Brexit

Baroness Falkner of Margravine Excerpts

Saturday 19th October 2019 Lords Chamber

[Baroness Falkner of Margravine (Non-Afl)]

My Lords, it is a pleasure to follow the speeches of the noble Duke, the Duke of Wellington, and the noble Baroness, Lady Nicholson of Winterbourne. They both bring first-hand experience of the European institutions; I only wish more people who had served in Europe could make those points.

My points are very simple; I will make just three. I would like to rebut the arguments that some noble Lords have put forward regarding the economic impact of this agreement. What should alarm the House, and will cause alarm around the country, is the certainty with which noble Lords assert that in X years’ time— perhaps five, perhaps 10—the damage to households will be exactly £2,000, £3,000 or whatever. When they say that, they must know that it is impossible to economically model at that level of certainty and detail events that are, first, yet to happen and, secondly, unpredictable. There are too many variables in open, capitalist, global economies to be able to model with that level of accuracy.

I will give noble Lords an example. Two years ago, no German car maker could have imagined that Germany, the country with the biggest current account and trading surplus in the EU, would be tipping into a recession this quarter, not because of anything that the German Government or the EU have done, but due to Mr Trump and Mr Xi Jinping’s trade war with each other. I beseech noble Lords to stick to what they can support with evidence, rather than speculating on things that simply cannot be based on verifiable or acceptable methodology.

My second point relates to the people’s choice argument. I urge this House to reflect on the implications of saying that people did not know what they were voting for. Cannot the SNP legitimately use that argument for yet another referendum on Scottish independence? It is borne out by credible surveys that people were clear on what they were voting for. Alas, they were voting to leave.

That argument also undermines a more subtle case for democracy. When people go to the ballot box in an election, they do not know how a Government will come about. They do not know how the Government will implement a pledge. In fact, as 2010 showed, they do not even know which Government they will get. Every election is uncertain until 10 pm on the night. People did not know in 2010 that voting Liberal Democrat would result in high tuition fees, but that happened. They did not know that it would result in a fixed-term Parliament and that their constitutional arrangements would be significantly changed, but that happened.

To look to a third referendum to resolve this crisis is to look in the wrong place. If we must test public opinion, then test it through a general election. Labour should be grabbing that opportunity with both hands, if they truly believe that they are the party that will be able to retain labour and environmental standards. But such is their fear of the ballot box that they will not go there.

My final point is to do with what comes if and after this deal is passed. Noble Lords have thrown all manner of things into the debate that have nothing to do with it, such as chlorinated chicken. It is also asserted that we will take years to resolve a new relationship with the EU. On both points, the withdrawal agreement makes provision for the extension of the transition period. That transition period is a standstill period and nothing will change other than that the EU and the UK will negotiate for the future free trade agreement. Should sufficient progress not be made by June 2020, an extension can be agreed for a further two years—effectively until December 2022. That surely would give sufficient time to complete an FTA when we are starting from a completely equivalent state of regulatory alignment.

Those who want greater time for scrutiny are right. We should examine every line of every measure that comes before us as we go forward, but go forward we must.

Brexit: Positions on the Pound

Baroness Falkner of Margravine Excerpts

Monday 30th September 2019 Lords Chamber

[Lord Callanan]

No and yes.

[Baroness Falkner of Margravine (Non-Afl)]

Does the noble Lord agree that the logic of these allegations that if people have any evidence, we are a well and highly regulated country in our financial markets, and they should report that evidence to the existing regulators? In saying that, I need to declare that I am a member of the Bank of England’s enforcement decision-making committee.

[Lord Callanan]

The noble Baroness speaks with great authority on this subject. Of course, there is no evidence for anybody to report, but if they have evidence, there is regulation on short selling, which is enforced. But I am not aware of anyone providing any evidence beyond scurrilous rumours.

Brexit: Preparations and Negotiations

Baroness Falkner of Margravine Excerpts

Monday 23rd July 2018 Lords Chamber

[Baroness Falkner of Margravine (LD)]

My Lords, I chair the EU Sub-Committee on Financial Affairs. The committee also has responsibility for the UK contribution into the EU budget, so the current discussion about cannot pay or will not pay is also pertinent to our role. I was also part of the EU Select Committee’s delegation to Brussels last week to Mr Barnier, under the distinguished chairmanship of the noble Lord, Lord Boswell. It was my fourth discussion with Mr Barnier. In the light of what I heard there, I will concentrate my remarks on three things: the budget contribution in the light of calls for a second referendum; the cost of the Norway option and the EEA; and the exit fee. In doing so, I remind the House that I speak in a personal capacity. I could hardly do otherwise, having heard the rather diverse speeches of other members of the committee, such as the noble Lords, Lord Butler of Brockwell and Lord Cavendish of Furness, excellent members as they all are.

Several noble Lords talked about the possibility of holding a second referendum or a people’s vote on the outcome of negotiations. A lot of people believe that if you put the facts to the people they will change their minds and remain, as if no facts were available last time around. We heard that in the Chamber today. If facts were distorted last time, people nevertheless thought that they would pay less to the EU if we left and more money would therefore be available for UK priorities. The next vote will also focus on money, so the question is what the offer of “remaining” in that future referendum would involve.

Noble Lords may not know that the negotiations for the EU’s next multiannual financial framework are currently under way. The Commission intends to conclude them in May 2019, just weeks after the UK’s projected leaving date. We are not present during those negotiations on the basis that they do not concern us, as they cover the period from 2021 till 2028. We are not there and are not fighting for our interests.

One issue under discussion is the phasing out of the rebates paid to member states over a period of five to seven years in that MFF. It is likely that net contributors will try to resist this, or at least to prolong the period, but the rebate is unlikely to last in its current form. Other aspects under discussion are an increase in the EU’s own resources through the EU raising direct taxation, which the UK fiercely resists on the basis that tax-raising powers belong to member states alone. It is envisaged that some €200 billion will be raised directly by the EU in the next period, through visitor taxes, environment taxes and a tax on plastic among others.

What will happen if the UK does not retain its rebate? The Office for Budget Responsibility shows that the net contribution to the EU budget paid by the UK in 2016 was £8.1 billion. This was equivalent to £123 per head. The UK rebate was worth £5 billion, or £76 per head, so the UK contribution to the EU budget if we did not have the rebate would be £200 per head. Several people to whom I speak in Brussels who are experts on the budget and have knowledge of the MFF negotiations confirm that it would be difficult for the UK to swan back in and keep its happy rebate.

If the figure on the side of arguments last time around was based on £123 per head, the new figure would be some 60% higher. Do those who want another people’s vote really think that they would win a referendum on the basis that the UK would pay more than it currently does? Several noble Lords believe, as the EU negotiators told us last week, that the only other option—

[Lord Kerr of Kinlochard]

The own-resources decision, in which the British rebate is embedded, can be amended only by unanimity. If we did not leave, we presumably would not vote the amendment that would kill our rebate. If we do not leave, we do not lose the rebate, unless we are accepting enough to vote to lose it, which I do not think we are likely to do.

[Baroness Falkner of Margravine]

The noble Lord was of course a member of that committee and he knows the system well. What he loses sight of is the timing. The discussions are happening now. As far as I know, and I am sure the noble Lord knows, we are not at the table—this is a point I made early on.

[Lord Hannay of Chiswick]

My Lords—

[Baroness Falkner of Margravine]

If I could conclude answering one intervention, I may be disposed to take another, but I am limited in my time and will perhaps wish to continue this bilaterally. Let me deal with the point made by the noble Lord, Lord Kerr.

[Lord Hannay of Chiswick]

My Lords—

[Baroness Falkner of Margravine]

No, I am sorry. I am not going to give way until I have dealt with the point made by the noble Lord.

The noble Lord’s point was that if we were full members sitting at the table we would negotiate not to give away our rebate—of course, because there is unanimity. The essence of what I am saying is that the EU is making these decisions now while we are not at the table, because the decision deals with the period 2021 to 2028. We have absented ourselves because the withdrawal agreement suggests that we will leave in March 2019. His hope that we can somehow exercise a veto while we are not at the table seems somewhat futile.

I need to make progress so I will not continue on this point, but rather deal with those who believe that a Norwegian option is the answer. I have indicated to the House that I will not give way and I see the Government Whip urging me to come to my concluding remarks, so I will continue. Several noble Lords believe, as in fact the EU negotiators told us last week, that the only other option would be to remain in the single market, through membership of the EEA—in other words, the Norway option. We are told that this would give us access to everything we want. Yes, it might do so, but returning to the Norway option would involve us giving up the rebate, as we would no longer be a member of the EU, merely a member of the EEA; hence, no rebate. The resulting maths goes like this. In 2016 we paid £123 per head. Norway paid roughly £135 per head. The general belief is that Norway does not receive a great deal in receipts, as it participates in fewer programmes, so it actually pays more than we are currently paying. So those who think that the EEA is a good option need to think about how they would sell that to the people. It would be rather difficult to say that paying a bit more would result in a good deal.

I turn, in concluding, to the issue of the UK withholding the exit fee of £39 billion. My committee conducted an inquiry into Brexit and the EU budget in March 2017. We came to the view that while the UK had a moral and political obligation if it wanted a good deal, there was no jurisdiction in which the EU could challenge the UK in a court case. The negotiation on a figure was just that—a negotiation. In light of that, if the rest of the negotiation fails, I would find it odd that we would stick to just one element of it: nothing is agreed until everything is agreed. I suggest that the Government abandon this White Paper and pursue the creativity that the Foreign Secretary has called for today: either a Canada-plus-plus or another option that delivers an association agreement with enhancements as we leave.

European Union (Withdrawal) Bill

Baroness Falkner of Margravine Excerpts

Report: 3rd sitting (Hansard): House of Lords
Wednesday 25th April 2018 Lords Chamber

[Lord Bridges of Headley (Con)]

My Lords, I make a small contribution, having been at the birth of the Bill—if one can be a midwife to a Bill. I always saw the purpose of the Bill as delivering the orderly withdrawal of this country from the European Union and ensuring that we have a coherent statute book on the day we leave. I do not want to detain your Lordships, but as I said at Second Reading and as I still believe, it is imperative that we get the balance right between the powers of the Executive and parliamentary sovereignty. As the noble Lord, Lord Lisvane, so rightly said and others have commented, if we take the view that the referendum vote was about Parliament taking back control, it hardly seems right that excessive control be given to Ministers of the Crown.

I had many misgivings about this issue, and I am most grateful to noble Lords, including the noble Lord, Lord Lisvane, for sparing the time to talk to me about it. I have considered it. Your Lordships need to consider it in the round—the round being all the other limitations that currently exist on Ministers—and, most importantly, the amendment my noble friend the Minister is making to this point, which I believe addresses many of the concerns. All I ask your Lordships at this point is to consider this: are the Government acting in a reasonable way to ensure they have the powers necessary to deliver a smooth and orderly Brexit? That is the simple question in my mind. I believe that the Minister has moved enough and that he should be given our support. I completely understand the views of the noble Lord, Lord Lisvane, and my noble friend Lord Cormack on this point. I fear we just differ now on how far the Government have moved.

[Baroness Falkner of Margravine (LD)]

My Lords, I chair the EU Financial Affairs Sub-Committee of this House. We have been having a lot of conversations with regulators about appropriateness, as the noble Lord, Lord Bridges, has rightly pointed out. But words matter. The distinction in legal terms between “appropriate” and “necessary” is quite profound if you are a regulator—both EU and UK regulators—that has a duty to put in place a workable legal framework. While I completely agree with most of what the noble Lord, Lord Lisvane, said, and I understand that he rightly wishes to bring power back to Parliament, there are instances where regulators need to adapt and to have legal certainty to adapt.

I will give the House one small example. I should say that I am speaking for myself as the chair of the committee because the committee has not come to a settled view on this, having had discussions very recently. But we are told that the amendment would lead to increased litigation and therefore legal uncertainty in relation to the meaning of “necessary”. This would impact a large number of different areas of financial services regulation. It may be hard to argue that it is strictly “necessary” to extend protections but if, for example, you take securities collateral held within the EU, absent an FTA—if we have to revert to WTO rules—we would need to treat collateral held by UK firms in EU systems in the same way as collateral held by UK firms in systems outside the EU. If you took away discretion from the Minister and you had to define this as “necessary”, you may have to restrict the protection to collateral held in UK systems only. That would put UK firms at a disadvantage.

Finally—this is slightly technical—redenominating values and thresholds from euros to sterling may be appropriate in a UK regime because most UK firms’ balance sheets are denominated in sterling. However, it could be argued that it is not “necessary” to do so ahead of the UK’s exit from the EU. Litigation would take time while the courts determined whether the Minister had acted under “necessary” or “appropriate”, but in financial crises time is not something regulators have at their disposal. I just ask noble Lords to bear that in mind. I have not come to a definitive view myself but it is important to put that on the record.

[Viscount Hailsham (Con)]

My Lords, I serve as the legal assessor to regulatory panels and in the course of that, we have to address the meaning of the word “necessary”. The panels that I work with, as a general proposition, have no difficulty in identifying the meaning of that word. It is also used as useful protection for people because it is a higher threshold than “appropriate”, “desirable” or a range of other words that are used. I say to the noble Baroness that in my experience as a regulator, “necessary” does not constitute a difficulty along the lines that she has suggested.

[Baroness Falkner of Margravine]

I completely accept the long experience that the noble Viscount, Lord Hailsham, has. I referred specifically to time in case there is a financial crisis. That is when regulators have to resolve institutions fairly quickly in co-operation with one another. That is a danger that we face at this point—10 years into the last one.

[Lord Bilimoria (CB)]

My Lords, I want to emphasise and back up what my noble friend Lord Lisvane has said. In essence, this “necessary” versus “appropriate” is about taking back control for Parliament. Since the referendum, we have seen the Government trying to bypass Parliament time and again. Starting with Article 50, Parliament was bypassed until that had to be taken to court. Going back to the Strathclyde review in 2015, we were told very clearly that it is a convention that this House does not challenge statutory instruments. So by agreeing to this “necessary” we are saying that they can be used but only if necessary.

The Government argue that they need the flexibility if it is appropriate to tidy things up. Who is taking the decision on whether something is appropriate? Today it is Theresa May as Prime Minister. Tomorrow it may be Jacob Rees-Mogg, Boris Johnson or Jeremy Corbyn. This is about the Government, the judiciary, the legislature and, without a written constitution, the very delicate balance that needs to be respected. We need to protect that, which is why we need this amendment; otherwise, we will keep hearing threats from Jacob Rees-Mogg saying that we are burning down this House. That is the wrong way to go. This is not about Henry VIII powers or the Government getting power; it is about power coming back to Parliament and actually giving power to the people.

European Union (Withdrawal) Bill

Baroness Falkner of Margravine Excerpts

Committee: 6th sitting (Hansard - continued): House of Lords
Monday 12th March 2018 Lords Chamber

[Lord Carrington of Fulham (Con)]

My Lords, I am conscious of the hour and shall try to be as brief as I can with what I am sorry to tell your Lordships is a rather technical proposed new clause. Therefore, what I have to say may be slightly tedious, but the new clause is intended to be helpful to the Government.

The new clause suggests a way in which the UK and the EU 27 working together—however improbable that may appear at times—could resolve some of the issues around the provision of financial services from the UK to the EU 27 and, perhaps as importantly, from the EU 27 into the UK. It is not a fully worked out scheme and could not be at this stage. To be capable of adoption, it would require agreement in the Brexit negotiations. It is, however, pretty much in line with the Prime Minister’s proposals in her speech at Mansion House on 2 March and the Chancellor’s in his speech on 7 March, so it might just be an acceptable way forward.

The importance of the financial services sector to the UK economy and the significance of the Brexit process to the sector are well understood by your Lordships. What is often called the City is not just London, with its leading position as a financial centre; it is important to the UK as a whole. Of the 2.2 million people who work in financial and related professional services in the UK, 1.5 million work outside London.

My new clause proposes a mechanism by which this very important sector might operate to best advantage in the UK and in the EU 27 after the UK’s withdrawal from the EU. I would like to be able to claim that this proposal is all my own work but, in reality, it is based on work undertaken by the International Regulatory Strategy Group, a practitioner-led group drawn from across the UK-based financial services sector, co-sponsored by the City of London Corporation and TheCityUK.

The new clause is based on the principle of mutual market access rather than the EU’s third country equivalence regime. To quote the Chancellor in his speech last Wednesday,

“that regime would be wholly inadequate for the scale and complexity of UK-EU financial services trade”.

The basis of the proposed new clause is the requirement to produce a report on market access set out in subsection (1). Currently, cross-border access for firms is given by passporting, as it is known, under the single market directives. A supplier of financial services obtains authorisation in the form of a licence from the regulator in its home country and that will then allow it to operate in any other member state without needing to obtain a separate licence from the regulator in that state.

Inevitably, passporting will disappear when the UK leaves the EU. The proposed new clause requires a report to be produced detailing the arrangement which might take its place, to enable trade to continue without the need for local licensing. Essentially, the arrangement seeks to confer mutual market access between the EU 27 and the UK without local licensing based on the terms of a free trade agreement.

This is, admittedly, ambitious, but needs to be seen in the context of the current arrangement of complete alignment and passporting. If a licence-free arrangement cannot be fully agreed, the requirement for a licence for international trading should be applied only where strictly necessary. The overarching objective to allow this arrangement to work would be, to quote the Prime Minister’s Mansion House speech, based on,

“the ability to access each other’s markets, based on … maintaining the same regulatory outcomes over time”.

Proposed subsection (2) sets out what needs to be achieved to make this aspiration reality.

I should make it clear that these paragraphs do not require that the regulatory requirements are the same. Rather, the objective is to frame the criteria for mutual market access as being that the UK’s and EU 27’s requirements are sufficiently aligned to enable the desired regulatory outcomes to be achieved. Of course, the financial regulations in both the UK and the EU 27 will change over time—and at times, quite dramatically. Resolving this problem is covered in subsection (2)(e), which covers the need to set up a forum for regulatory alignment, a joint UK-EU 27 body whose functions are set out in subsection (3). This forum would have a big role in sorting out the problems arising from regulatory divergence. The joint UK-EU 27 forum would facilitate proactive and co-operative engagement between the UK and EU 27 to resolve the problems.

I could expand further on the detail and, of course, I have not attempted to cover in this proposed new clause the consequential issues, such as arbitration and enforcement mechanisms. That alone is a subject on its own and bears on the arrangements for the independent institutional structure which replaces the ECJ’s oversight. I hope, however, that what I have set out would provide a collaborative, objective framework that is reciprocal and mutually agreed, and could be relied on by business. Indeed, it may be a framework which could also be adapted to business sectors beyond financial services. I beg to move.

[Baroness Falkner of Margravine (LD)]

My Lords, my name is attached to the amendment but I will, indeed, be brief. The noble Lord, Lord Carrington of Fulham, said that he tabled the proposed new clause to be helpful to the Government. That may well be his motivation; it is not entirely mine. I attached my name to the amendment to bring severely needed clarity to a few of the really important aspects of financial services regulation and supervision that we need now, rather than waiting until the end of the transition period.

In doing so, I declare that I chair the EU Financial Affairs Sub-Committee. I am also a member of the EU Select Committee, though I speak in a personal capacity. My committee recently wrote a report on financial regulation and supervision. It came home to us, in a very stark fashion, how little of the architecture of financial regulation and supervision will be clear to enable firms and businesses to do the planning they need to do. This essentially touches on two or three areas. The first is the continuity of the legal position of contracts and the legal position that affects businesses in terms of laws passed during the transition period, when the UK would be in full regulatory alignment with EU law.

Another aspect of concern to us was the extent of supervisory co-operation between the EU and the UK. The noble Lord, Lord Carrington, said he believes that the proposed new clause will reflect the views of the Prime Minister and the Chancellor in his recent HSBC speech. I agree that it will probably reflect those views, but I do not think it recognises that, in the European Commission’s draft negotiating guidelines or the European Parliament’s new paper, the idea of having provisions for financial services is dealt with either extremely skimpily or not at all. The amendment is perhaps somewhat optimistic, but nevertheless I want to hear from the Government; in that sense, my attachment of my name to the amendment is just to probe them.

Coming back to continuity of contracts, our inquiry was told by Stephen Jones from UK Finance that there were approximately,

“10,000 pages of EU originated financial services rules”.

The City of London Corporation told us that it sought, as a matter of urgency “clarity, stability and certainty”. I notice that the Chancellor raised those issues and said that he thought we could get that. However, the challenge of the technical detail of EU regulation has not been addressed by what the Government have told us as yet. One example of that is the Lamfalussy framework, which we looked at. We were told by the then Minister, Stephen Barclay—it is a sign of some concern that we do not get a Treasury Minister who deals with financial services in post long enough to have any continuity in the relationship; Mr Barclay is now gone and I think Mr Glen, who has other things going on at the moment with Salisbury and so on, has replaced him—that it would by a straightforward process. Levels 1 and 2 would be dealt with by primary legislation and levels 3 and 4 would be handed over to the regulators as part as the rulebook.

However, as we looked into this more closely, we did not think that it reflected what will happen in reality. I quote Simon Gleeson of Clifford Chance; he did not see even level 1 as straightforward. In our report, he said:

“When we translate that into UK law, if we simply copy Europe … we will be moving into our primary legislation stuff that properly belongs in regulators’ rulebooks … If we take a bunch of regulatory material that, almost by its nature, should be reasonably dynamic, and hard-bake it into statutory instruments, we are creating a monstrous procedural problem for ourselves in how we regulate the market”.


Inoperables are another issue. One of those is “in-flight” legislation, which I just referred to and is partly transposed—let us assume—during the transition period. However, much of EU financial services regulation takes four or five years to come into effect. Noble Lords may recall that MiFID II started in 2012 but came into effect only in January 2018. It seemed clear to us that we needed guidance and further direction on how the remaining parts of that in-flight legislation would come into EU law once we had actually left. My final example of that concerns the position of EU businesses in the UK. The Chancellor has said again that the Government will bring forward legislation to enable EEA firms and firms in the UK to obtain temporary permission, for a limited period. We need greater clarity on that.

It is a late hour so I will not labour this point, but there is a great deal of uncertainty on how the legal application of financial services regulations would work. On a recent visit to Brussels, the European Union Select Committee had the privilege of a discussion with Mr Barnier and Mr Verhofstadt. I notice that there is a great deal of emphasis in this clause on the IRSG’s proposals for a joint EU-UK alignment in respect of financial services that would take the form of a forum. I probed both of those people about the level of regulatory co-operation we could expect in the future, post withdrawal. We were not encouraged by their response, which was rather lukewarm. I do not think this proposal will get very far, but that does not mean that the Government can avoid setting out their intentions and how they envisage the strong regulatory alignment that they seek playing out in practice.

In his recent speech, the Chancellor acknowledged concerns about the legal framework for the regulation and supervision of financial services. The Commission’s draft guidelines on the withdrawal agreement foresee a large and continuing role for the European Court of Justice in adjudicating, in some cases for the whole of the foreseeable future. Although this may just be an opening shot in the negotiation, the defining of the EU positions makes it even more important that we force the Government’s rather reluctant hand, to make them spell out their thoughts on the conduct of business for financial services at the time of exit and beyond.

--- Later in debate ---

[Lord Carrington of Fulham]

My Lords, I am most grateful to all noble Lords who have participated in this debate. We have had an interesting short debate which has highlighted some of the problems which the City of London is going to face. I will pick up on one point. I rather agree with my noble friend Lord Trenchard that the City will survive whatever happens and that there are workarounds for most of the problems that the City will face when operating inside Europe. What we are actually talking about is how to make those problems less difficult to resolve rather than attempting to find a solution to an intractable problem.

Having said that, I am grateful to my noble friend the Minister for his comments. He understands fully the issues that the City will face and I look forward to him having successful negotiations with the EU Commission. If its representatives have any sense at all, they will accept that they have as much to gain from a successful result to these negotiations as does the UK. On that note, I shall withdraw the amendment.

[Baroness Falkner of Margravine]

Before we dispense with the amendment I have a brief question for the Minister. If I have understood him correctly, he has just said that when the negotiations are complete, the Government would set out and clarify their position. Can he tell me what he means by “when the negotiations are complete”? Is he talking about the negotiations on the withdrawal agreement—in other words, by the end of this year—or the agreement on the FTA, in which case we will not know the parameters of the Government’s thinking until very much later when we are into the transition agreement itself? There I would have to agree with my noble friend Lady Kramer that essentially, businesses will have made up their mind and taken the necessary actions, not least because the regulators require them to carry out their contingency planning.

[Lord Callanan]

I think I mean both. We will update the House on the position at the end of the negotiations on the withdrawal agreement, on the agreement on the future FTA, and if I can add a third criterion to that, of course on the negotiations for the implementation period, for which we hope to be able to provide an update in the very near future. All those factors are important in the provision of financial services. If we get the implementation period agreed in the near future, which we hope and expect, that will provide a slightly longer period for businesses to establish the appropriate stability, but it is hoped that as we get to the end of the year we will have the withdrawal agreement. We expect that to provide the details of the framework for future co-operation. I will be very happy to update noble Lords at all of these stages.

European Union (Withdrawal) Bill

Baroness Falkner of Margravine Excerpts

2nd reading (Hansard - continued): House of Lords
Wednesday 31st January 2018 Lords Chamber

[Baroness Falkner of Margravine (LD)]

My Lords, it is a pleasure to follow so many excellent speeches on this historic Bill, but it is a Bill that I nevertheless wholeheartedly wish was not before us. But it is, and it is our duty to play our part in ensuring that withdrawal from the EU is as orderly as possible.

I agree with most noble Lords that the Bill is flawed. I have reservations about several aspects, including on the scope of ministerial power and the appropriateness of empowering the Executive to such a degree, particularly in the light of devolution. Moreover, I share some concerns about the level of parliamentary scrutiny needed, and at what level. Speaking as chair of this House’s EU Sub- Committee on Financial Affairs, I will seek clarification from the Government as to how they envisage different levels of EU law and regulatory guidance being implemented in the UK. In this area, detailed parliamentary scrutiny may or may not be appropriate, depending on the level of decision we seek to transpose in our quest for regulatory alignment—something that we should surely seek to do where it is appropriate.

However, it is the amendment proposed by my noble friend Lord Adonis that I wish to address. I think of him as my noble friend because some 25 years ago, I delivered leaflets on his behalf when he was a candidate for the Liberal Democrats, so we go back a long time. I have enormous respect for him as a historian, a senior Member of this House and a thought leader on many of the thorniest issues that our country faces. I admire the passion with which he has engaged his campaign for a third referendum, but I wonder to what extent he has reflected on developments on the other side of the English Channel.

For the EU, while Brexit may have been a distraction, it is continuing a business-as-usual model, which is why we have seen such unity. Its priority is rightly to secure the financial stability of the eurozone, and work is continuing apace in that regard. The completion of the eurozone project, the banking union and the capital markets union has significant implications for the UK’s financial services sector. Moreover, ambitions for an EU Finance Minister and a eurozone monetary fund, and Mr Macron’s vision for a separate eurozone parliamentary caucus, present different challenges for our sovereignty and clout in the EU were we to remain.

The EU budget is also undergoing change. The High Level Group on Own Resources, led by Mr Mario Monti, to whom my committee spoke during his deliberations, has now reported. Among its recommendations are new ways to raise direct EU resources, such as a:

“Reformed VAT-own resource … corporate income tax-based own resource, financial transaction tax or other financial activities’ tax”.


It suggested measures relating to the energy union, and to environment, climate and transport policies, including a CO₂ levy, proceeds from the European emission trade system, and an electricity tax, a motor fuel levy and other measures. I set this scene just to remind ourselves that the EU we think we might stay in will not be the EU we were in prior to 23 June 2016. Crucially, the important decisions on the budget, the future of rebates, the future of the eurozone and changes to parliamentary accountability are taking place now and will do so in the period before mid- 2019, when a new Commission and Parliament will commence. Therefore, leaving aside the question of whether we should have another referendum, to which I am opposed, I argue that the opportunity for one is now behind us.

If I correctly understand the amendment of the noble Lord, Lord Adonis, he seeks a referendum on the terms of the withdrawal agreement. I have two principal thoughts regarding that, as other noble Lords have also supported the view that we need a referendum on the withdrawal agreement. The first is that, if the withdrawal agreement is negotiated by October or November this year—as we have been told by Mr David Davis—the referendum presumably would be after that option is agreed or rejected by both Houses of Parliament, or rejected or agreed by the Commons, which has supremacy. In effect, therefore, the decision to hold a referendum will be legislated for in late 2018 or early 2019, with a referendum impossible till late spring 2019. The Electoral Commission requires six months from a decision till polling day. On that time line, the proposed referendum will be held after we have legally left, or are in transition under a different status, and we would have to reapply to join the EU.

If so, even if the noble Lord, Lord Adonis, then secures a yes vote—and I am pleased to see him back in his place now—we will almost certainly re-enter on different terms than those that pertained before 29 March, 2016, when we triggered Article 50. The UK rebate, the Schengen opt-out, the 35 or so JHA opt-outs and opt-ins, and, most importantly, the hard-fought renegotiation will all be off the table. The only other basis for us to remain in during the referendum period in 2020 would be if we did not withdraw and negotiated an extension to the Article 50 period, as permissible under Article 50. This would prevent the UK from striking any trade deals during the extended period, which is material.

While this is a possibility, we would only prolong uncertainty, and the change in Europe that I have described in 2019 would surely mean that there would be no final decision on the UK’s status for a further two, three or four years. All this while, businesses will have made decisions to relocate, investment will have fallen further and legal uncertainty will have been prolonged even further. The result would be a prolonged period of drip-drip decisions being made by businesses and institutions, which could only achieve a very diminished result for the UK, whether it were in or out. On that basis, I have come to the conclusion that we have to do the best that we can with withdrawal. I will expend my energy in making it a success to whatever extent I can, starting with this Bill.

Brexit: Deal or No Deal (European Union Committee Report)

Baroness Falkner of Margravine Excerpts

Tuesday 16th January 2018 Lords Chamber

[Lord Hamilton of Epsom]

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.

[Baroness Falkner of Margravine (LD)]

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.

[Lord Hamilton of Epsom]

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.

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[Baroness Falkner of Margravine (LD)]

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.

[Lord Butler of Brockwell]

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.

[Baroness Falkner of Margravine]

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?

European Union (Notification of Withdrawal) Bill

Baroness Falkner of Margravine Excerpts

Report stage (Hansard): House of Lords
Tuesday 7th March 2017 Lords Chamber

[Lord Wigley (PC)]

My Lords, I support Amendment 1, but I believe we have Amendment 1 and Amendment 3 in the wrong order. If we pass Amendment 3, as I suspect may well happen, that would give Parliament the final say, which is certainly better than allowing the Government to walk roughshod over Parliament and decide for themselves. We cannot ignore the fact that the people, regrettably in my view, voted to leave the EU, although in doing so they did not have a clear view as to the alternative they were backing. If Parliament—or the Government for that matter—has the final say and the people who voted out last June do not like it, we could easily escalate the situation into an almighty crisis. That could be avoided by a confirmatory referendum.

Let us imagine over the next two years that negotiations get nowhere and the Government resort to the WTO basis with no preferential access to the single market. Car factories start closing, as the noble Lord, Lord Morgan, mentioned. Financial services move to Paris or Frankfurt. The EU insists on a €30 billion payment, or whatever, from the UK. EU nationals start quitting key posts in the NHS and expats find that they have to start paying for their healthcare in the countries they live in, or lose pension increments that arise from the UK. At that point, many who voted out will start bleating, “This isn’t what we voted for”. At that point, the only way for the Government to hold their line is to be able to tell them, “Okay, you will get the final say, so let’s see what happens with the final package”. It is therefore in the Government’s best interest to have a confirmatory referendum. I believe that is a very good reason for backing the amendment.

[Baroness Falkner of Margravine (LD)]

My Lords, I am unable to support the amendment. I say so with a heavy heart, but I am extremely conscious of the economic consequences, not least the ones the noble Lord just mentioned, of prolonged uncertainty. I will briefly sum up why. We have had uncertainty in this country from when the then Prime Minister made his Bloomberg speech, but more so since he started his negotiation. The negotiation took 14 months. We have had the referendum. That took four months to organise. So why are there noble Lords here who believe that it could be done in the space of an election campaign? The Electoral Commission’s role is such that it needs to take its time. We would probably run into a referendum around October 2019. If the result was that the country did not like what it got, there would have to be another negotiation, either to revoke Article 50 or to change the terms. That would bring us into the general election. If there is going to be a general election in 2020 anyway, there seems to me little value in having a referendum in early 2020 or late 2019.

That is just the chronology. To imagine that our EU partners would hang around from 2015 to 2020 without making provisional plans for a 12.5% hole in their budget, or for a potentially dramatic change in the relationship of 65 million people with the single market, is somehow not to understand even the EU’s position. I say that advisedly. We have seen HSBC move 1,000 jobs. We have heard Mario Draghi telling us that euro clearing would have to move. We have heard the Irish Government tell us that they are preparing for companies to move their office space. We know that 1.1 million people are dependent on the financial services sector, and their jobs are in line at the moment. The idea that business will hang around for a further four years was rebutted in the evidence we took for the report of the EU Financial Affairs Sub-committee on Brexit and its impact on financial services. We were told in terms that uncertainty was extremely damaging to the sector and that people therefore wished to have a transition period.

Let me conclude with one or two points that relate directly to some of the remarks made by speakers in this debate. The noble Lord, Lord Hain, said that a process which is started by a referendum should end with one. I accept the logic of that. The process started with a referendum in 1975. Until last year, the people of this country who are 60 years old or under had not had a say in our future direction. I have to admit with a heavy heart that they did not go in the direction I wanted them to go in, which was to remain, but they made their choice. So the process did start with a referendum and it will end with one. I suspect that what the noble Lord is alluding to is a third and potentially a fourth referendum.

The noble Baroness, Lady Wheatcroft, said that we do not know what the world will look like in a couple of years’ time, and I agree with her completely. That is why I look forward to debating the amendments to come about whether Parliament should make an assessment.

I am in a place where I think that referendums are a dangerous tool. Direct democracy, in my opinion, is dangerous. Referendums should be used with great care and clarity. We cannot explain a complicated negotiation result in a referendum, as Mr Cameron found out to his cost.

[Lord Robathan]

My Lords, I agree entirely with the noble Baroness that referendums are a bad idea, and I am surprised that everyone else in the Chamber does not agree, especially those on the Liberal Democrat Benches.

Nevertheless, we had a referendum and, as the most reverend Primate said, it was a binary choice: yes or no. People knew what they were voting for, and they voted to leave the EU. It is unbecoming and, if I may say so, patronising of people to attribute to the individuals of this nation the reasons for how they voted. Personally, in 1975 I voted to stay in and some 40 years later, with my experience of the EU, I voted to take back control of this country and put it in the hands of the British people. That is what I have done, and that is what I suspect that most people are expecting from us. It is patronising to suggest that people did not know what they were voting for.

The logic to which the noble Lord, Lord Newby, referred is this: what would happen if in a second referendum the people of this country rejected the Government’s negotiating position? No one has an answer to that, so I would say that there must be a third referendum, but I would not particularly want to get into that.

Finally, perhaps I may direct my friends on the Liberal Democrat Benches—I count them as friends and I hope that they count me as a friend from time to time—to an article published in the Times yesterday by a man called Edward Lucas, who outed himself as a Liberal Democrat—I did not realise he was until then—which suggested that this is part of reinvigorating the fortunes of the Liberal Democrats. I would say the contrary. The noble Lord, Lord Newby, suggested that there might be corrosive and justifiable anger, but the great British people have had their referendum and they do not want another one. So we should just ignore this amendment and carry on.

Council of the European Union: UK Presidency

Baroness Falkner of Margravine Excerpts

Tuesday 19th July 2016 Lords Chamber

[Lord Bridges of Headley]

I thank the noble Lord again— and by the way, I think he pronounced DfEEU very well. I cannot go further right now on setting out a timetable, but I absolutely understand what he says. He is right to say that we need to respect the views of our European partners. As I said, we are considering our options and will do so in a timely fashion.

[Baroness Falkner of Margravine (LD)]

My Lords—

[Lord Cunningham of Felling (Lab)]

My Lords—

--- Later in debate ---

[Baroness Falkner of Margravine]

I think we need the Leader of the House to give us an idea of who should be next.

[The Lord Privy Seal (Baroness Evans of Bowes Park) (Con)]

My Lords, it is the turn of the Liberal Democrats.

[Baroness Falkner of Margravine]

While the noble Lord, Lord Bridges, is taking his time, does he accept that it would be extremely difficult for the United Kingdom to conduct a presidency if, under Article 50, it is banned from taking part in certain meetings that will inevitably have to happen during the presidency? Does he also accept that the parliamentary authorities will need to make arrangements—catering, venues and functions, among many others—if we are to carry out that presidency? Will the Government commit to refunding the House if they make a very late decision and contracts have to be cancelled?

[Lord Bridges of Headley]

I thank the noble Baroness for those points. Those are exactly the kinds of things that we need to take into consideration.