Withdrawal Agreement: Economic Analyses

Debate between Baroness Morgan of Cotes and Peter Bottomley

Thursday 13th December 2018 Westminster Hall

[Nicky Morgan]

I thank the hon. Gentleman very much for his question. I am pleased that he has mentioned financial services, because the view among those in the financial services industry is that they have not really had quite as much attention devoted to them as they should have, given that they are such a significant taxpayer and employer. I am also glad he mentioned Edinburgh, because we tend to think sometimes just about the City of London. He is of course absolutely right to say that there are many financial services jobs in his constituency and in other constituencies around the country.

Before I get on to his point that all scenarios will make us poorer, one interesting thing about the economic modelling for the Treasury is that it is done purely on the trading impact. It is fair to say—it is both a negative and a positive—that there is no domestic policy assumption made at all. Of course, it is possible for any future Government to consider how they might respond to the scenarios as they unfold.

There was not specific modelling of jobs. There have been estimates, and again we asked the chief executive of the Financial Conduct Authority for some, as we have asked other financial services witnesses. The initial estimates of jobs moving overseas have not come to pass, but we are still looking at between 5,000 and 10,000 people being impacted.

The financial services sector now talks about “day one” and “day two” impacts. As for day one, we know that a lot of financial services firms are already putting in place contingency arrangements and that they are trying to keep job moves to a minimum. Depending on the deal that is eventually arrived at—this relates to the hon. Gentleman’s question about what deal could be put in place to help this process—the impacts of “day two” and beyond on jobs being lost or moved could be very significant for the financial services sector. Obviously, we could be talking about thousands of jobs. These are often well-paying jobs, and they are not something that any of us here today want to see disappearing from our constituencies.

Let me answer the hon. Gentleman’s question, though, which is actually about the deal on the table at the moment. The political declaration refers to a system of equivalence, but a lot of work needs to be done to work out the equivalence regime. Andrew Bailey, the chief executive of the Financial Conduct Authority, went through with our Committee how he thought the equivalence regime needs to be enhanced, and I think he is right on that issue.

I do not think it is any great secret for Members of this House that I am in favour of a Norway-plus type of option, whereby we would retain access to the single market. I know that there are other objections to that proposal, but for financial services it would keep the passporting regime in place, which would be of significant benefit to financial services firms, and therefore in terms of the numbers of people they can employ going forward.

[Sir Peter Bottomley (Worthing West) (Con)]

I join in thanking my right hon. Friend and her Committee for the work they have done, together with their advisers and the witnesses. In conclusion 6, there is a reference to the backstop, which leads to paragraphs 35 to 40 in the report. There, Professor Nickell says that it is possible to model the backstop, and then says that the backstop might be in place for 15 years. I do not think that is a very serious kind of modelling to do, because we do not know what change there would be. Am I right in saying that, unlike most trade agreements, the ones we will need to make with the EU27 are based on equivalence now, rather than trying to bring people together?

[Nicky Morgan]

I thank my hon. Friend for his question. Of course, one of the issues is that it is not known how long the backstop might be needed for. One would hope that 15 years is probably a wild overestimate, but it is true that the Canadian-European trade agreement took eight years; however, as my hon. Friend says, they were starting from a very different position from the UK and the EU, given the trading relationship that we have at the moment and very much want to maintain.

My understanding, which I think comes from evidence that the Secretary of State for International Trade gave to the relevant Select Committee and to the Exiting the European Union Committee, is that significant progress has been made in rolling over existing trade agreements. It is not just the new trade agreement with the EU that has to be negotiated; the UK then needs to separate out, and become a party to, the trade agreements the EU has with other countries. Progress has been made on that.

However, my hon. Friend is right: the point about modelling the backstop is not that it is impossible, but that it is possible, with very clear explanations of how it has been done. Generally, the comment on all of this—we saw this with some of the reporting around the Bank of England scenarios—is that it is easy to overestimate or overinflate the damage. The Bank of England was very clear that these were scenarios, not forecasts. Again, that could be done with the backstop: we could set out some scenarios that can be modelled, while making it very clear that they are not predictions of what is going to happen in the future.