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

Lord Hamilton of Epsom Excerpts

Tuesday 16th January 2018 Lords Chamber

[Lord Hamilton of Epsom (Con)]

My Lords, I join the House in saying how sorry I am to hear about the noble Lord, Lord Jay. I hope he recovers quickly.

I wish I could go along with the customary congratulations that the House normally pays to reports and say what a good report it is, but I would be both dishonest and hypocritical if I said I thought this was a good report. It is a very weak report. The only thing I can say is that it is slightly better than one I debated some time ago, about the time of the referendum, which failed to address any of the issues that were coming up in that referendum. It was quite interesting that in that debate, unlike in this one, only one member of the European standing committee actually attended the debate, the noble Lord, Lord Boswell. Obviously all the others were so humiliated by the quality of the report that they did not bother to come.

The reason this is a very bad report is that at the end of the day, we are assessing the effect of no deal on the United Kingdom, but we should face the fact that no deal will affect not just the United Kingdom but the EU as well. As the EU sells one and half times as much to us as we do to it, if there are any adverse effects of no deal, they will be felt more powerfully in the EU than in the UK. In the absence of the noble Lord, Lord Jay, I would like to ask the noble Lord, Lord Whitty, when he winds up, why the committee did not call for evidence from, for instance, the German car manufacturers’ association. There is not a single German car that we buy in this country which is not assembled outside the United Kingdom. If we resort to the WTO, there will be a 10% tariff to pay on those cars. It would surely be interesting to know how German car manufacturers would react to that. Maybe they think we would pay anything for our German cars; maybe they think that because they already sell cars to us, despite the devaluation of sterling against the euro, they will therefore continue to do so. But it is a matter of interest, is it not, to know what the EU may actually feel about selling its cars to us?

[Lord Davies of Stamford (Lab)]

I am grateful to the noble Lord for giving way. Would he not agree that in trade negotiations, the leverage of one side or another is a function of the proportion of the GDP of that party which is exposed to trade with the other country in question? I am sure the noble Lord is very well informed on these matters and knows that, in the case of the British relationship with the other 27 members of the EU, we have 14% of our GDP exposed to the EU—that is the proportion exported to the EU—while in the other direction, with the exception of the Republic of Ireland, no single member of the EU sells to us more than 4% of its GDP. So in fact our dependence on them is much greater than their dependence on us.

[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.

[Viscount Waverley (CB)]

Before the noble Lord sits down, could he tell the House what, according to what he is suggesting, he believes Parliament would be voting on?

[Lord Hamilton of Epsom]

What should Parliament be voting on at the end? It will be voting at the end of the Article 50 process on whether to accept the deal for the transition period that is then possible. The “no deal” may kick in later if we cannot reach agreement during the transitional arrangements.