European Union (Notification of Withdrawal) Bill

Baroness Kramer Excerpts

2nd reading (Hansard): House of Lords
Tuesday 21st February 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, the noble Lord, Lord Lamont, said that he is very sympathetic to EU nationals in this country. However, he is perfectly happy for them to be used as a bargaining chip. Frankly, I do not think that is consistent with the view of this House or with British values.

Given the pressure of time, I will focus on the importance of giving people a second vote—that is, not a second vote on the original deal but a second vote that is a first vote on the final terms of exit from the European Union. I concur with those who have said that the June referendum gave the Government a mandate for Brexit but did not give them a mandate to choose the most extreme form of economic separation from the EU. It has been Theresa May’s choice and that of her Ministers to opt for a hard Brexit, leaving both the single market and the customs union.

I want to look at the impact of that decision by the May Government on just one sector of our economy—the financial services sector. This sector makes up 7% of the UK’s GDP, pays more than £75 billion a year to the Treasury and provides over 2 million jobs, most of them outside London. It is one of the few industries in which we are a global leader, clearing over 95% of the world’s $600 trillion a day in interest rate swaps, leading not just in traditional areas such as foreign exchange and specialist insurance, but also at the cutting edge of fintech. We damage financial services at our peril.

However, Theresa May and this Government have decided to walk out of the structures that underpin this sector. In reality, this industry is as enmeshed across the EU as a piece of crochet work. Under the May agenda, the UK will leave not only MiFID with its passporting freedoms, impacting Barclays, the American banks and many of the small players which want to grow, but also a whole raft of enabling arrangements from e-commerce used by crowdfunders across the EU and delegation powers that are essential to locating asset management in the UK, to access to skills, entrepreneurs and investment. That is why, salami slice by salami slice, financial institutions, big and small, are quietly rethinking their business models, negotiating leases, applying for licences and working on staff flexibility. They are making sure that they can operate outside the UK the businesses they have previously based wholly or overwhelmingly inside the UK. They are looking at front offices first—I hope the Treasury notes that that is where the big deals are booked and where the big tax revenue pay-off occurs—but where a front office moves, a back office is always at risk of following.

I commend the financial institutions that have chosen to speak out, such as the London Clearing House, which has been quite open that its clients are demanding that it moves transactions to New York, taking its ecosystem and over 100,000 jobs with it. The insurer Lloyd’s has been regretful but clear that it must have a major EU hub. Even little fintechs are considering second headquarters. For many in the industry, decision time is approaching. Given how long it takes to set up new operations, they need answers on what the UK-EU relationship will be—indeed, they need to know what the UK relationship with global regulators will be—not in two years’ time but in six months or less. I fear that by that point negotiations with the EU will barely have started, never mind finished.

The Government dismiss all these concerns by saying that the EU needs us more than we need it. However, I point out that where Frankfurt, Luxembourg and Dublin are unable to take business from the UK, New York will. Once out of the EU, the only advantage that the UK has over the US in European terms is a time difference. The specialist skills of London are already being transferred to New York. That is well under way.

The Government’s answer is that they will replace MiFID and the other regulatory structures that we have with the EU with forms of mutual recognition or joint supervision through equivalency agreements—bespoke, untried, long-term equivalency agreements, dozens of them of extraordinary complexity. Unfortunately, what once looked like a possible solution, though hard to achieve in the timeframe, now seems likely to founder on the Government’s insistence that they will not in any way engage with the European Court of Justice to adjudicate, even on a joint basis, the rules of agreements.

At this point, when we are being asked to consider triggering Article 50, the Government can tell us for certain only that a large part of one of our key industries, a major contributor to jobs, taxes and exports, is at risk. It has been put at risk not by Brexit but by the Government’s hard Brexit decisions and red lines. No one in this House or in the other place knows where in the range of outcomes the actual, final negotiated deal will fall. Will we remain one of the two great global financial centres of the world? Will we lose major activities such as clearing? Will we be reduced to just a substantial financial centre? If we do not know the answers for this sector, we do not know what the outcome will be for the economy as a whole.

I fully understand that for the Government the economy is low on the EU agenda compared to reducing immigration and removing any jurisdiction from the ECJ. I am pretty sure, however, that those are not the priorities of the British people. So let the people see the final Brexit deal, consider its consequences and decide on it. In two years we will have facts and reasonable clarity, not just speculation. Surely then is the time for the British people to have the final word.

Outcome of the European Union Referendum

Baroness Kramer Excerpts

Tuesday 5th July 2016 Lords Chamber

[Baroness Kramer (LD)]

My Lords, while politicians—I include myself in that group—talk, two parties try to sort out their leadership issues and the leadership candidates for the Tory party, of whom the winner will become Prime Minister, try to sort out what on earth their platform will be for negotiating with the EU, businesses are making decisions. They are not making short-term decisions on market movements today, tomorrow or next week; they are making decisions about their long-term future. So many businesses that I and others in this House have talked to recognise that everything they have heard from the Government suggests that they are not really interested in protecting them. The businesses I have talked to—I should be interested to find others that take a different view—are making their decisions based on access to the single market. Large companies and small—I talked again today with members of the Federation of Small Businesses—require that access to be able to export, which underpins their potential as companies. They are either direct exporters or in the supply chain and need access to the European market.

It is not just an issue of tariffs. They are concerned that as regulations diverge once we leave the single market, they will be required to run two sets of operations: one to meet UK regulations, one to meet EU regulations. It will require certification and documentation, and the estimate is that divergence in regulation is equivalent to a 10% tariff. That already threatens their viability as future exporters into the EU or their role in a supply chain.

They are making decisions now. We know from talking to the Institute of Directors and the FSB’s recent surveys that most companies have imposed a hiring freeze; it turns out that small businesses are actually cutting head count. Most of them have cancelled major contracts. They are deferring investment decisions. I have not heard of any foreign investor who is bringing significant money into the UK. We were the recipients of some of the largest amounts from foreign investment funds. They were behind our business, they countered our current account deficits but they are evaporating. Unless we get action very soon to counter this assumption that we must leave the single market, that process will continue. Companies will operate in their own best interests; that is their responsibility to their shareholders; that is what will happen.

I am fundamentally concerned because, like others, I see no way to square the circle of the leave promise to cut immigration significantly—which means ending freedom of movement—and retaining single market access. We certainly need to hear from those who led leave on how they intend to square that and, if they will not, for them to accept the consequences of the decisions that businesses are making. Businesses are not political creatures; they make their decisions based on what they see as the future of their company in the long term. Many of them are being driven to be more aggressive than ever as they cannot even get guarantees that the foreign staff they have today will be able to work in the UK. That is souring internal decision-making. Many of the senior management of our key businesses come from within the EU, and as they look at that instability, it becomes far more attractive to consider returning to continental Europe.

While I have a couple of minutes, I want to look at two areas. The first is the City. I sat on so many platforms in so many debates during the referendum campaign. To say that leave was insulting about the City would almost be an understatement, but the City is absolutely the heart of our economic viability as a nation. It funds the public services that we need in our country but which, as many have pointed out, have been incredibly inadequate. It is a major source of funding for the infrastructure, the new social housing, and the improvements in our schools and the NHS that we need.

A core of financial services in the City has been its role as the leading location for clearing financial trades. In 2014, London cleared nearly 50% of global interest rates and over-the-counter derivative transactions and nearly 40% of global foreign currency transactions. We are talking of amounts in the trillions in trading volumes. About a third of those were euro-denominated. The European Central Bank has already said that it wishes to ensure that clearing of euro-denominated instruments remains within the European Union, preferably within the eurozone. It was unable to enforce that because of the non-discrimination rules that are structured into the life of the European Union; those disappear the moment we leave. Because of the way that countries are now clearing all their trades on the same platforms in order to be able to net dollar trades, euro trades, yen trades, et cetera, if we lose euro clearing, we might as well lose dollar clearing and most of the rest of the clearing business.

Passporting is utterly dependent on being part of the single market in order to sell our services, but nobody, including the noble Lord, Lord Lawson, ever addresses the issue. I talk to the wholesale insurance industry. Its business is totally dependent on continental European institutional customers. I talk to the long-term asset managers. Their business is overwhelmingly with continental European entities. They will have no choice but to leave if passporting goes. People talk about other ways of doing business, such as equivalence and country-by-country licensing, but both of those require the movement of substantive operations into the EU area. The rules do not allow you to put up a brass plate and operate out of London, but require a substantial transfer of operations.

The last area I want to talk about in the minute I have left is the new world. I work a lot with financial technology companies. We are an absolute leader in this area. Young entrepreneurs come from all over Europe to set up in FinTech here in the UK, and they are terrified of the consequences. As the digital single market forms, they cannot afford to be outside it. Berlin is a serious rival to London. They desperately want to stay here, but they are looking at the realities, and funding has dried up for many of them. We have reports of venture capitalists that have Brexit clauses in their contracts pulling out of deals with companies over the last week. These companies recognise that if they do not move to be within the European family very rapidly, they may be unable to raise the finance which is totally necessary for their future. The very least the British Government could do is step in with the British Business Bank and replace that. There are so many specific issues, and if we ignore them and talk only in broad generalities, we will have no idea of what is coming and no way to cope with it.

Outcome of the EU Referendum

Baroness Kramer Excerpts

Monday 27th June 2016 Lords Chamber

[Lord Taylor of Holbeach (Con)]

My Lords, if we go round the House, it is actually the turn of the Liberal Benches.

[Baroness Kramer (LD)]

My Lords, I am very much concerned about some of the complacency that I am currently hearing from the Government. Since the noble Baroness the Leader of the House and others on the Conservative Benches have the opportunity for direct conversation with the collection of MPs, one of whom will be our future Prime Minister, would they convey this? The City is already making its decisions, as are major businesses. Most of them started planning for the contingency of leave months ago. Over the weekend, we have heard very clearly, and the CBI have confirmed, that many major firms have put on a hiring freeze. Others are now reassuring their shareholders that they have plans in place to be able to move significant parts of their operations to continental Europe or Ireland. If they do not hear a clear commitment, a cast-iron guarantee, in a matter of days—possibly weeks, but certainly not months—from that group from which the Prime Minister will come, that we will remain wholly in the single market, the decisions will become irreversible. Many already are and the remainder and many more will happen. Complacency is not safe.

[Baroness Stowell of Beeston]

I reject the noble Baroness’s description of this Government as complacent. What has been evident over the last few days in what was said by the Chancellor this morning, by the Prime Minister today and by the Governor of the Bank of England on Friday is that there are measures in place to provide some stability within the markets. The noble Baroness is of course right that businesses will take decisions now that could affect people. We need, through a range of methods, to make sure that we project to the world outside that Britain is in a strong position to weather this period of uncertainty arising from the referendum decision. We can do that, and do it with confidence, because of the steps that we have taken over the last few years to strengthen our economy and to make sure that we are ready for whatever decision that followed. I also say to the noble Baroness and to the House that we remain a member of the G7 and of the G20, and through those kind of forums we have an opportunity to project that very strong and confident message as well.

Royal Bank of Scotland

Baroness Kramer Excerpts

Wednesday 1st July 2015 Lords Chamber

[Lord Campbell-Savours (Lab)]

My Lords—

[Baroness Kramer (LD)]

My Lords—

[The Lord Privy Seal (Baroness Stowell of Beeston) (Con)]

My Lords, both opposition parties have already asked a question, but the Labour Party fielded its Front Bench first, so, arguably, it should be the noble Lord, Lord Campbell-Savours.

[Lord Ashton of Hyde]

That is not the prospect. Since the policy was announced, the shares have actually gone up. The independent advice we received from Rothschild said that giving a strong signal that it was ready for sale would help the share price. By letting some shares go now, the free float would increase and the benefit to the taxpayer would be increased. The Governor of the Bank of England concurred.

[Baroness Kramer]

My Lords, the Parliamentary Commission on Banking Standards specifically recommended exactly the study that my noble friend Lord Sharkey described because of the lack of diversity in the UK’s banking system. Given that report after report has identified lack of diversity and lack of local banks as the biggest barriers to securing both economic growth and financial stability, why did the Government specifically ignore diversity in the review that they carried out?

[Lord Ashton of Hyde]

My Lords, we have not ignored diversity. We are committed to increasing competition in banking to improve outcomes for consumers. The Government have an ambitious programme of reforms to increase competition in banking. This includes, for example, divesting both Williams & Glyn and TSB from RBS and Lloyds, creating a seven-day current account switch service, and delivering more data to enable customers to compare which bank is best for them—I could go on.