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Outcome of the European Union Referendum - Motion to Take Note

Part of the debate – in the House of Lords at 1:43 pm on 5th July 2016.

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My Lords, George Washington said in his farewell speech to Congress:

“’Tis folly in one Nation to look for disinterested favors from another”—

or, as I might put it from my experience, EU negotiations can be like the knife fight in “Butch Cassidy and the Sundance Kid”: there are no rules, no promises, and there is always a final twist.

There is no reason why our hand should be forced on Article 50 before the UK is completely ready, with a consensual approach; it is not in the national interest otherwise. Regrettably, intimidation, improper exclusion of UK representatives and all kinds of other illegal pressures and innuendos from institutions and the wider commentariat are not new tactics and one can expect them to be deployed on a much greater scale—but we must not give in. Additionally, it has always been impossible to conduct timely negotiations when major countries have been having elections. It is a recipe for prevarication and backtracking, often with long turnaround periods with no true mandate. If it holds up work on a directive, you can imagine what it would do to Brexit negotiations. We cannot have our two years wasted.

Right now, there are also battles for supremacy in Brussels over who fills the UK vacuum—Germany needing Poland, France cosying with Italy and Spain—who gets our agencies, whether protectionism will win, whether member states will assert themselves more strongly over the Commission, whether the Commission will stop being a proxy for the core member states, who in the Commission goes where, or moves, whether the Italian banking situation will smash apart legislative and state aid discipline, whether the French will see off the posted workers directive, and more.

Back here, response to the outcome of the referendum is more challenging and requires more oversight, because leave offered a false prospectus that no plan can fulfil. Some suggest that an EEA-type basis as a quick, temporary harbour, giving market access, is a solution. That brings into play the exact three conditions that were the headline reasons for the leave vote: budget contribution, free movement and control over laws. Many capitals see it as the ultimate humiliation for the UK and say that adjustments are not possible, but, being Europe, they also suggest a few, which are currently unacceptable but may be an opening to the variable geometry espoused by the noble Lord, Lord Maude.

In the UK, it has been argued that we can get a better deal than Norway or Switzerland because we are larger. That misunderstands the current state of mind of the EU 27; they are more wary of giving a good deal because we are larger. Frankfurt, Paris, Luxembourg, Amsterdam and Dublin aim to poach work from the City, but they fear an aggressive offshore UK. So threats of protectionist measures are fuelled by the balance of power in the Council minus us, by the need to satisfy the Parliament, which requires the socialist group on board, and by the perceived need to inflict pain to discourage other breakaways. Such actions may bring international opprobrium and indeed the reverse of the intended effect, but it is a known tendency.

Free movement is well flagged by the Government as an issue for negotiation, but we should look at budgets and laws as well. Repatriation of budget payments featured prominently in the referendum—I think that it was on a bus—and, even diminished to its proper size, it still features in debate. Nevertheless, there is a robust case that saving jobs through market access, especially highly paid ones in the City, can cover the cost of significant payments from tax take alone. Against that, there is a 15% hole in the EU budget when we leave, so there is some leverage there. The EU has already besmirched itself with external cash-not-migrant deals—not that I recommend them.

For both free movement and budget, the basis of any agreement can be free of subsequent unilateral change by the EU. That is not the same when you come to laws. Without the UK round the table, laws can change considerably and unilaterally. This is a problem more in some areas than others. We will not be there when the Commission discusses its pre-drafts with member state experts, nor to amend as texts go through the Council and Parliament, nor in the regulatory agencies that draft standards where currently we chair important working groups. There are many agencies beyond those in financial services, but the powers of the European supervisory authorities and UK influence within them has been an obsessive concern, even while we are so powerful within them. Are we now to become mere note takers?

I know what EU financial services law would have looked like without input from the UK. It is not a static situation and plots are already afoot to make changes. If we buy wholesale into a law-taking regime, at least in financial services, we may be buying a pig in a poke, passports or not. That is a problem that we must solve. It cannot be counteracted simply by channelling more resources through international bodies such as Basel, the FSB, IOSCO and the IAIS, which I observe are also unaccountable international bodies to which we send unelected people. For financial services, mutual recognition or equivalence provisions are another route but, as has been pointed out, the process is tricky and inherently political, and introducing more subjective conditions is already a talking point in Brussels. The question would be how far such changes would upset international relations with the US and whether that, and perhaps resolving the fears of an offshore UK, could give openings or a route to the variable geometry that has been described.

This is a small part of what we face and the plan seems to start from scratch. In some areas, our counterparts are not even just the EU, so never has “Act in haste, repent at leisure” been more relevant.