Outcome of the European Union Referendum

Viscount Trenchard Excerpts

Tuesday 5th July 2016 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, I agree wholeheartedly with the views expressed by my noble friend the Lord Privy Seal in her opening remarks. It is not helpful that some noble Lords seem to be suggesting that the question of whether we stay in or leave the EU can be reopened or should be subject to additional conditions being met such as a parliamentary vote or a referendum on the terms of our departure. The position is clear. One year ago the Government were elected on the back of a promise to hold a referendum on the subject. The Prime Minister stated that the question was of such importance that the people should take the final decision. Your Lordships’ House and another place assented to the Prime Minister’s view and the referendum was held. It produced a clear majority vote to leave. Members on both sides of the debate have made exaggerated claims. Surely it is now incumbent on noble Lords to play their part in securing the best way forward for this country and to make the most of the new opportunities that our decision to leave offers us.

The country needs a Government who are confident in our future and will act with confidence. I was fortunate to represent a British bank in Japan during most of the 1980s. The high regard in which the United Kingdom under Baroness Thatcher’s leadership was held by Japanese leaders of business and government during that period was of inestimable assistance to me in my task of securing access to the Japanese financial markets for the firm I represented, and through the British Chambers of Commerce and the European Business Council in Japan for other foreign businesses. I will travel to Japan next week and will meet the leaders of several companies that are major investors in this country, and shall carry a positive message about the future opportunities for them.

Of course I do not want to give the impression that I think it will all be plain sailing. Like other noble Lords, I welcome the creation of the new unit of government under my right honourable friend Oliver Letwin to negotiate Brexit. The unit must immediately be given powers to obtain full information from all departments of state on our interactions with the EU so that decisions on how to proceed can be based on hard facts and not on myths. I agree with the most reverend Primate the Archbishop of Canterbury, my noble friends Lord Lawson and Lord Lamont and others that the Government should give immediate and clear assurances about the endurance and permanence of the rights of residence of the citizens of other EU states who are living here and who have made this country their home.

There is much anxiety about the single market and what will happen to our trade with it in both goods and services if we leave. Some people argue that we should leave the EU but remain a member of the single market. They argue that our trade in goods and financial services will be seriously harmed if we do not negotiate continued access to the single market. If membership of the single market is so important, why has its trade with many non-EU countries grown so much faster than ours has? We can continue to grow our trade with the EU under WTO rules as a fallback position in our negotiations. If free movement of people is a prerequisite of access to the single market, we should walk away from it.

In any case, why is free movement of people essential to a free trade area? Is it only essential because the leaders of the European Commission and other European institutions think that the EU is a state and that its citizens obviously therefore have the right to live and work anywhere within its borders? Freed from EU procurement rules, the UK Government will again be able to level the playing field and award infrastructure contracts to British companies rather than state-owned foreign companies which can circumvent state aid rules. There are many harmful directives governing the way we run our businesses, such as the EU utilities directive. Social legislation, such as the working time directive, which is damaging to job creation, can be repealed or amended.

I was delighted to learn that the Chancellor has continued his policy of lowering corporation tax in a giant downwards move of 5%, to a rate of 15%. That level is not so different from the Irish level of 12.5%. Perhaps the Irish will decide to rejoin the United Kingdom, with equivalent status to Scotland, when their EU membership requires them to harmonise their corporation tax rate at a much higher level. That would of course remove any talk of a “hard border”.

Freed from EU regulation the Government could do more to help the economy. How about creating tax-free enterprise zones around ports and airports? And the Government really cannot put off a decision on the third runway at Heathrow any longer. The Government could create tax-free or low-tax enterprise zones, some of them linked to the northern powerhouse project. We will be able to take many such new initiatives when freed from the shackles of EU rules.

Trading with the EU under WTO rules as a fallback position would not be so bad, given that the total paid in tariffs would be considerably less than the cost of our EU membership. The lower pound would also help our exporters reduce the deficit. It is highly questionable whether the single market in services is about trade liberalisation at all. As the late Ronald Stewart-Brown of the Trade Policy Research Centre concluded in his excellent report of March 2015, the single market in services, especially financial services and insurance, is much more about EU integration through EU-wide supervision and regulation.

As for passporting, the European regulator has recommended that the EU’s fund management passport should be extended to Guernsey and Jersey. If the regulatory regimes in these two non-EU states are good enough for ESMA, surely our own FCA should be good enough too. In any case, passporting rights are significant only for the fund management and insurance sectors, whose aggregate exports to the rest of the EU, at £5.9 billion in 2013, were less than 9% of the UK’s financial services and insurance exports worldwide, at £68.5 billion.

The Swiss Government are shortly to start renegotiating their trade agreements with the EU, following the decision of the Swiss people in a referendum to end free movement of people. That means that the two largest financial services markets in Europe will be setting up new arrangements for trade at the same time. This will surely provide an incentive for EU negotiators to honour the commitments they have made under the GATS, which confers rights on all WTO members.

We will have a very strong hand in negotiating a comprehensive new trade agreement with the EU covering goods and services. It should not be as difficult as many claim. After all, we start from a zero-to-zero tariff position. Furthermore, we might decide not to terminate our annual net contribution of some £10 billion immediately but to run it down over a reasonably small number of years. We will surely also wish to remain a member of European programmes such as the Horizon 2020 science programme, of which there are 15 non-EU members.

I hope that the new Government will move swiftly to start to work out a new relationship with the EU, which is what the people voted for and what many on the remain side also want. That would be good for industry and for the City and we will even get on better with our European neighbours, too.