators of the United States, Australia and China, let alone India, we will be like lambs to the slaughter. We have had an atrocious negotiation in which we have given away our strategy and all our cards and have agreed to everything that the Commission has asked of us so far. I do not see that as acceptable, and it has not done our reputation internationally a great deal of good.
In terms of there being no deal, I am privileged to chair the House’s EU Energy and Environment Sub-Committee, which looks at agriculture. I remember that when we produced our report on agriculture, we had as a witness one of the main representatives of one of the farmers’ unions, although not the NUF. One of the first things that he said to us was that there is no deal that is worse that no deal. He went on to give a strong justification for saying that, particularly in relation to the agricultural industry. As the noble Lord, Lord Liddle, rightly said, if we get no deal, that will not mean going back to the status quo, as would be the case in most other areas of our life; it would mean something far less than that.
I was also privileged to lead the House’s delegation last year to meet Mr Barnier and Mr Verhofstadt—the first such occasion for this House. One thing that came over to me very strongly was that Mr Barnier is the sort of person who wants a deal, partly because that is his remit but also for the sake of his reputation of being able to do such deals. Particularly in December at the end of the phase 1 negotiations, one thing that was illustrated was that perhaps the Brexiteers were right—that the EU was desperate to get phase 1 sorted out. Despite the shambles of the DUP torpedoing the Prime Minister earlier that week, the EU found a way of dragging the Prime Minister over the finishing line to make sure that we could move on to transition and an overall deal. That is how it seemed to me to work.
I agree with the noble Lord, Lord Kerr, that there is now a lesser risk of no deal, but there are potential roadblocks out there. One could be the DUP. Will the DUP support the process all the way through? If it does not like the Irish outcome, will it vote with the Government when the time comes? Will the Cabinet be able to agree on the details into the future? I wonder. However, the issue that I really do question is the Irish deal as decided thus far. As I conclude, perhaps I may remind the House what the agreement on Ireland says:
“The United Kingdom remains committed to protecting North-South cooperation and to its guarantee of avoiding a hard border. Any future arrangements must be compatible with these overarching requirements”.
It goes on to say:
“In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the 1998 Agreement”—
effectively an open cheque. As I can see no short-term solution technically to the Irish border issue, that agreement seems to lock us into the single market and the customs union until we can sort it out.
This has been a shambolic negotiation—a disgrace to this country. A Government who I do not think even understand how to do negotiations gave away all their cards at the beginning of the process, and I can only hope that they can recover. However, as I said, may the Lord help us once we try to negotiate further free trade agreements outside the Union in the wider, real world.
My Lords, I too join those who have paid tribute to this report, which is one of the most recent of a long string of very valuable reports on the implications of Brexit. I also pay tribute to my noble friend Lord Jay, who I think has done a wonderful job. I was present at some of the debates on his reports when he was standing in as chair of that committee.
However, this report is one of the most valuable because it takes head on a basic tenet of the Government’s negotiating strategy ever since the Prime Minister promulgated it at Lancaster House almost a year ago to this day—that no deal was better than a bad deal. That the Secretary of State for DExEU has apparently —so I read in the press—expressed surprise and indignation that the European Union should take that outcome seriously after the Prime Minister took the trouble of ramming it down the throats of all 27 ambassadors of the member states at Lancaster House I find pretty laughable. Or do we perhaps no longer expect ambassadors to take what the Prime Minister says seriously?
The proposition that “no deal is better than a bad deal” has become one of those largely meaningless mantras, along with “Brexit means Brexit”, which the Government have produced as a substitute for telling Parliament what their substantive negotiating objectives and strategy really are. It has become the battle cry of those who fundamentally believe in Brexit at any cost. That is why I think we have to look very carefully at the conclusions of this report, which so cogently explain how damaging such an outcome would be—the worst possible one for the country in the short, medium and long term. I repeat here the conclusion that has been mentioned by so many others that it is difficult, if not impossible,
“to envisage a worse outcome for the United Kingdom.”
I hope that that is understood and accepted, instead of this mantra being treated as a flirtatious sally towards the European Union, which clearly is not quivering in fear each time it is mentioned.
It is my hope that this report will help give the quietus to this self-harming approach. It is my hope but it is not my expectation, because the “no deal is better than a bad deal” mantra is the Rasputin of the Brexit negotiations. You can feed it cyanide cakes, you can pump it full of bullets and you can hold it under the ice, and yet it still emerges gibbering from the ordeal to exercise a fatal fascination for the true believers in Brexit.
Quite recently, I heard one of those true believers—the noble Lord, Lord Howard of Lympne, a Member of the House who is not in his place today—tell the BBC’s “Today” programme, with all the certainty of somebody reading off the tablets of Moses, that if you are not prepared and seen to be prepared to walk away from a negotiation, you would inevitably be worsted in it. Leaving aside the wisdom of bluffing in circumstances in which, as this report makes clear, we have the weaker hand in a no-deal situation, I do not think that the noble Lord’s iron rule of negotiation is either true or suited to the present circumstances. Was that the object that we were prepared to work away when we negotiated the establishment of the United Nations or the Atlantic alliance, or the long string of negotiations that have brought freer and fairer trade including the Kennedy round, the Tokyo round and the Uruguay round, or the commitment to combat climate change, in which the noble Lord, Lord Howard, and I played some small part in Rio in 1992? We are, after all, talking about a new partnership with our nearest neighbours, with whom not only do we do almost half our trade but with whom we share a large range of common values and interests. Would not it be more sensible to say that failure is not an option that we are prepared to contemplate? Would not that be better than advocating billions of pounds to preparing for failure?
Moreover, it seems to me largely overlooked at this moment just how different the post-March 2018 phase of the negotiations is likely to be from the negotiations that were completed on phase 1 before Christmas. Those divorce negotiations, particularly those relating to the financial settlement, were always going to be a bit acrimonious and confrontational—that is the way it is with divorce proceedings—but surely the next phase needs to be undertaken in a spirit of mutual benefit if it is to have any chance of success. And there is plenty of mutual benefit around: in continuing to co-operate on the whole range of foreign and security policies; in working together on scientific research and innovation; in facing together the threats and challenges from international crime and terrorism; and, of course, in continuing to trade in the frictionless manner to which we have grown accustomed over more than 40 years of EU membership. To be fair, the Government do talk the talk on a lot of this, but, as the noble Lord, Lord Teverson, said, at least on the trade aspects they do not walk the walk. They spend an inordinate amount of time drawing red lines and listing all the approaches that we are not prepared to contemplate, which seems to be pretty much anything that the EU has ever negotiated with anyone else. Is it really wise to be so negatively prescriptive before we have even sat down at the negotiating table on these trade issues? I doubt it. Surely the approach to trade negotiations should be one with a much more open mind, to see what could be achieved for what.
Meanwhile, time marches on, and it is essential that the standstill or transition arrangements are settled, at least in their broad outlines, by the end of March if it is at all possible. I was encouraged by two little words in the Prime Minister’s Statement that was repeated in this House following the conclusion of phase 1 in Brussels. She said that during the standstill period—she did not call it that; she has an aversion to that word, I think—matters would remain “as now”. That should enable rapid progress to be made in Brussels, but it will need careful presentation and explanation to the Government’s more zealous Brexit supporters, who are going to find a good deal of it pretty distasteful. There is little sign of that explanation so far.
We need some provision in the standstill arrangements for what happens if it turns out that all we have done is postpone the cliff edge from 2019 to early 2021. We may then find ourselves going over it and subjugating business to two wrenching transitions rather than one. That would be bad news. I suggest that some flexibility on the duration of that standstill—some ability by common accord to extend the period—ought to be one of our objectives.
There is an awful lot at stake, and I am looking forward to hearing the Minister’s reply. I am not suggesting that he do anything as silly as tell us that of course there will not be a no-deal situation—there are circumstances in which that could happen. However, I would like to hear him say that under no circumstances will this Government seek to make that part of their objective.
My Lords, it is a great pleasure to follow the noble Lord, Lord Hannay of Chiswick. Although I find his wit and eloquence most persuasive, I am afraid that I do not agree with much of the substance of what he said. Rather, I agree more with my noble friend Lord Ridley. I also can easily conceive of a deal that would be worse for this country than no deal. I believe that Mr Barnier has even talked about some examples of a worse deal.
I take issue also with the point about German industry, which was mentioned by the noble Lord, Lord Liddle, and others. The trade union representative on the supervisory board of Rolls-Royce’s German subsidiary expressed great concern that the German Government would not put enough pressure on the EU to reach a sensible trade deal with the UK to provide continued good access to the UK market.
The report’s conclusion that the Government should review the options for securing a time-limited extension of the UK’s EU membership is flawed. It plays into the hands of the EU negotiators, who wish us to continue to pay inexorably increasing contributions and eventually to agree to a deal under which we are bound to maintain full alignment with EU regulations. The report exaggerates the damage that will be done to our economy if there is no deal and understates the potential upside of recovering our freedom to set our own rules, besides the obvious financial savings. Take financial services: we would have introduced much of the new post-financial crisis regulation anyway, but not all of it. AIFMD has undoubtedly cost the City a number of jobs and substantial earnings. Why do we never hear about the cost in jobs and tax revenue that the City would have earned if we had not been overruled almost every time we disagreed with a proposed EU directive or regulation?
New European regulation in recent years has arguably been more about harmonisation and centralisation of control than anything else.
I should be most grateful if the noble Viscount would tell me whether he was familiar with the fact that the first banking regulation passed after the single market was enacted was passed with the great help of the British Commissioner, the late Lord Brittan, and the Council, and involved voting down the Germans.
I fully take on board the noble Lord’s point but it is a different point. I said that we would have introduced much of the regulation that has been introduced anyway. I was rather drawing attention to examples of regulations that I think were wrong and where we were overruled.
MiFID II is another case in point and is currently causing massive cost increases and damage to many asset management companies, particularly smaller ones. I do not like the terms “hard Brexit” and “soft Brexit” but I firmly believe we need a Brexit that allows us fully to resume our status as an independent nation on the world stage and a positive influence for free trade within the WTO and other international institutions. This will not be a Brexit that seeks to maintain absolute regulatory alignment with the EU in any principal sector. We start from the position of full alignment but if other potential trading partners around the world believe we have neither the freedom nor the will to diverge to any significant extent, it will mean that we have no credibility as a potential trade partner, either for third countries or for other international trade associations such as the Trans-Pacific Partnership or NAFTA.
If we were to agree to a Brexit that guarantees full alignment with EU rules, there is no point in leaving the EU since we would be prevented from taking advantage of any of the opportunities that leaving offers. As the people have decided to leave, let us leave on a basis that maximises the opportunities for our future prosperity. If the EU decides to insist on a deal whose price is too high, in terms of either payment for divorce or a continuing requirement to adhere completely to European rules—and the only reason it would wish to do that would be if it put political objectives first and decided to punish us for leaving pour encourager les autres—it would be in our interests to leave without a deal.
As noted by the committee, Barnabas Reynolds of Shearman and Sterling believes that a no-deal outcome might even enhance the gravitational pull of the City of London’s markets. I do not believe that Oliver Wyman’s analysis that up to 35,000 jobs in the financial services sector are at risk in the event of a no-deal Brexit is taken seriously in the City. Rather, some firms that have already decided to move some people to France, Germany or Holland have done so prematurely and unnecessarily. I therefore ask my noble friend the Minister whether he agrees that it would be helpful if the Government talked more—and talked more positively —about the future of our own markets and how attractive and open they will be, to both our EU partners and the wider world, and how keen we are to establish mutually beneficial free trade agreements with other partners as well as the EU. At present, the perception is that the Government’s top priority is to maintain access to Europe’s markets on the same basis as now. I do not believe that access is in any real danger, even under WTO rules. The bright future for our own markets is the most exciting aspect of Brexit and it would be helpful if the Government talked more about that and provided more leadership to the City. The City of London and the Metropolis of Tokyo entered into a memorandum of understanding last December to work together to deepen further the exchange and collaboration in financial services. It would be helpful if we could hear similar sentiments expressed by Mr Barnier and his colleagues in Brussels. Will my noble friend confirm that the Government agree that future regulation of trade in financial services between the UK and the EU could best be conducted within a framework of dual regulatory co-ordination and mutual recognition of standards, as advocated by the Legatum Institute and others?
Obviously we should continue to work closely with our European neighbours where it is in our mutual interest to do so. I believe 17 non-EU countries participate in the Horizon 2020 science programme. I expect we will wish to continue with this and others, such as the Erasmus educational exchange programme.
It is manifestly in the interests of the EU and the UK to enter into a free trade agreement that enables the current level of trade in goods and services to continue, and to continue to grow. It should by no means be impossible for our negotiators to agree this if both sides put economic good sense ahead of political objectives. However, if the EU is not prepared to agree to such a deal and to agree the basic framework of our future relationship over the next few months, we need to be ready to leave without a deal. After all, Article 50 stipulates that the terms of withdrawal should be negotiated taking account of our future relationship with the EU.
Anyone with any experience of negotiations knows that the most important points are usually agreed at the 11th hour and that there is no incentive to agree important points before that. Therefore, the Prime Minister’s preferred option of an implementation period is greatly preferable to a transition period where we do not even know the broad framework of the end state. I look forward to hearing the views of other noble Lords.
The noble Viscount repeats what the noble Viscount, Lord Ridley, said: we should demand that the EU puts economics ahead of politics in its approach to these negotiations. Is he sure that what the Brexiteers are doing is putting economics first and politics second? Or are we asking the European Union to behave differently from us?
I am very sure that I am putting economics ahead of politics. When I worked in Brussels for our financial services industry, I very much regretted that I found that in the Parliament and other institutions many people on the European side put politics ahead of economics.
My Lords, I welcome yet another important report from the EU Select Committee, which has now produced a total of 29 such contributions since the referendum. Your Lordships have been truly prolific in contributing to the evolving Brexit process, providing timely interventions and valuable insights at every turn.
My last public comments about Brexit were made on 2 March last year in a debate on the options for trade after leaving the EU. I had the pleasure of speaking alongside my noble friend Lord Jay, whom I wish a speedy recovery. In that debate I sought to dissect how the dynamics of the negotiations might unfold, based on the Government’s stated strategy. Looking back, much of what I said then has proved prescient, particularly on the impact on the sequential process of prioritising withdrawal arrangements first, as advocated by Michel Barnier, which David Davis confidently insisted would run in parallel with talks about the future framework. Also, on the need for a transition period, Ministers were confidently predicting that everything could be wrapped up in two years and such a period was therefore unnecessary. There is also the importance of the financial settlement in unlocking further progress.
The lesson from phase 1 of the negotiations is that the EU is a disciplined and determined counterparty, with very little appetite or need to deviate from its negotiating mandate. As a result, there has been more give than take from the UK side. Notwithstanding this, we should welcome the fact that agreement was reached in December, which reduces the risk of no deal, as noted by the noble Lord, Lord Kerr. As we move into the next phase of negotiations, I hope the Government will show a little more humility and be less dismissive of the input received from many sides of this House.
As I said last March, a no-deal outcome would be the Grand Canyon of cliff edges and is not a credible threat. That assertion is now backed up by evidence contained in this report across multiple industry sectors. In any normal commercial negotiation, you would certainly define your walk-away position based on a calculation of the private gains and losses that you are prepared to accept and the best alternative to a negotiated agreement—known by professionals as the BATNA. The Brexit negotiations, however, involve too many externalities and political ramifications to treat them like a private deal. The whole question of deal or no deal is not some kind of game show for armchair negotiators but a serious, nation-defining decision.
Although no deal is not a credible negotiating strategy or tactic, we need to accept that it might be the unintended consequence of a breakdown in negotiations, and it is therefore sensible for contingency plans to be made on both sides. In some ways, I would draw parallels between no deal and the 2008 decision by the US authorities to allow Lehman Brothers to fail: it would be a premeditated decision with unknown contagion effects that could easily be underestimated. You could call it a grey swan event.
Those who are more relaxed about no deal point out how WTO terms are perfectly workable, and they might be. Their focus on tariffs, however, is a red herring. Yes, trade in goods is important, but it is the least of our worries when exchange rates can provide a market adjustment to offset the impact of tariffs. It is services, where non-tariff barriers and market access issues are at play, and which represent 80% of our GDP, where no deal would inflict the most damage. So, as we move into the next phase of the negotiations, I would like to make four key points.
First, we have been outmanoeuvred on sequencing and are destined for a political fudge when it comes to the future trading arrangements. As the report acknowledges in paragraphs 124 to 127, we do not have a single deal; we have two or more deals—the withdrawal agreement and the future trading arrangements. There may indeed be other agreements on non-economic issues, such as security and counterterrorism. The decoupling of the process means that there will be a detailed withdrawal agreement by March 2019, which will become binding, but the future trading agreement will be less advanced and take the form of a political declaration or heads of terms which will not become binding until finalised and ratified by all member states during the transition phase. It drives a coach and horses through the notion that nothing is agreed until everything is agreed, as noted in paragraph 126 of the report. Most importantly, it locks us into a financial settlement in March 2019 without the absolute certainty of a trade deal.
Secondly, securing an early transition deal will, ironically, remove the pressure on reaching a sufficiently detailed heads of terms on the future arrangements prior to March 2019. At this date, we will leave the EU in name only. If this were a commercial negotiation, the most practical legal solution would be to extend the withdrawal date, as described in the report. It would also helpfully preserve “nothing is agreed until everything is agreed”. This is, sadly, wishful thinking, and we must accept that extending the date beyond March 2019, other than for a very short period, is politically unacceptable because it removes the fig leaf of saying that we have left the EU.
Thirdly, come March this year, when the European Council signs off its negotiation mandate to the Commission on the framework for a trade deal, I fear that we will be offered a “take it or leave it” arrangement, largely modelled around CETA, with limited time or flexibility for substantive improvement. We will be left with no choice but to accept the deal and try to improve it later during the transition phase or even beyond, since our future EU relationship will be a continuous, rolling process and not a static, one-off negotiation.
Fourthly, and finally, our focus must now shift to achieving a soft landing for a hard Brexit. The proposed transition phase would defer the cliff edge only to the end of 2020. There is a case for providing a further true implementation phase beyond 2020 so that we can genuinely adapt to new procedures and processes. We should also acknowledge that trade is ultimately a function of competitiveness, not simply deals done by politicians. The ability to compete effectively depends on other factors not necessarily covered by an FTA, including continued access to skills, R&D collaboration, integrated supply chains and even the discipline of having state aid rules. So policy levers within our control, such as new immigration or anti-trust rules or research funding, will be equally as important as the FTA in securing a soft landing.
In conclusion, I believe that the risk of a no-deal scenario has diminished and that we will muddle through the Brexit process, taking us, in stages, out of the EU towards something like a Canada arrangement by 2020, even though our trade with the EU is eight times larger. The timetable is not guaranteed and might be extended again by design or necessity, but what is certain is that Britain will become a rule taker in accessing the EU single market, particularly on services. It is less than an ideal outcome, but we can take some comfort that it is better than no deal, which remains the worst possible scenario for both sides.
My Lords, noble Lords know that there has been so much concern in this House about overcrowding that some will be asked to leave your Lordships’ House, but 75% of the seats have been available at every stage of this important debate.
I declare an interest as a part-time resident of Italy for 37 years. I guess that I must have spent several years of my life in toto in that great country. But the context for this debate needs to be brought before noble Lords. It is the continuing efforts of the Government to pass legislation to implement the will of the British people in the referendum. Last week, in this House, the noble Lord, Lord Taverne, used a debate on housing to say,
“the only way … to avoid the impoverishment of the British people, is to reverse … the decision to leave the EU … in fact, to stop Brexit”.—[Official Report, 11.1.18; col. 327.]
He spoke for what I have dubbed the fat yellow line opposite—100 unelected Lib Dem Peers aching to block the democratic will of the British people and force a second referendum.
On the legislation, they are abetted by the unprincipled opportunism of Labour. Bills to withdraw from the EU, the single market and customs union would pass easily if Labour kept its election promises of last year. Tony Blair says that stopping Brexit is more important than seeing Labour in power. But it will not be just Telford and Mansfield that go Tory if Labour take his line in this House.
My position is different. I do not want to reverse the public’s decision or stop Brexit. I do not agree that leaving the EU will impoverish the British people. We should remember that that was Project Fear’s line, shamefully orchestrated by the Treasury but readily broadcast by others. An EU ambassador recently told me that not one of our UK envoys made a single hint to the chancelleries of Europe to take the leave vote seriously. Having heard some of the interventions today, I wonder what they are now saying about no deal.
Project Fear told us that a vote to leave would cause “immediate and profound shock”, and a recession costing 500,000 to 800,000 jobs. But employment is up by 400,000 and unemployment is at a 20-year low. Mr Osborne, of course, was Project Fear’s mastermind and I find it sad to see a great newspaper like the Evening Standard still being used as a vehicle for what I guess now is project whimper laced with personal bile. Mr Osborne threatened an emergency Budget if the British people voted to leave. The noble Lord, Lord Darling, standing with him, warned of emergency Budget after emergency Budget. He said that he was much more worried than he had been in the crisis of 2008, which he handled so well. We all remember the threats—2p on income tax, 3p on the higher rate, 5% on inheritance tax, alcohol and petrol duties up, and 2% cuts in health, defence and education. None of that happened.
That is a meaningful background to the way in which I assess this report. Of course it impresses in its scholastic legal analysis, and we have heard some exposition of that in the debate. But it fails because, while it may not be Project Fear or even Project Whimper, it is another Giant Despair, a litany of ifs, buts, coulds and maybes, consistently loaded with spin to bury or—what was the phrase?—give the quietus to any idea of no deal. It reads as a siren call for longer and ever more tortuous negotiations, extending the withdrawal period and even, we now learn, our membership of the European Union. This brings us to the gravamen of the matter.
The noble Lord, Lord Kerr of Kinlochard, who is not in his place at the moment, was classically clear when he said that staying in the EU was his objective. That is the broad background to the apparently narrow ground of the report and this debate. Staying in the EU will not be accomplished by the frontal attack of the Liberal Democrats, although they will provide the votes: it will be the mandarin nudging, bit by bit, back into the same old sheep pen—perhaps in Kinlochard—after which, no doubt, not only Britain but the sheepdog will be called to heel.
We start these negotiations, uniquely, with no tariffs on either side. Who wants to impose them? In assessing risk, why did this report not press, as others have said, the overwhelming public duty of EU leaders not to hobble access to UK markets for their citizens? Where is that in the report? Free trade is the greatest generator of hope, prosperity and jobs known to mankind. The report totally ignores the benefits of opening up to a wider world that a bad deal could actually delay. Canada, China, South Korea and India are not even mentioned, while Australia and New Zealand get one reference in a tendentious context. Our great trading partner, the United States, creeps in twice with no comment on the risks of free trade being kicked into the future.
Of course, I thank the committee for its hard work and I join others in sending my best wishes to the noble Lord, Lord Jay, who serves this House so well, as he did his country. The report will be a useful legal vade mecum but it does little to shake the acquis commune in the Westminster, mandarin and media beltway. I disagree with the view expressed in the report that there would be a “crucial advantage” in extending EU membership after 2019. The people voted to leave in 2016, not some time in the 2020s at your Lordships’ pleasure. The Chancellor was right the other day to challenge the EU to say more about what sort of future it wants. He is no out-and-out Brexiteer, but a man with the interests of this country and Europe at heart. We do not need or want a hard border with the Irish Republic, and perhaps when he winds up the debate my noble friend will tell us who does want one. Of course we do not want Lufthansa airplanes circling Gatwick until they fall from the sky, as Mr Barnier hints. Who is suggesting such nonsense? These matters can be readily resolved and we should stop letting the shape and image of negotiations be finagled by others.
In conclusion, I hope that my noble friend on the Front Bench will confirm that an implementation period will be just that: implementation—brief, limited in scope and limited in time, not an across-the-board transition, booting the can ever further down the road. I hope that he will reject any idea that the report suggests of extending EU membership and can confirm that if we do face stalling and failure to respond positively to the many offers of our Government, then no deal will remain an option that must lie on the table. That is certainly preferable to any deal which binds the UK to tracking the rules and regulations of the poorest performing sector of the world economy over the last generation.
My Lords, in his absence, perhaps I may also refer to the sterling chairmanship of the noble Lord, Lord Jay, of the EU Select Committee while the noble Lord, Lord Boswell, was indisposed. I am grateful to him for having taken us through this report in the way he did. I should declare that I am married to an EU national and that, like the noble Lord, Lord True, I own a property in Italy. It has also belatedly struck me that I need to welcome the noble Lord, Lord Callanan, to the Dispatch Box. I know that he has been in his role for rather a long time, but this is the first opportunity I have had to interact with him. We had extremely positive interactions while he was a member of the committee, and we miss him. However, he has been nobly replaced by the noble Baroness, Lady Neville-Rolfe, who is in her place behind him, so as a committee we are all secure and well.
From different perspectives, the noble Lord, Lord Hamilton of Epsom, and my noble friend Lord Teverson criticised our evidence-taking sessions for not having spoken to enough people who were cheerleaders for the no deal faction. I know that this will not please the noble Lord, Lord Hamilton, but the remit of the EU Select Committee is to look at the impact of EU legislation on the interests of the United Kingdom, not those of German car makers, Italian prosecco producers or French fishermen; it is domestic. I therefore need to say to him that we did take evidence from people who are cheerleaders for Brexit and have come out very definitively in support of that cause. I cite Mr John Longworth, the co-chairman of the Leave Means Leave campaign, and Dr Ruth Lea, whom I have known for a good 25 years. She is an eminent economist and commentator on the financial services sector. Interestingly, although both are Brexiters, they took different positions. Dr Lea thought it would be disastrous if we had a no deal scenario, whereas Mr Longworth is frequently quoted in the press and made it clear to us that he really does mean that leave means leave, and that, frankly, if it happened tomorrow it would be all the better rather than bothering to negotiate anything with the EU.
In addition, the committee received more than 40 pieces of written evidence. Again for the interest of the noble Lord, Lord Hamilton, we put out a call for written evidence in order that anyone and everyone who wished to write to us was free to do so. Interestingly, not one item of the written evidence we received suggested that we ought to leave without a deal. So the evidence we received was fairly overwhelming.
We held nine oral evidence sessions. If we count the two from the Brexit camp, it means that roughly 20% of the evidence we took was from people who are in that camp. In the debate today, in which any number of noble Lords were able to sign up to speak—every Peer who wishes to be heard will be heard—by my reckoning we have had four people who believe that a no-deal scenario is perfectly fine. We have yet to hear from the noble Baroness, Lady Deech, so I will be generous with my figures, but I anticipate that by the time we finish the debate, we will have heard from 20% of speakers, just as we did in our evidence-taking sessions, who believe that no deal might be okay. However, we tend to go where the evidence takes us, so on the whole we were told that it would be pretty disastrous for the United Kingdom. I therefore tend to disagree with my noble friend Lord Teverson when he says that we did not take evidence from the other side, but perhaps he was not present for that session.
I also have to disagree with the noble Lord, Lord Kerr, who is not in his place, that we are in no danger of a no-deal scenario. I have mentioned that I am married to a German national. The House will be pleased to hear that, so concerned are we, on the basis of the analysis we have seen that a no-deal scenario might develop, two weeks ago my husband became a British citizen because he was not going to rely on the guarantees given on citizens’ rights or anything else. We accept that when the EU says, “Nothing is agreed until everything is agreed”, it means that, but I agree with the noble Lord, Lord Kerr, that the report has been overtaken by events. Of course, the December Council changed the mood music of “Nothing is agreed until everything is agreed”, but, alas, the noble Lord, Lord Kerr, is being rather sanguine when he thinks that citizens’ rights is a done deal, the budget is a done deal and all that. He mentioned today’s Financial Times: he only has to look at today’s Financial Times, or, indeed, the Times, to see that the Irish border question is still very far from agreed and the question of citizens’ rights is being reopened at the behest of the eastern European countries, which now want further rights to be given during the transition period, beyond what was agreed at the December Council or that the British Government have indicated they will give. So there is still a strong possibility that things will not go the way that the United Kingdom want or, indeed at the last moment will break down. The default position that the noble Lord, Lord Wigley, and others have commented on, where events lead us to an inevitable position where things go wrong, still very much exists.
I am sorry that the noble Lord, Lord Kerr, is not in his place, but I will also challenge him on what he referred to as the rash suggestion of the EU Financial Affairs Sub-Committee, which I have the privilege and honour to chair, when it published a report to say that the EU had no legal recourse to oblige the United Kingdom to make continuing payments to the EU after it had stopped being a member. We took evidence for that report from European Union legal advisers as well as people from within the European Union who are lawyers. That finding has never been challenged. Mr Barnier told me, on the delegation led by my noble friend Lord Teverson, that he had read the report. I know that the Chancellor of the Exchequer and the Foreign Secretary have read the report and numerous think tanks in Brussels have told me personally that they agree with our conclusions, CEPS being one of them, a very reputable economic think tank.
I am very grateful to the chairman of my committee for giving way. If I may defend the noble Lord, Lord Kerr, I do not think he was challenging that conclusion of our committee. What he was saying was that, even if there was no enforceable means for the EU to extract a divorce payment, having made an agreement the UK would never walk away from it. That, I think, was the point he was making.
I am grateful to the noble Lord for saying that. I heard that, yes, and I agree with that part of it, but what I was saying was that, across the House today, we have heard people criticising us very selectively when they do not like the tone of the report. The noble Lord, Lord Kerr, said that there would be legal consequences of what he described as rash suggestions. The point is that you go where the evidence takes you. That is what the EU committees are known for doing, which is why EU Committee reports are so widely respected across the EU, not just in the United Kingdom. I thank the noble Lord, Lord Butler, for being slightly fairer, perhaps, than I was being to the comments of the noble Lord, Lord Kerr.
Beyond the no-deal scenario, there is another important scenario and that is the scenario of transition, which I shall now touch on. We took evidence from across the EU Committee and from the Financial Affairs Sub-Committee about the need for such a scenario. I will not pre-empt our report, which will be coming out shortly, but the importance of transition is, to us, not to be underestimated because it gives legal certainty to business, to sectors like financial services which the noble Viscount, Lord Trenchard, commented on. It gives legal certainty to businesses that there will be a period, whether you call it an implementation period or a transition period, a standstill period where businesses can plan for the end state. However, the importance of the transition period will be negated if we do not know what the end state is. Will the Minister, in summing up, tell us whether it is still the Government’s intention to try to negotiate a transition period by March, which is what the Secretary of State told us, and to enshrine the legal basis of that transition period in the withdrawal agreement?
My final comment on the transition period concerns what will happen if we are not able, for whatever reason, to negotiate a transition period along the lines that we want. Again, we have heard some negative comments coming from the EU, where that will be used as a negotiating position. I draw attention to paragraph 99 of the committee’s report where another option was put down by one of our expert witnesses, that of extending EU membership. Professor Catherine Barnard from Cambridge University—this will be my last substantive point, lest the Government are concerned that I am going to go on too long—told us that we could, by using Article 50(3), have any date in the withdrawal agreement that we wished, if we could negotiate it. According to paragraph 99,
“a withdrawal agreement could be post-dated—the UK would continue to be an EU Member State until the date specified”.
Alternatively, we could have a date that was further away than the date of leaving. In other words, we could embed the transition by using Article 50. Can the Minister tell us, in winding up, whether the Government will seek, if we come up against a stop-the-clocks scenario, to use that method to extend the period whereby we might get a deal?
My Lords, I am rather pleased to join the small band of dissenters in this House. As a lawyer, I believe that the adversarial process gets to the truth and it is often the case that the dissenting judgment in a case is the one that echoes down the years. Obviously, one hopes for a good deal, but the report was predictably gloomy, reflecting the majority of its selected witnesses. It was surprising that there was no reliance on the significant body of economists and commentators who are analysing no deal and who have come up with constructive views. The committee assumed that being outside the EU was de facto disastrous, taking no note of the situation of other countries outside the EU which have good quality of life and good regulation and which trade successfully. As a result, the report could have been written by Eeyore. Today, I present the Tigger response.
The only goalpost placed before the UK by the 27 is that the UK must not be seen to gain by leaving, lest others follow suit. What sort of organisation is this whose only purpose is to maintain itself in its present position by threats? How unacceptable is the reported attempt by President Macron to use the Calais refugees as the price of a deal? Where is the statesman or stateswoman in Europe who can draw a portrait of what the organisation will be in a few years’ time, what its attractions and benefits might be? Nothing except “more Europe”. A great leader, which it manifestly lacks, would not want to inflict harm on European citizens, including the British, for the sake of it, which is the tenor of the discussions now, but would have sufficient confidence in the EU’s future to be able to say goodbye to one of its partners handsomely and generously. The attitude of the EU does not bode well for its future, and it has given us no idea what that is. It uses fright tactics—apocalyptic views of being out of the single market, punishing the renegade—rather than focusing on the well-being and prosperity of its citizens.
The EU’s intransigence over its own citizens’ rights, apparently unconcerned about what might happen to its own 3 million, and its intransigence over the divorce bill and the Irish border amount to self-harm. If the EU were reasonable or acted in the best interests of its citizens it would seek a free trade deal and give a degree of certainty to the troubled and unhappy economies of the 27. If in the end there is no deal, it will be the EU’s doing.
My Lords, it does not sound like it.
When we contemplate no deal, it means a default position of reverting to WTO rules. It does not mean that, in the event of a vote in Parliament on the final deal going against it, we would then seek to revoke Article 50 and be readmitted to the Union. That latter scenario is obviously what is sought by those who table elephant-trap amendments about a final vote. They want to stop Brexit by rejection of the deal. We should be clear about that. The EU, by putting forward a bad deal to provoke rejection by such a vote, would get what it wanted: a return by the UK, with its tail between its legs, and possibly Schengen and the euro to boot. It would be an affront to democracy and a permanent stain on this House.
The UK was a founder member of the WTO. Lots of countries trade with the EU under WTO rules; others have dealt with that. We might be free to set low or zero tariffs on what we import from the rest of the world and from the EU, with a consequent benefit to UK consumers, who would pay less in many instances. This would not stop trade—far from it. All nations have access to the single market provided that regulatory standards are met, which we do. The US and China conduct billions of dollars of trade with the EU without a free trade agreement. We could accompany that with massive deregulation, and there are lawyers who can reshape our laws and regulations in that event.
As for the dreaded scenario of grounded flights, many European airlines use our airports. They need a deal or their tourist trades would collapse. Memoranda of understanding could hold the position until new agreements are reached. The use of phrases such as “cliff edge” and “crashing out” are not merely inaccurate but designed to scare and confuse. Predictions made recently about losses that might occur in 2030 if we are not in the single market do not seem to be any more reliable than the inaccurate predictions for finances right after the referendum.
Set against the positive view of no deal is the refusenik approach:
“And always keep a-hold of Nurse
For fear of finding something worse”.
But clinging on will risk paying a great deal of money for an arrangement worse than the present one, stuck in the prison of the customs union and the single market without a say in them, and still under the ECJ. It is a mistake to pay a great deal to gain access to the single market, let alone for an extended transition period—like a couple who are divorced but remain together because they cannot afford to sell the house. Countries all round the world have that access without paying for it.
I am trying to see where there can be a comparison between a single market, the basis of which is open access, and a prison, the basis of which is closed doors. Can the noble Baroness explain why she thinks there is a parallel between the two?
No, I am not giving way. I have only a few minutes. I thank the noble Viscount, Lord Ridley, for putting it better than I could.
Leaving with no deal will not be a disaster, as many have said. So how can it be used as a negotiating tactic? We should say sincerely that we will manage very well if there is no deal. Our confidence in that would weaken the likelihood of the EU pressing a really bad deal on us, because it would know that we had a future elsewhere without its approval. I do not believe that the EU will want us to leave with no deal, unless its penchant for self-harm is even more marked than I can envisage. It would leave it with a financial gap to fill, problems with exports to us, and the loss of our defence and security assistance, which are so very valuable to it. After all, we are its biggest single export market, and European industries are under threat. Self-interest points overwhelmingly to a good deal being offered. It is just the priority that the EU gives to punishing us for ulterior reasons that is holding it back.
My Lords, I too thank the noble Lord, Lord Jay, for securing this important debate, and the noble Lord, Lord Whitty, for introducing it. My thanks go also to the European Union Committee for producing such a comprehensive report.
On 6 April last year we considered Brexit and the EU budget. In that debate I said:
“I would not normally associate the TV personality Noel Edmonds with Britain’s exit from the European Union but for 11 years he presented 3,000 episodes of the popular high-tension TV game show “Deal or No Deal”. That is the situation we are now in … but we do not have the luxury of 11 years and this is more important than a game show. It is about Britain’s future”.—[Official Report, 6/4/17; col. 1155.]
A few weeks after that debate, I was stepping outside Westminster Tube station at the precise moment a limousine pulled up and out came none other than Noel Edmonds. The chances of that happening, I would have said, were either slim or none. I explained to Mr Edmonds how his catchphrase had entered the Brexit political discourse. He had been unaware of this until then and seemed delighted. What is interesting is that “Deal or No Deal” started small in Scandinavian Europe, but was developed and transformed in Britain and then exported to more than 80 nations, including America, where it started the television career of a young lady named Meghan Markle. “Deal or No Deal” has become part of our British creative industry, which in total is worth more than £84 billion to the British economy and is our fastest-growing industry.
The reason that “Deal or No Deal” became so popular is that it said what it did on the tin and everyone knew what it meant. But that is not the case with Brexit. The public are grappling with phrases such as smooth Brexit, soft Brexit, hard Brexit, transitional Brexit, cliff-edge Brexit, clean Brexit, timed-out Brexit, barebones Brexit, bespoke Brexit, and even full English Brexit. Will the Minister undertake on behalf of the Government to make their language simpler and clearer in the Brexit talks, to retain the confidence of the British people, especially the business community, which has to plan ahead?
It is in everyone’s interests that harmony is maintained. In paragraph 3 of its “Summary of Conclusions and Recommendations”, which in my view is a very important part of the report, the committee states:
“While the evidence we received focused on the impact on the UK, no deal would also have a damaging impact on the EU. It too would feel the negative effects of a loss of trade with a major trading partner, and restrictions on the movement of goods and services, new customs checks and the breakdown of aviation arrangements would be mirrored on the EU side. In addition, the EU would feel the loss of police and security cooperation, scientific and research collaboration, and of access to the City of London as a motor of the EU’s financial services industry, and to the City’s capital markets”.
The fact that a deal benefits both sides needs to be emphasised more. By their very nature, the media focus more on problems and personalities than solutions and success. About 46% of UK exports go to the EU, while about 53% of our imports come from the EU. It is not in the EU’s interests to punish us into resorting to the World Trade Organization’s trade tariffs. I had the privilege of being a speaker at the WTO in Geneva. I formed the impression of an organisation which, despite its good intentions, is in reality hindering, not helping, free trade with punitive trade tariffs. Will the Minister undertake on behalf of the Government to more forcefully press the case that no deal would have a damaging effect on the European Union and that it is in its interests to agree a deal?
During the 19th century Britain was the first nation in the world to industrialise and embrace free trade. It gave birth to the Industrial Revolution. So it is unfortunate that there are no UK trade envoys for any of the Commonwealth nations in the Caribbean. The UK has also failed to appoint trade envoys for half the African Commonwealth nations. Trade is a vital aspect of Brexit. We know that there are only three International Trade Ministers in the Government, so trade envoys are proving a valuable support to Ministers in promoting UK trade abroad. Can the Minister say when the Government intend to appoint more trade envoys?
It remains to be seen whether future talks with the EU will be a good-natured “Strictly Come Dancing” duet or a bad-tempered “High Noon” duel. I was encouraged, though, by the words of the President of the European Commission, Jean-Claude Juncker, who on 5 April told MEPs:
“We will of course negotiate in friendship and openness and not in a hostile mood, with a country that has brought so much to our union and will remain close to hearts long after they have left”.
There were also positive comments then from the EU Commission’s chief negotiator, Michel Barnier, who has said:
“The ‘no deal’ scenario is not the scenario we are looking for. We are looking for success, not against the United Kingdom but with the United Kingdom”.
It is illuminating that throughout the Bible, there is a clear theme of one empire after another eventually overreaching itself and gradually collapsing. In the Old Testament it was the Egyptian Empire, followed by the Assyrian Empire, then the Babylonian Empire and finally the Persian Empire. They all fell. In the New Testament were the powerful rulers of the Roman Empire, such as Nero, but they all eventually fell because national sovereignty proved more durable and powerful than the politics of imposed empire.
Over the next couple of years and beyond, there will be no shortage of critics scaremongering and predicting disaster for Brexit. But fear is that dark-room where only negatives are developed. We must not be like the paranoid patient who visits his doctor, to be told: “Please listen. You’ve got hypochondria”. The patient replies: “Oh no, not that as well”.
The UK’s deadline for leaving the EU is 29 March 2019. I am not suggesting that the months leading up to that date will be easy but the people and both Houses of Parliament have spoken. Article 50 has been triggered and we must approach these Brexit and trade talks with a confident, robust spirit. Let us remember that the pound has continued to rise against the dollar since the end of last year and that only today, it was announced that inflation is down. As Sir Winston Churchill may once have said, “Attitude is a little thing but it makes a big difference”.
My Lords, it is a pleasure to follow my noble friend Lord Taylor. I enjoyed hearing his warnings on the fate of empires.
Another day, another report from the European Union Committee. I am delighted to thank its members for the time and industry they have devoted to the subject and I thank most warmly the noble Lord, Lord Whitty, who is nearly in his place, and associate myself with the remarks of the noble Lord, Lord Jay, who always brings a polite and helpful tone to debates. Beyond that, I can think of absolutely nothing to say in support of this report or its findings. I also say with sadness that I find aspects of the report to be really disgraceful and unworthy of this House.
EU committees have been markedly Europhile for as long as I can remember. As a member of two of them, I recall that any and all criticism of EU institutions was virtually taboo during our hearings. I do not press this complaint too far since I acknowledge that the membership of the EU committees come close to reflecting the views of your Lordships as a whole. However, I find the report so blatantly hostile to Brexit and so uncritically in favour of the EU that those parts of it which address such legitimate concerns as say, open skies, customs arrangements and, especially, security are accordingly devalued and trivialised.
In paragraph 9 of its summary of conclusions and recommendations, the report goes so far over the top as to trespass into fiction. As has been much quoted, it says of having no deal that it is difficult, if not impossible,
“to envisage a worse outcome for the United Kingdom”.
As many people have pointed out—and as I do, too—that is simply untrue. I can think of innumerable outcomes worse than no deal. Leaving the EU but staying in the single market and the customs union would, I venture to suggest, be a far worse outcome.
Mention has been made made more than once of what the authors refer to as the overwhelming evidence that led to their conclusions. Not only is the committee’s choice of witnesses scandalously selective; reading the transcripts, I was appalled by how little those witnesses were tested. Take for example the CBI, which said in its evidence that its views are a reflection of its membership. Well, I am a member and I certainly do not share its views—a point I often put to it. The truth is that it is a hostage to its major subscribers. Less and less does it represent the SME sector, which I happen to belong to and as such declare my personal interests as listed in the register. Our sector is the real driver of the British economy and it gets no mention at all that I could find. Nor did I find in the transcripts a declaration of the CBI’s interest in respect of the money it received from the EU. But then again, perhaps special privileges apply to it as they apply to others in respect of European affairs. The CBI now enjoys a reputation for being wrong on almost everything; it comes as a surprise that so much weight is given to its testimony.
While it is true that the committee heard evidence from Ruth Lea and from John Longworth, co-chairman of Leave Means Leave, again it comes as a surprise to me that nothing was heard from such distinguished independent voices as Roger Bootle or Professor Patrick Minford. Did it occur to the committee, I wonder, to invite some of our more successful entrepreneurs such as James Dyson to give evidence? No—the committee heard what it wanted to hear.
I do not pretend to be entirely happy with the way that negotiations have gone—here I echo the noble Lord, Lord Teverson—and am certainly not happy with how much we appear to have given away, with not much to show in return. One must sympathise with the Government in trying to run these talks against the background of a chorus of those who seek to reverse the referendum result and want to undermine the Government at every turn. I have also heard the story on good authority of how, during David Cameron’s negotiations before the referendum, every single Commissioner was briefed to the effect that there was a zero chance of Britain voting to leave the EU. It reminds me of the First World War joke about a man walking up Whitehall, looking in confused fashion left and right, and eventually flagging somebody down and saying, “Excuse me, which side is the Foreign Office on?”. “Ours, I hope”, comes the reply. What has changed?
The report says that the policy of nothing is agreed until everything is agreed should be abandoned. A huge amount has been made of this by supporters of the report but, according to my research, unless I am wrong, those words appear in a document in response to the Prime Minister’s Article 50 letter to President Tusk. Those words appear in President Tusk’s letter. That completely demolishes the arguments of about five noble Lords who argued in support of this report.
Where the report is right is that time is very short. In recent weeks, I have begun to notice that some blue water is beginning to emerge between the EU negotiators and the member states, and here is the rub. I tend to agree with the former Greek Finance Minister, who told Radio 5 Live:
“Brussels does not want a mutually advantageous deal and London has not realised it ... the fallacy lies in the presumption that those who are conducting the negotiations from Brussels and their political masters in Berlin and Paris, are interested in an economic outcome. They’re not. They’re far more interested in making an example of Britain so that others around the European Union get a lesson that anyone who opposes their authority gets crushed”.
Perhaps noble Lords would prefer from nearer home the words of the former Governor of the Bank of England, Mervyn King, the noble Lord King of Lothbury, who warned that the talks are a waste of time:
“The European Union is a political construct and they have political objectives ... I think the idea that we’re going to get soft treatment from the rest of the EU is false”.
The committee discussed the question of whether politics trumps economics or vice versa but reached no conclusion. I found from the transcript that the chairman mused that arguments over the primacy of law or politics will continue. How right he is. It certainly complicates the Government’s task that so many political and economic forces are self-evidently at work here.
If I understand correctly, the distillation of the committee’s recommendations is that we should apply for time-limited extended membership of the EU to hammer out every last bureaucratic detail, paying in as we pay in now, constrained as we are constrained now but with much reduced influence. It leaves no one on either side of the argument in any doubt that the committee ultimately wants us to stay in the EU permanently. As other noble Lords have said, the committee needs reminding that the people and Parliament have spoken and it ill befits this unelected House to try to reverse that decision. It is a course I reject, and I hope it is a course that the Government also reject.
The report underestimates all the benefits and opportunities of leaving the EU, that ossifying, free-trade-hating organisation. It exaggerates all the risks. A conceit among the political and official class is that they somehow have great influence over trade. They have nothing of the kind. I look back on my experience of half a century of trading in some 40 markets of the world. I have never craved certainty or expected it. Markets suddenly collapse and I have to find other markets. Customers are the thing I look for, and that is what I get. Over that long period, I have almost always ignored what Governments said about trade. We have nothing to fear from leaving the EU. I fear that the EU negotiators will put politics ahead of economics, which will bring delays. There must therefore be a case for walking away politely sooner rather than later and starting a new life under WTO rules with the aim and ambition of becoming a new world pioneer in free trade.
My Lords, I voted remain in the referendum because I was convinced that the consequences of a pro-Brexit vote would be destabilising for the island of Ireland—and, indeed, I think they have been destabilising. This afternoon, I attended with great pleasure the European Union Select Committee meeting chaired by the noble Lord, Lord Boswell, who I am glad to see back in his place. A very valuable discussion about Irish matters was held.
It is therefore with surprise that I find myself agreeing with noble Lords who have expressed unease about the quality of this report. I must tell the House that that is exactly how I feel about it—particularly the section entitled “Box 7: ‘No deal’ and the impact on Ireland and Northern Ireland”, which is quite exceptionally weak. This bears on the broader point, which has been made before, that the report does not really deal with the bad side of no deal for countries other than the UK. Although it is referred to glancingly in a number of places, it is a classic case of where something is very important but the report just slides over it gaily as if it did not know what everybody in Ireland was talking about. The section is very weak.
Let me explain. If there is no deal and we are forced to crash out on WTO terms, it is widely believed in Ireland that the consequences will be disastrous for the Irish agricultural sector. In a small country, 30,000 to 40,000 jobs is a lot. The widely respected Economic and Social Research Institute in Dublin has said it, the Central Bank of Ireland has said it and the Department of Finance has said it. At the national ploughing championships this year, where thousands of Irish farmers meet, that was the subject of conversation. Is there any reference in our report to the consequences of no deal for Ireland and that obvious fear? No, there is not. Instead, there is a reference to the dairy industry in Northern Ireland and the possibility that it will have more difficulty selling into the Irish Republic.
I invite your Lordships to a little thought experiment. Close your eyes and think of our supermarket shelves stacked to a huge extent with products of the agricultural industry of the Irish Republic; and then think that those products are not there in the same quantities as before, because there is a significant WTO tariff on them. Who do your Lordships think is going to gain? Where do your Lordships think the dairy farmers who might gain as a consequence of the absence of those products from the Irish Republic are from? It is of course the dairy farmers of Northern Ireland. A moment’s thought would tell your Lordships that that is the likely reality. I do not believe we will ever reach that point, by the way, and crash out without a deal. I believe that eventually there will be a free trade deal, but it is a very serious weakness of our report when the most obvious aspects of reality and current fears on the island of Ireland are not referred to at all. That is a problem.
That has to be referred to, but it is part of the wider problem of not fully acknowledging the downside for other countries in the European Union if there is no deal, while dwelling extensively—at great length in this report—on the difficulties and downsides for this country of no deal. I am sure that many of the downsides of no deal for this country referred to in the report are listed entirely accurately, but it is remarkable how airy and light we are about the problems for others. The Irish issue is a very dramatic example of it. It is worth stressing—especially with the commitment given by the Minister, Robin Walker, to the British-Irish Parliamentary Assembly—that even in the event of no deal, Britain will give rights for the common travel area to Irish citizens. That too is not referred to in our report. It will mean, among other things, the right of Irish citizens to come and work here in a privileged way as against those from other European countries. I do not understand it in any other way. They will continue to have the same rights as they have now.
At any rate, this is a generous and liberal thing to offer; as indeed, by the way, was the report produced by the Government last summer about the various technical means by which you could ensure, or at least help to ensure, a soft border. However, I see no sign that the European Union even understands the scale of that concession. Its reference to it is extremely vague, and it is not clear that it quite understands how generous we are proposing to be to the citizens of the Irish Republic even in the event of no deal—again, this is not referred to as a consequence of no deal. I am not quite sure how European countries might feel about it, but that is the offer we have made. No thanks have been received from anywhere for this, either in the Irish Republic, which just noted what Robin Walker had said, or in the European Union more generally. But if we do not mention ourselves, in our own reports, that we have made this generous and liberal attempt to facilitate developments, why should we expect other people to mention it or even to notice that we have done it? It is a matter of very considerable importance that we have done this. I express my regret about the balance in our report, but my unease is real. I find myself very reluctant to say it, because in general I do not feel that about the excellent reports from the committee.
I turn to a point made by my noble friend Lord Teverson, which touches also on a point made by the noble Viscount, Lord Trenchard. They are both really talking about the same problem but from a different angle, which is the reference made at paragraph 49 in the progress report agreed before Christmas between the Prime Minister and the European Union. My noble friend Lord Teverson has already quoted this passage, which says that the UK,
“will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the 1998 Agreement”.
Now there is a real question mark as to the actual meaning of that sentence, and I hope that the Minister can perhaps help us with that point tonight in his conclusion.
There is no subject in our modern life in which the wish is father to the thought more than Brexit. In this case, Brexiteer paranoia that the UK has signed up to some all-singing, all-dancing model of wide-ranging alignment—with which the noble Viscount, Lord Trenchard, expressed unease—fuels a particular reading of the report. On the other hand, remainer enthusiasm, as expressed by Matthew Parris’s article last Saturday in the Times, assumes that we have already sold the pass and have conceded in this sentence that there will be a soft Brexit and so on.
I accept that the language is ambiguous, but just want to give an Irish perspective on it. First, none of the most skilled Irish commentators—Patrick Smyth, the European editor of the Irish Times, for example, and I think also Dan O’Brien of the Independent—takes the grand reading. They argue that even for Ireland, it is not actually clear what these words definitively mean. The word “fudge” is used frequently in the most serious Irish commentary.
Patrick Smyth’s phrase is that we have no reassurances and no guarantees in this formula. There is a reason for that. His article says that Stormont has a veto in the interpretation of this document because it has a reference to the Good Friday agreement. There are already a number of forms of harmonisation or alignment between north and south. Back in the day in 1998, I was involved in the debate that led to the first initial list of these forms of harmonisation being agreed. It has now been somewhat extended. They are not controversial to the DUP but it means that, if you take seriously the protection of the Good Friday agreement, built into that agreement is the fact that the Northern Irish Assembly has a veto on how this develops, as Patrick Smyth points out twice in his piece. It is therefore very hard to believe that such a limited set of ideas can be the basis, as some have said, of an all-singing, all-dancing deal between the EU and the UK. The language is ambiguous, and if possible I would like the Minister to give us some clarification on that point. As I say, anything that is a fudge—and this is increasingly seen as a fudge in Irish terms—is unlikely to be a template for a wider and harder agreement on a large scale.
Having said that, there is also a reference to the role in this of the DUP. This House should note the very positive and irenic speech—a breakthrough for her in many ways—given by Arlene Foster in Killarney at the weekend, which signalled a willingness to work with the Irish Republic to produce a benign settlement of these difficult concerns. This is a positive development. People should not be especially concerned that the DUP wants a hard border, any more than anyone else in Ireland wants one. Frankly, no one in Ireland wants a hard border.
My Lords, I am delighted to follow the noble Lord, Lord Bew. It was good to see him this afternoon when we took evidence on Irish border issues. He is right to emphasise today the problems of no deal for Ireland.
I congratulate the noble Lord, Lord Whitty, on leading the debate skilfully in the sudden absence of the noble Lord, Lord Jay. I record my thanks to the noble Lord, Lord Jay, for chairing the committee with such verve and success in the absence of my noble friend Lord Boswell, who smoothly returned to his post today. It is a real honour to sit on such an interesting committee at this pivotal time and to work alongside talented colleagues of all political persuasions, although we sometimes disagree. The timing was good, and the public hearings that the committee had with a wide range of organisations helped to air the issues on Brexit at a critical moment. In a small way, they helped to ensure a satisfactory outcome at the December Council. I am sorry to have missed some of today’s speeches, but the lively disagreements have been both enlightening and entertaining—a strange benefit of Brexit.
I shall comment on three areas. First, I shall comment on financial services, as I also sit on the EU sub-committee concerned. We know Brexit is awash with uncertainty, which means that financial institutions have to operate contingency plans and work up a worst-case scenario—a matter of good corporate governance. Indeed, my impression is that, being streetwise, the sector is already moving forward with post-Brexit arrangements. That is one of the reasons why we know that the number of jobs lost seems to be lower than originally feared. For financial services, Brexit is complex. As our report says, it is in everyone’s interests, especially in this sector, to have a standstill or a transition, as now seems to be envisaged. However, that should also be agreed soon if the enactment of unnecessary contingency plans is to be avoided. Time is short. It needs to be in a watertight form so that both sides have contractual continuity. This is vital in, for example, the ongoing payment of insurance claims.
The good news is that the EU 27 also appear to want a time-limited transition that changes as little as possible, so I am hopeful that this will be agreed soon and that the legal concerns outlined by the noble Lord, Lord Whitty, will prove to be groundless.
I am more concerned about the substantive negotiations on financial services. My main point is that it would be damaging if the whole industry—that is, the small and the large; the fintech and the conventional; banking, insurance and asset management right across the UK—found itself a permanent rule-taker from Brussels.
The big international banks are well ahead, with parallel arrangements being made in Berlin, Paris and Dublin, but the UK needs to be free to provide sensible arrangements and reporting requirements for those who are operating in the UK or in third-country markets only. We need good regulation: it is a strength valued by investors in London. We do not need bureaucratic suffocation of low-risk domestic firms and small innovative operations embracing the digital and AI revolution. They must not be faced with automatic EU rules after Brexit which the UK has had no part in setting. Those representing smaller firms in the financial sector, such as the New City Initiative, which came to see me last week, are vehement on this point.
My second point is that while I am keen to see a deal and to see one soon, a bad deal would be worse than no deal. On that, the Prime Minister has always been right, and I am with my noble friend Lord Cavendish of Furness. A bad deal would be a yoke of increasing discomfort around our neck for ever more. I agree with our report and most of our witnesses that no deal would be damaging, but that is why we must strengthen our negotiating position by being clear in our minds what no deal would look like. We must also spend the money that the Chancellor has set aside for contingency planning.
Finally, I was struck by the panic among the EU negotiators when it looked as if an interim agreement might not be reached in early December—thanks, I have to say, to the DUP. President Juncker and M Barnier began to talk turkey. Our tough stance created movement for the first time, but toughness is not the only thing that matters. My long experience of EU negotiation is that you have to develop deep, strong, silken personal relations with the other side, devoting days and nights to this, while being tough and resilient on the substance.
Our experience in December shows that our negotiating position is stronger than many think. I hope that the Minister, who has so much valuable EU experience, will go into bat accordingly and conclude a good deal which Parliament can agree.
My Lords, as the last Back-Bencher to speak—I am sure you are all deeply happy about that—I thank the Minister for asking to meet me before Christmas, and beg his indulgence and that of the House to go somewhat off-piste from the detail of the report. If I may keep the metaphor going, I will be skiing in parallel, however. Skiing is quite a good metaphor, because there is silence about a particular aspect of the deal/no deal arrangement with which I am very concerned.
Other than a bare-bones comment, there is no substantive mention of anything to do with security, policing or intelligence in the report—I did not expect any. As I and several other noble Lords, including the noble Lord, Lord Hannay, have remarked in this House in terms over the past 18 months since the referendum, the phrase “deal or no deal” has salience not only to our future trading arrangements with the 27 but to a number of other issues. I want to know how the Government will negotiate or are preparing to negotiate on issues of security, policing and intelligence, as they are obviously, as the report suggests, preparing in some form of transition or implementation period for a future trading relationship.
I reassure the Minister that I am not asking for a detailed answer from him today—that would be unfair. I want to tell him and the House about an experience which has prompted this brief intervention. At their meeting last week, Cross-Bench Peers were addressed by Richard Harrington MP at what I must say was considerable length about the Nuclear Safeguards Bill, which will set out the UK’s approach to counter-proliferation after our withdrawal from Euratom. Mr Harrington made it clear that the Government were preparing a whole set of options along the complete continuum of “deal, what kind of deal, no deal”. If they are doing that—and I commend them for it—I would like the Minister to give me a brief indication of what they are doing about the same continuum for our future relationship with European police forces, Europol, the Schengen Information System, the European Criminal Records Information System, and all the other apparatuses which connect the UK and our EU partners. If the Minister cannot do that in appropriate detail today—I do not expect him to—I ask him to write to me and lay his answer in the Library as to the state of the Government’s negotiations over this issue. Which Minister below the Secretary of State in which department is in charge? Which Minister is involved? Are such arrangements to be caught up in the transition period? Does no deal on security and policing actually mean our current arrangements falling off a cliff?
I take the case of the European arrest warrant. If that ceases to be available in March 2019, no alternative exists. There are no current extradition treaties with France, Spain, Italy or any of the 27—not even with the Republic of Ireland. The paedophiles, the organised crime syndicates and the terrorists win, in 12 months’ time. A previous Home Secretary recognised this when she opted back into the justice and home affairs arrangements. She is now the Prime Minister. How will her legacy of having done so be protected?
I am sorry to have taken time to go off-piste, but the issue is parallel to the debate, and I hope that the Minister will accept that a deal or no deal in the security arrangements for our citizens and the citizens of our European partners is really important, and will write to me as I have asked.
My Lords, this very good report blasts out of the water the notion that no deal could be anything other than a disaster. As Michel Barnier told the committee, we would go back 44 years, and we would do it precipitously. Maybe Doctor Who or Sherlock Holmes could do it, but not the businesses and citizens of this country. It would be a terrible, shuddering shock.
Reports from the Treasury and Foreign Affairs Committees in the other place share the gloomy prognosis of a no-deal scenario. The noble Viscount, Lord Ridley, who is not in his place, claims there is a difference between a chaotic no deal and an orderly one, but that latter is surely a contradiction in terms. No deal means disorder. As the Foreign Affairs Committee of the other place said,
“a complete breakdown in negotiations represents a very destructive outcome leading to mutually assured damage for the EU and the UK”.
So it is not just our own Select Committee that has these fears.
As my noble friend Lord Wallace of Saltaire said, it often seems as if the Brexiteer ultras ardently desire no deal. Indeed, John Longworth of Leave Means Leave told the committee, it,
“may well be the very best deal”.
That would be the purest, starkest expression of their liberation theology. With one bound we are free—free to plummet to the bottom of the cliff. But their fantasy dogma is totally divorced from the real interests of the people of this country—their prosperity, security and ability to travel and connect.
The report well documents the costs and horrific disruption of an abrupt, chaotic Brexit, with many specific examples. People stand to lose their jobs, see their food bills shoot up and find their lives badly affected in myriad ways.
The CBI also highlighted a very important point. While the UK might have enshrined EU law domestically, through retained status under the European Union (Withdrawal) Bill, that does not deliver the reciprocal recognition—whether for aviation agreements, car specifications or data standards—that is so vital. The noble Lord, Lord True, completely overlooked this. When Michel Barnier told the committee that there would be consequences in multiple areas, from the capacity of British planes to land in Europe to that of dogs and cats to cross the channel, it was surely this reciprocity that he had in mind.
The other vital point, overlooked either deliberately or ignorantly by the hard Brexiteers who gaily envisage that falling off the EU cliff edge means the warm embrace of the WTO, is that 80% of our economy is dependent on services, which are hardly touched by WTO commitments. In any case, we know that that parachutage into the WTO is complicated by the certainty that other WTO member states would seek to reopen tariff rate quotas. If we withdraw, we will also no longer benefit from 40 free-trade agreements from March 2019. Even if transition means that we are applying EU single market and customs union rules domestically, we will be a third country outside the EU, as the Commission has pointed out. However, we will continue to apply EU external tariffs by virtue of continuing in the customs union in transition. So our car manufacturers would face an 8% tariff in trying to export to South Korea, but South Korean exporters would continue to benefit from tariff-free preferential access to our market. The solution, of course, is to extend the Article 50 timeframe.
The harmful consequences would not just be economic, or in industry sectors such as transport, freight, medicines, chemicals, the digital economy, cars, financial services, food and agriculture and universities, alarming as those are. There would, as the noble Lord, Lord Blair, has just pointed out, be serious damage to this country’s security through an abrupt wrenching of the UK out of co-operation on counterterrorism, policing and law enforcement—including data exchange—foreign policy, judicial networks and nuclear co-operation. Indeed, just this morning the EU Justice Sub-Committee heard the opinion of the president of the EFTA Court. He believed that there was no way we could continue in the European arrest warrant if we did not accept the continuing jurisdiction of the Luxembourg court and EU law. So much for a Conservative Party which wants to be tough on crime.
With no deal, an entire web of deeply helpful facilities would fall away: from pet passports to roaming discounts to health insurance—a whole load of things that people take for granted at the moment. It is a mystery how it came as a surprise and a cause of indignation to the DExEU Secretary that Michel Barnier and his team were planning for the possibility of no deal. After all, the no-deal mantra—or threat, or promise—has been a sort of whack-a-mole in the last year, since the Lancaster House speech when the Prime Minister asserted that no deal is better than a bad deal. This got repeated in the Conservative manifesto in June, then seemed to be killed off in Florence. However, the Prime Minister invoked it again in questions after the Florence speech last September, as did David Davis in evidence before the Brexit committee of the other place in October, when he asserted that no deal is an option and made it clear that he thought it was a good ploy for negotiating leverage.
In the report that the House is discussing, our committee concluded that, notwithstanding the shift in tone since the election, the threat of no deal remains an important component of the Government’s negotiating strategy. It appears; it disappears; it keeps coming back. So why were the Government indignant when they were hoist by their own petard? Michel Barnier’s letter to UK businesses saying that EU trade marks will no longer have effect in the UK as from the withdrawal date just stated the blinking obvious but made the DExEU Secretary go ballistic. Just as No. 10 briefed the press last Monday to expect a “Minister for no deal”, we learned that David Davis had complained to the Prime Minister that Barnier had taken that bluster seriously and was indeed preparing for an abrupt exit.
I read in a tweet today that Manfred Weber, the leader of the largest group in the European Parliament, the European People’s Party, to which the Conservatives once belonged, said:
“The British government has been complaining a lot recently. It seems to realise only now that Brexit will actually have an impact. My message to London is: please don’t complain any more, just deliver”.
The fact is that the no-deal posturing is not an effective negotiating strategy—far from it: it just undermines trust. It is part of an irresponsible and incompetent performance by this Government over the last 18 months, as my noble friend Lord Teverson described.
I say to those who reproach the committee for not analysing the impact on other countries that that might have been rather presumptuous. I say to the noble Lord, Lord Bew, that the committee produced a report in December 2016 on UK-Irish relations, which included a section on the economic implications for Ireland. That it did so rather early after the referendum demonstrated the importance it places on the Irish relationship.
Most sensible commentators now believe that a transition period is essential as there will be no future deal in place in nine months’ time. However, as the report notes, and the noble Lord, Lord Butler, took up, the Government have,
“yet to acknowledge the legal complexity”,
of a transition period. Can the Minister tell us whether the Government believe that Article 50 provides a secure legal basis for the continued application of EU rules after withdrawal in a standstill transition period, or, indeed, as that morphs into an implementation or adaptation period if a final deal is secured during transition? If not Article 50, what? Or do the Government believe, as the report discusses, that only an extension of Article 50, or a post-dated withdrawal agreement, under both of which scenarios we would stay in the EU during transition, would deliver legal certainty? We have a right to know what legal advice the Government have on these matters, as well as on the revocation of Article 50.
We on these Benches want Parliament to “take back control” of both the process and the substance of Brexit, subject to a final say for the people. I thus commend the amendment tabled by my colleagues in the other place, with cross-party support, to the EU (Withdrawal) Bill, which provides that if Parliament rejects either a deal or a no deal, the Government should be required to either exit from Brexit or seek an extension to the Article 50 deadline such that negotiations can continue. I hope that amendment succeeds but, if it does not, I hope we might take it up here.
I conclude by disagreeing, if I may, with the noble Lord, Lord True, who loves these Benches so much that he keeps referring to us. The final say for the people on the deal is not a second, rerun referendum; it is the confirmatory stage in a purchase—is this what you really wanted or bargained for?—like a house purchase subject to survey. It is what Jacob Rees-Mogg once wanted —a two-stage process—and it is what Nigel Farage wants now. As Nick Clegg said, “I agree with Nigel”.
My Lords, I too thank my noble friend Lord Whitty for introducing today’s debate. I thank the noble Lord, Lord Jay, and his committee for their choice of subject and for what I consider is the high quality of the report. I am sorry about the attacks made on it; I think that most were a cover for not liking its conclusions, although I exempt the noble Lord, Lord Bew, from that. I also thank the noble Lord, Lord Jay, for getting this debate today; it is particularly timely as it is of course on the very eve of the first anniversary of the Lancaster House speech when, regrettably, the Prime Minister gave legs to this rather vacuous “No deal is better than a bad deal” nonsense. But I also hope that this debate is in time to influence the Government’s thinking, particularly along the lines of the report’s advice, which is, basically, “Get real”. Both the report and the debate have laid bare the absence of any rationale for suggesting no deal and, of course, its failure to scare the other side to offer us lots of goodies, given that they view it as mere bluster. I will emphasise four points.
First, there is the near unanimity of advice that no deal has no merit. As paragraph 18 notes:
“Very few witnesses identified any positives arising as a result of ‘no deal’”,
while a former Chancellor of the Exchequer struggled to find any country of any significance that traded purely on WTO terms—the no-deal option—which the CBI judged would mean that 90% of our manufacturing exports by value would face tariffs. Yet as my noble friend Lord Whitty has warned, the very repetition of the no-deal rhetoric risks becoming a self-fulfilling prophecy. Indeed, rather oddly, as has been mentioned, even as Ministers insist it is an option and continue to prepare for it, as they say,
“any responsible government would do”,
they are then utterly surprised when the EU 27 do just that, with David Davis even having the effrontery in a letter to the Prime Minister to attack their “damaging” no-deal planning, even, we understand, consulting lawyers—presumably at taxpayers’ expense—over the EU’s preparations for no deal. It is unclear why David Davis should spend £3 billion preparing for no deal but get so het up when Michel Barnier does exactly the same. As the Commission spokesman responded:
“We are surprised that the UK is surprised that we are preparing for a scenario announced by the UK government itself”.
So of course the Commission should prepare. As it makes clear, if no deal is agreed by this October, the status quo would come to an abrupt halt next March. However, as the noble Lords, Lord Gadhia and Lord Taylor of Warwick, said, this is not a game show. Should we leave the stage, there would be dire consequences for our country.
Secondly, it is difficult to believe that the Government really believe that no deal could ever be satisfactory, given that it would mean: no security for United Kingdom citizens living in the EU; probably a hard border in Ireland; immediate imposition of tariffs, customs checks and possibly travel visas; no flights to continental Europe; nuclear materials stacked at the border; no judicial co-operation or European arrest warrants, as the noble Lord, Lord Blair, mentioned; no new trade agreement with any other country, because they would not be in place by then, and the loss of all 57 existing trading relations with third countries; 17-mile tailbacks at Dover, without having even an IT system in place; a devastating impact on our farming and food safety, and food prices possibly going up by 20%; a rift in the all-Ireland energy electricity market, posing threats to Northern Ireland’s lights; the financial sector in jeopardy, particularly on investment contracts, as we have heard; and, according to the impact assessment commissioned by the Mayor of London, which was rather more thorough than that done by Her Majesty’s Government, some half a million jobs under threat, and effectively a “lost decade” of lower employment and economic growth, with perhaps £50 billion of investment lost. And of course it would mean no transition agreement, despite the proposal for an implementation period by the Chancellor and the Secretary of State for Brexit in the Frankfurter Allgemeine Zeitung, although of course that is not possible without a deal.
Thirdly, the Whitehall farce returned last week as the anticipated new “no-deal Brexit Minister” failed to appear and was replaced by a new Minister who supports no deal. Indeed, she does not even want a transition, despite the fervent pleas from industry. So “No, No, Nanette” becomes “Yes, no; well, maybe. We’ll tell the EU 27 that we want a deal but we’ll appoint a Minister who doesn’t”. If it were not so serious, it would actually be quite funny.
Fourthly, and crucially for this House as we prepare for the withdrawal Bill—it will soon end its passage through the other House—any decision to slam the door behind us, after 46 years, with no agreement on our temporary or future relationship is a big national decision. It is not a decision to be taken solely by Ministers; it is one to be taken by Parliament on behalf of the nation. Therefore, we will seek to amend the withdrawal Bill to ensure that any decision to have no deal resides with Parliament and not with Downing Street.
As the report says, failure to reach agreement is not a continuation of the status quo. No deal would mean the abrupt cessation of nearly half a century of economic, political and legal partnership. The elegant wording of the noble Lord, Lord Jay, repeated today by my noble friend Lord Whitty, and by the noble Lords, Lord Gadhia and Lord Wallace, concludes:
“It is difficult, if not impossible, to envisage a worse outcome for the United Kingdom”.
I mentioned the position of the Labour Party. A lot has been said in this debate about not knowing where people stand. The noble Baroness is here as a spokesman for her party. Is it the policy of the Labour Party that the UK should come out of the single market and the customs union? It would be helpful for us to know before next week—tonight, please.
You do not hear what you do not want to hear. We would not go into the negotiations with red lines already closing off what we wanted to discuss with the opposite side. A number of noble Lords have said today that they are experienced negotiators. I have done a bit myself, starting in the trade unions. I have never gone into negotiations saying what I would and would not accept before I even started. The Labour Party has said absolutely clearly that we would not have taken anything off the table before we had even sat on the chairs.
As the noble Lord knows, those were not actually his words. The leader—I did not need to know his name; interestingly, I remember it—said that he could see some difficulties in being in when and if we were no longer a member of that treaty. He did not say, and nor has he said, what the outcome of the negotiations should be. Importantly —it was a challenge, I think, made to me earlier by my noble friend—it was asked whether the Labour Party can rise to the national interest. If anyone would like us to take over the negotiations and do a better job than is being done at the moment, we will be very willing to do that.
For the moment, I leave your Lordships with these words:
“It is difficult, if not impossible, to envisage a worse outcome for the United Kingdom”.
I hope that the Minister will now reassure us that that is neither the aim nor even a fallback and that every bit of work will be done to make sure that there is a deal in the interests of the whole country.
My Lords, I am grateful, as ever, for the opportunity to respond to the debate on the Select Committee’s report, Brexit: Deal or No Deal. We have heard a series of excellent contributions—some I agreed with and some I did not, but, nevertheless, virtually all of them have shown your Lordships’ House at its best. It has been an extremely good debate, even if all the positions outlined came as no surprise; nobody has changed their views, but it was interesting to hear the different opinions. I will refer to a number of the excellent speeches as I go on.
We have discovered a series of surprising facts, including that the noble Baroness, Lady Falkner, and my noble friend Lord True both enjoy Italian holidays. A vision went through my mind’s eye of the pair of them sitting on a lovely Tuscan terrace sharing a bottle of prosecco and exploring these issues, but I think it would probably take more than one bottle before they agreed with each other.
I thank the European Union Committee, chaired by the noble Lord, Lord Boswell, for producing this thoughtful analysis. I am pleased to hear that the noble Lord has now returned to his duties in the House. I pay tribute to the noble Lord, Lord Whitty, for stepping in for the noble Lord, Lord Jay. Incidentally, it occurs to me that being the chairman of your Lordships’ European Union Committee is a bit of a hazardous occupation: first, the noble Lord, Lord Boswell, is incapacitated, and then the noble Lord, Lord Jay, is incapacitated. I hope that nobody else suffers any unfortunate accidents during their time in this obviously dangerous position. Nevertheless, the noble Lord, Lord Whitty, stepped in very ably to introduce our debate this evening.
I can inform noble Lords that a formal response to the committee’s report is being prepared and is expected to be issued within the usual two-month response time. My department is working with officials from all departments and undertaking a wide range of work to support the negotiations. We recognise the need for businesses to prepare contingency plans, and we continue to engage with companies across sectors and regions to understand the challenges and opportunities that they may face. In November’s Budget, the Chancellor committed to ensure that departments and the devolved Administrations continue to have the resources necessary to prepare effectively for a range of exit scenarios, including that of no deal. Her Majesty’s Treasury has already given departments nearly £700 million to prepare for Brexit, and is making an additional £3 billion of funding available over the next two years.
Many of the points raised by the report relate directly to the second phase of negotiations, and, as such, I hope noble Lords will understand that I will not be able to go into great detail on some of those areas at this stage. However, as more of our contingency planning becomes public, this should not be interpreted as an expectation that talks with the EU will be unsuccessful but recognised instead as the actions of a responsible Government determined to ensure a smooth exit under any eventuality. A deep and special partnership, taking in both economic and security co-operation between the UK and the EU, is of such mutual importance—as my noble friend Lord Hamilton pointed out—that I am confident it can be agreed.
The noble Lord, Lord Whitty, and other noble Lords asked whether agreements to date will stand, what has been agreed in negotiations to date and whether we are still committed to the policy that “Nothing is agreed until everything is agreed”—that famous phrase. Of course both we and—let me emphasise this—the EU have been very clear from the outset that nothing is agreed until everything is agreed. However, we are clear that we want to honour the agreements that have been reached so far in the joint report, and we are proceeding with confidence that we can and will do so.
The noble Lord, Lord Whitty, and other noble Lords asked about the impact of no deal. The committee’s report and our debate this evening have focused predominantly on that scenario. Let me make it absolutely clear, as the Secretary of State did in front of the committee on 31 October, that this Government do not want or expect a no-deal outcome from these negotiations. We continue to seek a deep and special partnership with our European friends and allies as we leave the EU, and we approach the negotiations anticipating success.
In light of our successful phase 1 agreement, I am confident that the prospect of leaving negotiations with no deal has reduced significantly, as a number of noble Lords pointed out. While this progress is encouraging, the Government continue to act responsibly by preparing for a range of outcomes, including the unlikely scenario in which no mutually satisfactory agreement can be reached. Every government department continues to work to ensure a smooth exit from the EU in all eventualities.
Noble Lords have this evening expressed concern that the act of preparing for a no-deal outcome with the EU could act as a self-fulfilling prophecy, increasing the likelihood of this outcome. I do not agree that this is the case. The Government’s contingency planning should not be interpreted as an expectation that talks with the EU will be unsuccessful, but recognised instead, as I said, as the actions of a responsible Government determined to ensure a smooth exit in every eventuality.
Noble Lords have spoken about potential no-deal scenarios. As we enter the next phase of talks, we do so optimistically and fully committed to the Article 50 process. Through the process we have already reached agreement on a number of the critical separation issues, including citizens’ rights, judicial and administrative co-operation and the Ireland-Northern Ireland border. We have consistently called for flexibility, imagination and a willingness to make progress in every stage of the talks.
As I have noted, we are planning for a range of exit outcomes but our focus is concentrated on achieving an ambitious and positive deal. Such a deal is of mutual importance and beneficial to both parties in negotiations. We are therefore confident that such a deal will be agreed.
The noble Lord, Lord Whitty, asked about implementation periods, as did my noble friend Lord True in his excellent contribution—I particularly enjoyed the “fat yellow line” argument. Noble Lords have spoken about the implementation period aspect of the UK’s exit from the EU, which was also considered in the committee’s report. As part of a deal on the UK’s future relationship with the EU, both parties agree that a strictly time-limited period would be mutually beneficial. Such an implementation period has been clearly set out by the Prime Minister in her Lancaster House and Florence speeches. It forms a key part of a smooth and orderly exit from the EU. An implementation period prevents businesses and Governments in the UK and Europe having to make decisions before they know the shape of our future partnership. It also provides individuals and citizens on both sides with time to adapt to the new relationship between the UK and the EU. We have been clear that during the implementation period access to one another’s markets should continue on current terms.
My noble friend Lord True also said that the implementation period must be for implementation. Other noble Lords spoke about the timing and purpose of an implementation period; I agree that it must be time limited and used for implementation.
The Prime Minister has indicated that the duration should be determined by how long it will take to prepare and implement the new processes and systems that will underpin the future partnership. There is broad consensus between us and the EU on the duration of such an implementation period. Our current assessment points to a period of around two years, and the EU has suggested that it could be slightly shorter. Both the guidelines published by the Council and comments made by President Tusk point to the shared desire of the EU and the UK to make rapid progress on an implementation period, with formal talks beginning very soon. I can confirm for the benefit of the noble Baroness, Lady Falkner, that the Prime Minister has said that we want to reach an agreement on the implementation period by March. This will help to give certainty to employers and families as we work to deliver a smooth Brexit.
Could the Minister please clarify one thing? If agreement is to be reached by March, the idea of an implementation period is that you are implementing something. I still have not quite understood—maybe the Minister can help the House—what we could decide by March of this year that could be implemented from March of next year. Is he saying that the whole of our final agreement could be agreed by this March so that we will be implementing that?
No. As the noble Baroness understands very well, we can agree the principle of the period of implementation by March and we will then go on to the further agreements on the various issues that we have set out.
The noble Lords, Lord Whitty, Lord Butler and Lord Kerr, and the noble Baronesses, Lady Falkner and Lady Ludford, all asked about the legal basis of the implementation period and raised questions over that legal basis. Such an implementation period would be agreed under the Article 50 process, and would be enshrined in the withdrawal agreement, and implemented in this House under the withdrawal agreement and implementation Bill. The EU has been clear on this in its Article 50 guidelines and draft negotiating directive, and the UK Government agree with this approach. The desired implementation period will allow a period of smooth transition to the terms of a new relationship.
The report claims that the implementation period could be used as a mechanism to extend the negotiation period beyond March 2019. The noble Baroness, Lady Falkner, also suggested a method to extend the negotiation period using Article 50. On 29 March 2017, the Prime Minister notified the EU—
On the legal basis for the transition, surely when the Commission says that it thinks that Article 50 is the legal basis, it is talking about a standstill transition. Is it really agreeing with the Government that it would be the legal basis for the implementation of a trade deal, which would be based on another article in the treaty? Is the Minister asserting that the Commission agrees that Article 50 could be the legal basis for a genuine implementation period for a future deal—a roll-in of a future deal?
Clearly, the noble Baroness will understand that I cannot comment on what legal advice the Commission has received. But as I said, the Commission has agreed with us that the implementation period can be implemented under Article 50. We agree with that position.
On 29 March 2017, the Prime Minister notified the EU of the UK’s decision to withdraw under Article 50, following consideration of the issue in both Houses of Parliament. As a matter of policy our notification will not be withdrawn. The British people voted to leave the EU and we will deliver on their instruction. There can be no attempts to remain inside the EU and no attempt to rejoin it. I emphasise for the benefit of the noble Lord, Lord Kerr, and others, that we will leave the EU on 29 March 2019, after which we will no longer be a member state. That is a matter of law under the Article 50 process.
My noble friend Lord Hamilton asked me what provisions we were making for no deal even though that is not the outcome we seek. As well as the EU withdrawal Bill, which will ensure that we have a fully functioning statute book on the day that we leave, the Government are already bringing forward other legislation as required. Our Trade Bill will give the UK a foundation for an independent trade strategy. We will create a world-class international sanctions regime through the Sanctions and Anti-Money Laundering Bill and we will deliver an effective customs regime through the customs Bill. Our Nuclear Safeguards Bill will ensure that we can deliver a domestic nuclear safeguards regime. This legislation will support the future of the UK in a wide variety of outcomes, including one where we leave the EU without a negotiated outcome.
Alongside bringing forward necessary legislation, we will be procuring new systems and recruiting new staff where necessary to ensure that we deliver a smooth exit, regardless of the outcome of negotiations.
It was not an exhaustive list, rather a few examples. I think that the noble Lord will find that those Bills will be coming through.
My noble friend Lady Wheatcroft asked whether we have a Minister responsible for no deal. The answer is yes. Steve Baker is the Minister responsible for our preparedness in all circumstances, including those of no deal. My noble friend Lord Trenchard and others asked about financial services. We will be seeking a bold and ambitious free trade agreement between the UK and the European Union. This should be of greater scope and ambition than any such agreement before so that it covers the financial sectors of both the UK and EU economies; financial services is one of those sectors. This will require detailed technical talks, but as the UK is an existing EU member state at the moment, we have identical regulatory frameworks and standards which already match those of the EU. Both sides have said that they want to protect financial stability and we remain committed to reaching the best possible outcome for the sector and indeed for the UK as a whole in our negotiations.
My noble friend Lord Trenchard also asked how confident we are that we can attract trade deals. Leaving the EU offers us an opportunity to forge a new role for ourselves in the world to negotiate our own trade agreements and to be a positive and powerful force for free trade. Since 2005 the UK’s non-EU trade has grown from less than 48% of UK exports to 57% in 2016. The noble Lord, Lord Taylor, asked about the appointment of more trade envoys. The Prime Minister has made it clear that one of the benefits of leaving the EU is the ability to develop our relationships with countries outside the EU in new ways, including through our own trade negotiations. The PM’s trade envoys engage with emerging markets where substantial trade and investment opportunities have been identified by the Government. There are currently nine African Commonwealth countries covered by the programme.
My noble friend Lord Cavendish and others referred to the phrase “nothing is agreed until everything is agreed”, but I have already covered that. The noble Lord, Lord Bew, talked about the very important issue of the Northern Ireland border. As I have mentioned, we have already reached an agreement on a number of the critical separation issues, this matter being one of them. In the event of a no-deal scenario, the Government would continue to adhere fully to the Good Friday agreement, its successors and the institutions that they have established. The Government are committed to protecting north-south co-operation and to avoiding a hard border on the island of Ireland in all circumstances.
The noble Lord, Lord Blair, raised the important issue of security, and I am grateful to him for the opportunity we had to talk through these matters personally before Christmas. We are confident that a future security partnership between the UK and the EU is in the interests of both sides. The UK’s current participation in EU law enforcement and criminal justice measures is based on our membership of the EU. Our relationship with the EU will change as a result of leaving, but we remain committed to ongoing co-operation now and after we leave. However, rather than go into a lot more detail on this, as the noble Lord suggested, I am happy to write to him on the points he raised.
I conclude by reiterating what I said at the beginning of my speech. We are seeking a deep and special partnership with the EU in the second phase of the negotiations and we neither want nor are expecting a no-deal scenario. However, it is the duty of a responsible Government, which we are, to prepare for all possible outcomes, and that is what we are doing across government. We are working to formally publish our response to the committee’s report as soon as possible.
I am immensely grateful to all noble Lords for their contributions over the course of what has been a fascinating debate. We will continue to meet our commitments to keep Parliament fully informed on the UK’s exit from the EU, and I am sure that this House will continue to play a valuable role in the work of the Government to secure a deal that works for everyone.
My Lords, I thank the Minister and all noble Lords who have taken part in the debate. The noble Baroness, Lady Neville-Rolfe, said that it has been both enlightening and entertaining. That is certainly true. It was kicked off in high style by the noble Lord, Lord Hamilton of Epsom, which led on to rather more critical comments on this report, albeit from a minority of the speakers, than is normal in the Chamber. Select Committee reports are usually dealt with with a degree of deference, respect and gentility, even if there is some disagreement. Having had greatness thrust upon me and having therefore sat through the whole debate, which is not my wont, I feel that I need to reply to some of these contributions. Indeed, had I been in my own position in the speakers list, I would have spoken immediately after the noble Lord, Lord Hamilton, and I would have disagreed with him roughly on the same lines as did my noble friend Lord Davies, who is no longer in his place, and my noble friend Lord Liddle, who explained that we did not look at the damage to the EU primarily because the balance of advantage in these negotiations lies with the EU, because of the proportionate effect on the economies of both sides. It is also true that the report makes clear—I refer the noble Lord to paragraph 50—that no deal would also have a damaging effect on the EU. Indeed, Michel Barnier admitted as much when he gave evidence to us in July and we point that out.
I conclude from that, since we all at least make obeisance to wanting to make sure that whatever comes out of this Brexit process is good for the EU as well as for the UK, that our conclusion would have been that the damage of an absolute no deal would be to the EU as well as to ourselves. I doubt if a whole litany of German industrialists would have made that conclusion any different. As to British industrialists, we had responses from 20-odd sectors, all of which reached the conclusion that no deal would be the worst outcome for their sector. We cannot ignore that degree of evidence.
I was rather afraid at various points during this debate that we were refighting the Brexit referendum. Let me make clear that the committee accepted Brexit as its starting point. We also actually accepted what appears to be the Government’s negotiating position; that they want to move to a comprehensive agreement in the new stage—the second stage of these negotiations —which will mean, on the trade front, some form of free trade agreement. That comprehensive agreement, incidentally, should also cover some of the points that the noble Lord, Lord Blair, raised towards the end of the debate, on security and on co-operation on foreign policy.
What concerned us was that the timetable that the Government seem to have got themselves into would preclude being able to reach a decent and detailed free trade agreement effectively by this October. We are now in the middle of January. The Government hope to reach a deal on transition this March and an agreement on a free-trade deal covering the anxieties of every sector of our economy by October. We did not consider that sensible. We therefore go along with the Government’s objective that there will be a transition period and we regard that as being a period not just of standstill, during which we are still subject to EU regulation, but also as a period when we can finalise a full-scale free trade agreement. That seems to us sensible as a timetable.
The clock is seriously ticking on reaching agreement on a transition and on a free trade agreement, and getting a comprehensive new partnership with the EU. We were also concerned that negotiations so far have not filled us with as much confidence as we would like. The noble Lord, Lord Teverson, and my noble friend Lady Hayter pointed out the shortcomings of some of the negotiation stances. We over-eagerly accepted the sequencing put to us, which leads to some illogicalities. We ruled out many alternatives very early on. We exposed our negotiating position by disclosing our red lines very early. I have spoken about this before in the House. But what we are interested in today and what much of the debate has been about is whether a threat to walk away and have no deal actually enhances your negotiating position.
I have engaged in a few negotiations in my time—some successful, some not. Yes, people want to walk away in most forms of negotiation, and threaten to do so. At the end of the day sometimes they do walk away. But in most negotiations in business, industrial relations—and life—when you walk away, when the deal falls, you go back to the status quo ante. In this case there is no status quo ante because we have already determined that we are moving in an entirely different direction. That is why no deal appears to us to be so damaging. We are not going back to a position whereby we can start negotiating again if these particular talks fail. We are in an entirely different position in terms of the world economy as a whole, let alone our specific relationship with the EU.
Threatening to walk away, let alone what appears to have been suggested by some government spokespeople —that no deal could actually be a preferred outcome—does not do our immediate negotiating position any good whatever. I think that the mainstream of the Government—if I can put the Minister in that camp—feels broadly the same. That is the thrust of our report and why, for all the objective reasons that my noble friend Lady Hayter spelled out, an actual outcome of no deal would be so damaging, but the use of the no-deal option in these negotiations is of itself damaging to those negotiations and the preferred outcome that the Government are seeking.
I will make one final point before I let your Lordships go home. We say in the report—this has been picked up by a number of people, and the noble Baroness, Lady Wheatcroft, actually said that she favoured this outcome—that there is the option of extending the date of leaving the European Union. We also say that there is doubt about the legal form of transition and whether that can be dealt with in the withdrawal treaty. Other noble Lords have complained about us envisaging that we might change that date, but the alternative—which is the alternative that is most likely to happen now—is that we will reach an outline agreement, I hope, by October this year for implementation after March 2019 and then there will be a transition period, when we are still in a standstill period, obeying European rules but without any influence in the European institutions. That is preferable to us not having a transition period, but an easier and more logical way of doing that—a smoother way of moving towards Brexit—would be to extend the date so that the negotiations to complete the comprehensive agreement and the free trade agreement could take another couple of years, and within those couple of years we would be a full member of the EU, with full rights within the EU, rather than being a total and complete rule-taker during that two-year period. That seemed to us to be a more desirable outcome and in many respects an easier way of dealing with this.
Of course, the difficulty is—and I remember saying this quietly to the noble Lord, Lord Jay—that there are elements in the governing party who would not accept this. More importantly, possibly, there are very large elements within the British media which would not accept it. Although we decided that we would put it in the report, my hesitation has been borne out tonight by those noble Lords who have portrayed this as a betrayal. That was not the intention. As a committee, we accept the Brexit decision, whatever our individual views may be, but a logical way out of the dilemma we are now in would be to extend the date.
I will end on that. It has been a very entertaining and enlightening debate, as the noble Baroness said. Once again, my thanks go to everybody and I will pass on your Lordships’ good wishes to both the noble Lord, Lord Jay, and the noble Lord, Lord Boswell. The committee will be back in normal working order, I hope, very soon. I beg to move.
House adjourned at 9.35 pm.