Trade Bill

Baroness Kramer Excerpts

Committee: 3rd sitting (Hansard - continued): House of Lords
Wednesday 30th January 2019 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, the hour is late and a large number of amendments are being debated. I shall not touch on more than one or two. I was impressed by the mention by my noble friends Lady McIntosh and Lord Risby of Amendment 48, on the tripartite agreement. I declare an interest because my brother-in-law is a racehorse trainer near Newbury and he is worried that he will not be able to move his staff and horses round Ireland and France as is necessary for his business. I see no reason why this agreement should not be grandfathered through because it existed before the European Union was founded. I fear, as my noble friend Lord Risby also intimated, that the tentacles of the European state have already embraced Ireland and France to such an extent that they will not have the freedom unilaterally to decide to continue the agreement. I hope, though, that our United Kingdom will have such freedom after Brexit but perhaps we can find a way to preserve this tripartite agreement for the future.

It is clear that all of us would like as little disruption to current arrangements as possible, but most of these amendments should not be in this Bill. They have nothing whatever to do with its purpose. I simply wish to comment on Amendment 55, tabled by the noble Baroness, Lady Kramer, who has not, I believe, spoken to it. Does she not realise that the City of London has suffered from the imposition of several barriers to trade in financial services as a result of having been forced to implement some new European regulations in recent years, such as parts of MiFID II, AIFMD and others? One of the benefits of Brexit is that the City will be free to adopt proportionate and sensible regulation that will enhance its business in years to come.

Brexit also provides an opportunity for the UK to play an enhanced role in the development of proportionate regulation at the global level, balancing the need to protect the consumer and the environment against the requirement to provide an innovation-friendly environment that will enable us to abandon some of the more cumbersome and restrictive parts of the European regulatory regime to which we have become progressively shackled and which is, in places, more about harmonisation and protectionism than about the genuine protection of consumers.

I shall give one example. I have known the chief executive of a Japanese pharmaceutical company for more than 30 years. He told me that when Brexit came along he was not happy, but he has spent more than $8 million upgrading his European network and is now confident that he will be able to research, manufacture and distribute medicines in both the UK and EU27 after Brexit, just as he does now, on whatever basis we leave. He told me that now that he has spent the money, he would like to see the upside of Brexit. He says that the upside is that he expects us to return to what I believe is a more natural state for this country, in which we will have a less cumbersome regulatory regime that will be more helpful for a life sciences company such as his to innovate in new therapies, new drugs and new medicines. What worries me is that, although we are about to leave the European Union, we will, through this type of amendment, promise to continue to align entirely with EU regulation, which in places relies too much on the precautionary principle, and in that case there will be absolutely no upside to leaving. Therefore, we must have a balance here.

[Baroness Kramer (LD)]

My Lords, perhaps it is sensible to come in right after the noble Viscount, Lord Trenchard, following that invitation. I will try to be brief.

Amendment 55 stands in my name. In the past two and a half years I have been shocked by how little attention has been paid to financial services and to what would happen to our access to the EU 27 in the field of financial services after any Brexit. I do not suppose that I have to rehearse for this Committee the significance of this industry. It accounts for something like 80% of GDP; it pays £76 billion a year in taxes, which support our National Health Service; and it has created 2 million jobs spread over the country. It is absolutely critical but has been very largely ignored. I make a plea to the Government that they should begin to get serious about financial services and understand their significance.

If I were to describe the industry in the UK, it basically breaks into thirds. Financial services range all the way from the smallest fintech companies, through insurance, asset management and banks, right up to the global sector of the London Stock Exchange and the London Clearing House. It is huge and varied, but roughly a third is domestic-facing and relatively untouched by Brexit.

About a third is intensely based on the industry’s EU 27 clientele. About half of that business has already gone or is in the process of leaving, and if anyone speaks to government on a day when they are being honest, basically they do not think that we have much chance of keeping much of that one-third in the UK over the medium term and certainly not over the long term.

We come to the final third, which is absolutely critical and where the decisions made in the coming weeks and months will have a great impact. I refer to the global piece, which one could think of in a way as being bigger than but represented by the London Stock Exchange and the London Clearing House. The future of that final global third has a real question mark hanging over it.

I say to the noble Viscount, Lord Trenchard, that London is a global centre partly due to its long-standing experience and partly due to good regulation, but critical to it is that it is the global financial centre for the euro—the second most significant global currency. That is what underpins London and its global role. Unfortunately, in all finance, where we know that risk exists, the ultimate protection and backstop in a time of risk is liquidity, and for all euro-denominated transactions that source of final liquidity is the European Central Bank. Therefore, from a European perspective, to be exposed to that level of risk, which is in euro trillions, with no ability to control the regulation, monitoring or supervision of a major global financial centre is really serious and significant.

I believe that fundamentally the Government have never looked at this issue from a European perspective and that they completely underestimate the medium and long-term interest in the European Union in pulling back much of that activity to an area where it can regulate, monitor and supervise because it carries the ultimate risk. Suggestions that have come from the City, which have been kicked around in government and in this House, have come largely from a very small Brexiteer think tank. I know the people well and have been to many of their meetings.

[Viscount Trenchard]

I totally agree that the bulk of the settlement of euro-denominated transactions takes place in London but, in a similar way, London is the most important centre for the settlement of offshore dollar-denominated securities—or even renminbi, or yen. That is because London is the leading global financial market in the world. I have not seen any moves by the United States Fed or Japan’s FSA to try to repatriate London’s role in their currency securities.

[Baroness Kramer]

I assure the noble Viscount that from the perspective of the dollar, far more of the transactions clear through New York. It is a bigger market. I know we often say that we are the largest, but if we look at the table comparisons, New York is frankly bigger. Certainly, dollar dominance is exercised through New York. The yen is less of a controversial player, and there are not a lot of renminbi. If anybody thinks that China is going to allow its currency to develop a real global presence and not be regulated, monitored and supervised by the Chinese state, they have missed any understanding of how China works. We are convenient but temporary, and we need to recognise that.

People talk about the growing market, but essentially the global markets function in the dollar, the euro and—in the future—the renminbi. They will not function in small African or South American currencies. Those are not players; they are minor currencies. Sterling is treated by the industry as a minor currency. There are two, and there will be three, major currencies that essentially underpin global activity. At the moment one is dominated by New York and the other by London—and the one dominated by London is the euro.

What worries me is that the think tanks that have been going through this process have an underlying conceit and arrogance, and imagine that somehow we are fundamentally and in the long-term superior, that no one else will have the capabilities that we have, and that in the end, Europe needs us more than we need Europe. But Europe works on a five to 10-year strategy to gradually bring back choice pieces of that industry—and we can see it.

I have a real question for the Minister in all this. The right-wing think tank came up with a solution called “mutual recognition”, which basically required the European Union to change how it made regulation and to change its legal framework completely. The think tank thought that was entirely reasonable. It was irrational, and has been abandoned. The Government have finally recognised that it was complete nonsense. There is now an idea that third-country equivalence could be the mechanism that will apply. However, we all know that third-country equivalence can be cancelled for no reason at 29 days’ notice. That is a very unstable way to provide access for a key industry.

Various attempts have been made, but little thought, effort, discussion or energy has gone into trying to find solutions. I am exceedingly worried about that. Looking at that global sector that I talked about, as I understand it, the European Union has provided an equivalence ruling for the London Clearing House for 12 months only. I am sure that it will extend the ruling beyond that—but it is a message. I understand that, as of this moment, no equivalence has been put in place for the London Stock Exchange. Again, that may come, and it may come very much at the last minute. But there is a deep message in all this. I make a real plea to the Government to take our amendment seriously and to recognise that they will have to get totally engaged and make some real compromises—I suspect around their own red lines. If they do not, they will be making absolutely sure that, over five to 10 years, significant parts of the industry will be sucked back into very capable hands in Frankfurt, Paris and Amsterdam.

This is not an instant crisis, although there may be some areas of instant crisis. But it is an area where the Government need to move now, and not lock themselves into a position from which they will see this industry, not perhaps disappear altogether, but lose its global leadership, when they could, with more intelligence and flexibility, have provided some degree of protection.

[Baroness Hooper (Con)]

My Lords, I apologise for being tail-end Charlie in this discussion—at least, I hope I am. I agree that this is a very important group of amendments. I shall concentrate particularly on Amendment 39 because that is the overarching amendment giving mutual recognition of qualifications, which has been so important for frictionless commercial activities and relationships throughout our membership of the European Union. I trust and hope that the mutual recognition and—dare I say it?—harmonisation to some extent of professional qualifications will be able to continue, to give the continuity to which my noble friend Lord Lansley referred, but also, for example, in the field of education, where university qualifications and degrees have been based on mutual recognition of qualifications and the ability to work in professional fields in more than one country.

My own interest in this is that as a solicitor I went to work in Paris in 1973, a year after we joined the European Community. Although I did not need a carte de travail—a work permit—at that stage, I still needed a carte de séjour, but that was progress. There have always been particular difficulties for the legal profession simply because of the difference between the common-law system and the civil law system. That has led to a different approach to our understanding of what we have been trying to do within the European Community throughout our membership.

I may not be up to speed on all the detail. There may have been discussions, and possibly solutions, about continuing the recognition of professional qualifications, but I am not aware of them. I am surprised that the Law Society, for example, has not provided any briefing in this respect—at least not to me. Still, I would like to hear what the Minister has to say about this. At the next stage of the Bill I would hope that we could be given more certainty about what may happen in future. I am curtailing my remarks because it is a late hour, but I feel that this would be so important, not only to British and Scottish lawyers—I look to my noble friend Lady McIntosh in this respect—but to all the European Union lawyers who have set up offices and are operating in London and other parts of the country, making our commercial activities ever more possible.

Perhaps, as a sort of PS, I might refer to Amendment 48 and the tripartite agreement. I am not sure how this applies to polo ponies. As your Lordships will know, I take a great interest in Latin America and Argentina. Polo ponies are not only from South America and the UK; they have passage rights within the EU. I do not think the tripartite agreement itself applies to polo ponies but I hope that any consideration of this element of the debate could include that important aspect.