My Lords, I am delighted to introduce this European Union Committee report. In doing so I congratulate the noble Baroness, Lady Neville-Rolfe, on her recent appointment to the Treasury and on her role as Minister in charge of “EU exit financial services”. I hope to have a very positive interaction with her in the future.
In the wake of the referendum of
At this juncture it is customary for a chair to thank the members of the committee, but I do so today with particular emphasis, because we all, as a committee, worked at a frantic pace to produce this report in a timely manner so that the Government might take our views into account in setting their strategy for Brexit and financial services. So far we have not had sight of their response. I also want to single out for particular thanks the committee clerk, John Turner, who with depleted resources—as our policy analyst had been recruited by the Treasury—heroically managed to get us to this point. He was periodically assisted by Pippa Westwood, on loan from the EU Select Committee, and we owe her thanks as well.
From the outset we were aware of the huge importance of the financial services industry to the UK economy. The UK is the world’s leading exporter of financial services, with net exports in 2013 of $71 billion. The industry employs more than 1.1 million people—double that if related professional services are included—and contributes around 7% of UK GDP. The implications of a change to our trading status with the EU are potentially enormous. The consultancy Oliver Wyman estimated that £40 billion to £50 billion of the sector’s annual revenues—around a quarter of the total—were related to its business with the EU.
The relationship between UK-based financial services providers and the EU is underpinned by a system of so-called “passports”, which grant rights to do business across borders. This system is not as straightforward as it first appears: passporting rights are provided for by different pieces of EU legislation, affecting the provision of different services, and their use does not map onto the business models of firms in a straightforward manner. Unpicking the reliance on passports is therefore complicated—we were told that even the firms themselves did not have firm grasp of their own reliance on passporting—but it was clear that UK-based firms were likely to suffer from loss of access to the single market and the passporting rights that came with it. That has become more evident since our report was published.
As we were undertaking our inquiry it was not clear what model of engagement with the single market the UK would seek. The Prime Minister, in setting out the UK’s negotiating aims on
“the freest possible trade in goods and services between the UK and the EU’’, but she ruled out,
“membership of the Single Market”.
This would also rule out any automatic passporting rights: they would need to be negotiated as part of the bespoke agreement she is aiming for.
If the UK were unable to negotiate a bespoke deal on access, it would have to fall back on third country equivalence provisions. However, we found that these were,
“patchy, unreliable and vulnerable to political influence”.
They are patchy because they do not cover the full range of activities in which businesses engage: a bank might be able to rely on provisions under MiFID II for its investment activities but could not carry out traditional banking services because the relevant legislation underpinning that, CRD IV, does not include equivalence provisions. Third country equivalence provisions are unreliable because financial regulation is liable to change: as EU legislation evolved, the UK would have to adapt its own regulation in order to remain equivalent, and be assessed to be so every single time. They are vulnerable to political influence because the European Commission has a role in deciding whether a country is equivalent.
We concluded that any bespoke deal should seek a deal to bolster the current equivalence arrangements, to cover gaps in the regime and to ensure the continuation of equivalence decisions as regulation develops. There was, and still is, considerable uncertainty over the level of access to the single market that the UK will retain. Our witnesses were consistent in advocating a transitional period during which businesses could plan for and adjust to the new circumstances. We were told that a “cliff edge”, with regulation and market access changing suddenly and without sufficient warning, would represent a grave threat not only to the business interests of the firms involved but to financial stability more generally. So the “new deal” scenario might prove extremely damaging.
I therefore welcome the Prime Minister’s reassurance that the Government will seek a “phased process of implementation”. An early declaration on this transition period by both parties—the UK and the EU—would help allay the fears of businesses and possibly prevent them moving operations out of the UK on the basis of a worst-case scenario. I draw noble Lords’ attention here to the advice prepared by PricewaterhouseCoopers for the Association for Financial Markets in Europe, which found that it would take banks between two and four years to put in place contingency plans for a hard Brexit.
The UK has been Europe’s dominant financial centre for some time. It has been particularly dominant in recent years in derivatives clearing through central counterparties. In April 2013 the UK accounted for half the world’s turnover of interest rate derivatives, and one-third of foreign exchange derivatives. It was even more dominant in euro-denominated interest rate derivatives, accounting for nearly three-quarters of world turnover.
This has drawn unwelcome attention from our EU partners. In 2011 the European Central Bank launched its location policy, which would have required euro-denominated trades to be cleared in the eurozone. The Government successfully resisted this at the European Court of Justice, but it is possible that the scheme could be revived—with appropriate legislative changes. It was notable that the President of France, François Hollande, made such a suggestion on
So the political incentive is there, and so are the legal means, with some tweaking. But would it be wise to remove London’s ability to clear euro-denominated trades? Clearing works through counterparties posting a margin, or collateral, with the clearing house. Because this is done centrally, the margin can be netted across multiple trades in multiple currencies, reducing the amount of collateral required. Research by Clarus Financial Technology suggests that disaggregating the euro component of one clearing house’s operation—LCH.Clearnet’s, for example—would cost the financial services industry $77 billion in additional margin, which would then not be available to lend to the real economy.
Our witnesses expressed doubts about whether a clearing operation comparable to that in London could be migrated to another European city. Some suggested that New York was the only plausible alternative location for such a service. Of course, any revival of the location policy would also apply to New York. This suggests that the benefits of the UK’s clearing system currently enjoyed by businesses throughout Europe would be lost or greatly diminished. Ultimately, it would not be in the EU’s economic interest to repatriate euro clearing. We hope that pragmatism will prevail.
This leads me to my final point. The real economy in the EU benefits from the financial services provided in the United Kingdom to an extent that militates against any large-scale attempt to prevent UK-based firms doing business with the EU. We heard a lot in our inquiry about the financial services “ecosystem”: the various services provided in the UK that interconnect in such a way that the effects of unpicking the ecosystem would be unpredictable. Unless another European centre could replicate that system, real businesses in the EU would lose out.
London has recently been ranked as the world’s number one financial centre again. Nowhere else in the EU comes close. Luxembourg is 12th and Frankfurt is 19th. We were not convinced that another EU location could step up and provide the services as efficiently and effectively as the UK currently does. If the economic argument trumps the political one, the EU should be willing to do a deal—but deals are ultimately dependent on rationality as well as goodwill. We hope that the UK Government will approach these negotiations with enormous goodwill and pragmatism, as the costs to the real economy of both the UK and the EU—and to real people’s lives—could be very high indeed. I beg to move.
My Lords, I thank my friend, the noble Baroness, Lady Falkner, for her introduction and the rest of the committee for its work. Sadly, I am no longer on that committee so I did not take part in this report; but I declare my interest, which is that I remember the 1950s and 1960s very well and do not want our grandchildren to live under such years as we lived under when Britain was going downhill rapidly. One reason why Britain has turned that corner is the financial services, which are the whole subject of this report.
Although the noble Baroness has said that London is the world’s leading financial centre, it has no divine right to be. It was not when I was a child, but it has now got to that position—and there are many countries interested in taking it away. Our change in status as we go from within to outside the EU is undoubtedly an extra threat to the dominance of London, and another undermining factor. The other side of the argument is of course that the EU has lost a major player in its financial discussions. Britain was always at the forefront. When I was a Treasury Minister, we were at the forefront of changing regulations in Europe—we took the lead because nobody else had the experience to do so. The capital markets directive, led by my noble friend Lord Hill of Oareford, and how that has changed direction is just one example of Britain’s influence no longer being in the right place.
We made our decision on
“analysing the difference between the opportunities afforded by passporting and third-country equivalence”.
It would be helpful if the Minister told us where the Government have got to with that.
Paragraph 58 refers to possible regulatory divergence between the UK and EU, and indeed between the UK and US. I thought this was a very good point to make because, since the report was published, we have all seen in the press what has been happening. We have a new President Donald—in fact we have two President Donalds: one in the EU and one in America. President Donald in America has made it absolutely that it is “America First”—and, indeed, America second and third—with the rest of the world about fourth. He has been backed up by Patrick McHenry, the Republican vice-chairman of the House Financial Services Committee, who wrote to Janet Yellen at the Federal Reserve, warning her that:
“Continued participation in international forums such as the Financial Stability Board, the Basel Committee on Banking and Supervision and the International Association of Insurance Supervisors is predicated on achieving the objectives set by the new Administration”.
That is worrying.
Let us take away the froth: we all know that America has always put America first in international negotiations, but what worries me is America not standing by its international obligations. Can the Minister say whether there was any indication in the Prime Minister’s meeting with President Donald of the USA—President Trump—that the US will not stand by those international obligations? If it does not, it is serious not just for the UK but for the EU and the rest of the world. Sir Jon Cunliffe at the Bank of England has said:
“It is important that we have proportionate, highest quality regulation – robust and in line with best international standards … The UK – in order to be a successful financial centre, you need good regulation … robust regulation and … regulators that have credibility and experience”.
Those are very wise words from Sir Jon, with whom I had the pleasure of working when I was a Treasury Minister. Abiding by those international obligations is so important. Sir Jon is also quoted in paragraph 51 of the report:
“If we want globalised financial services, we all have to have confidence in each other’s regulatory and supervisory machinery”.
That encapsulates it extremely well.
It is not just a trade negotiation between the political parties that is important, but agreement between the regulators. Can the Minister confirm that the intention is that provisions on international regulatory co-operation in financial services supervision will be included in all future trade agreements, both with the EU and other states, and that this would be an additional requirement in the future mission of the Financial Conduct Authority and Prudential Regulation Authority?
I turn from the report specifically to a wider view of financial services, because if we are no longer members of the EU, we will have to increase our trade around the world. There is no doubt that there is a new world financial order. Europe, the old aunt to the world, is getting even older and more irrelevant. In a recent report PwC said that by 2014, the E7—Brazil, China, India, Indonesia, Mexico, Russia and Turkey—could be double the size of the G7, which comprises the UK, Canada, France, Germany, Italy, Japan and the US. That will certainly change the dynamics. PwC went on to predict that, whereas in 2016 five countries in the world top 20 of projected GDP rankings, based on purchasing power parity, were in Europe, by 2050 there will only be three, all at a lower level than now.
One might think that gives us a great opportunity in dealing with the E7, but then comes the crunch. TheCityUK has done a lot of work on service trade restrictions and produced an index. It is interesting that, on that indexed basis, the E7 countries—which are going to be double the size of the G7 countries—are the most restrictive with regard to accountancy, commercial banking, insurance and legal services. We will have a tough job breaking into those markets. We have a lot of work to do, and if the US is not working to the international standard it will be even harder. I agree, therefore, with what the noble Baroness and her committee say in their report. If the City of London loses its status as the world’s premier financial centre, it will not be to other countries in Europe but to overseas—to New York, Singapore and China.
Can the Minister also comment on currency devaluation, through which we have the potential to really mess up the world and our financial services? We have been told that the euro is undervalued and the American dollar overvalued. Does the Treasury think that a currency devaluation between countries will start, which would be hugely damaging to us?
I will comment briefly on what I call “language and perception”. Language is hugely important in Europe. Phrases such as “common ground” and “a good compromise” are perfectly acceptable in Europe, while here they are portrayed in the press as wishy-washy and as Britain giving everything away. It is not as the press portrays it: it is 27 countries all having to give something and take something to reach a good compromise. I am greatly concerned that language will play a big part in our negotiations, and I hope the Minister is fully aware that this could be a major problem.
As for perception, a lot of people are influenced by it. If the perception is that Britain is not doing as well as before, that will compound our difficulties. One need only look at today’s papers: it is predicted that 30,000 jobs will be lost—that is the headline, the bad perception. That, however, is 0.5% of the people working in the financial services industry, and although the figure comes from the Bruegel think tank, it is at the worst end of TheCityUK’s projections, which thinks, at the other end of the scale, that as few as 3,000 jobs could go. Perception is of major importance.
We have no idea where we will end up at the end of our negotiations with the EU. I hope that the press and both Houses of Parliament will let the Government get on with the negotiations and do the best job we can. One good thing about Brexit is that if it all goes wrong, we have nobody to blame but ourselves.
My Lords, it is a pleasure to follow the noble Earl, and I also thank our chairman, the noble Baroness, Lady Falkner, for guiding us through this extremely complex subject. The more I study the problem of Brexit, the more complicated it appears to be, and I am sure that no one, when they ventured into this territory, knew exactly how complicated it was.
As the noble Earl also said, the City has seen both good times and bad times. The 1950s and the 1960s saw an involuntary exit from the sterling area. I do not know whether noble Lords remember the sterling area, but it was not a great thing after India had become independent and various former colonies began to have their own monetary policy. The City was lucky in then having the Eurodollar market—a result of the folly of American taxation policy—and soon after, when the US renounced its dollar-gold link, a huge market in foreign exchange transactions sprang up and the City was ready for that market.
At about that time—in 1971-72—we entered the European Economic Community, as it then was. In a sense, therefore, we entered the European Economic Community at a time when the City had recovered from its gentle decline and got into totally new activities for which it had, or soon got, the expertise. We know, therefore, that the City can suffer a shock and respond to it.
At the same time, we have to decide among ourselves—or, I hope, the Government will—what is the maximum loss that we could suffer. One of the best negotiating tactics is to figure out the worst-case scenario that we could face, and then find out if there is any way of avoiding it. The worst-case scenario is, obviously—as I said—that if there is not a good deal, we walk away with no deal. A no-deal scenario would mean no passporting, no equivalence and starting from scratch. We should mentally work out what that would mean for the City. Among our witnesses, some were, I would say, rather complacent, saying, “Oh, we are just so good that they will have to come to us”. They say that our eco-system—I was fascinated by that word, because I am sure that most of those people do not like any of this global warming stuff, but they use the word—is so fine and beautifully calibrated that our sheer competitive advantage will make them come to us. I am not so sure about that; it would mean that we do not need to worry about passporting or equivalence and we would still come out on top on sheer competitive advantage. Just as we are willing to suffer an economic loss for the sake of our sovereignty, they are capable of suffering economic loss through their reluctance to come to London. We must not assume that they are going to be terribly rational and will come to us. I keep hearing that, and I doubt it very much.
One advantage for us is that the regulatory system of financial markets is global and not confined to the EU: the EU melds in to the regulatory system headed by the Bank of International Settlements, the IMF, and so on. We have played a major part in the architecture of that system, so, in or out, we shall continue to be relevant to the architecture of the global financial system. To that extent, we ought to be able to put it to the EU that, in or out, the rules that we all have to obey are pretty common, and they are almost the equivalent of equivalence. We all have to follow certain global rules, so there cannot be too much of a disruption between us and them in the area of financial regulation.
I am not worried either that although we may establish equivalence in today’s terms, in the future they might change—and then what will we do? I do not think they will change arbitrarily, independently of the global system, because we will all have to dovetail with each other in that system. The technology is changing so fast that we all have to be ready as new products and technologies come up. The framing of financial regulations will therefore have to be a fast, global and innovative process, and I am sure that we will play our part in that.
Can we work out what we prize most within our interests in keeping the financial centre in the front? It might turn out that immigration is a crucial topic. It might be that our need to access the best talent internationally, and therefore have flexible immigration rules, will be more central to our position on the financial sector than anything else. In agreeing to whatever we agree with the EU, one thing that we ought to remember is to retain the flexibility of admitting highly skilled global experts in the financial markets, and not make the mistake of going overboard in restricting immigration by not distinguishing between those who are likely to be helpful to us and those who would be less helpful.
In the final analysis, we will have to be ready for the worst-case scenario—a repeat of the sterling area scenario, as it were—and to hope that new markets spring up for us while the damage is minimised. At the same time we ought to try as far as possible, consistent with our general aims of a hard Brexit, not to lose an advantage which we could retain.
My Lords, I too pay tribute to my noble friend Lady Falkner of Margravine, who has steered us through several of our deliberations over the last year or so. The report, like all those which come from our EU committees, is based on the evidence. What those of your Lordships who have not been on the committee are getting is what we have heard from other people and the questions that we have been able to put to them.
There is no doubt that financial services are a highly significant sector of the United Kingdom economy. We are told that they employ 1.1 million people, two-thirds of whom are outside London. It seems to me that 1.1 million jobs are likely to support 4 million United Kingdom citizens. On any basis that is significant, serious and important. I have three points to make in my contribution, which really concerns livelihoods. I will come to these in order because I want to speak of some of the people who came to see us.
“We have had conflicting evidence about what will happen to clearing houses”.
The response from Simon Kirby was:
“There is a lot of noise about clearing. The whole of Europe, the UK included, would be worse off if that particular part of the financial services that London offers was dismantled and redistributed across Europe”.
In a further question, the noble Lord, Lord Desai, talked about clearing and Simon Kirby said:
“It is an element of the negotiations. Is it the most important element? Probably not, but it is … significant”.
That sounded complacent to me.
“we stand by our estimate of 100,000 jobs”.
When I pressed him a little further as to where these jobs were, he said that he would,
“provide a more detailed estimate”.
That was to happen “reasonably shortly” and so it did, in that on
The last thing that we had was not presented to our committee but—as things keep moving—was the White Paper from Her Majesty’s Government on
“In our new strategic partnership we will be aiming for the freest possible trade in financial services between the UK and EU Member States”.
So Simon Kirby’s complacency has now moved to an aim. Where is the determination? Will it come from the noble Baroness, Lady Neville-Rolfe, who I now congratulate on her new role?
My Lords, I declare my interests as noted in the report. After the figures of potential job losses given by the noble Lord, Lord Shutt, I hope to cheer the House up a bit. I have come to think that since the report which we are discussing was published in December, the impression it gave about the problems presented by Brexit for the UK’s businesses and financial services is perhaps too pessimistic.
As a member of the sub-committee which produced the report under the courteous and skilful chairmanship of the noble Baroness, Lady Falkner, I believe that it correctly reports the importance of our financial services to the UK economy; the unreliability of the equivalence and passporting regimes which enable UK financial institutions to provide services to the rest of the EU; and the need for a regime to ensure that UK financial services do not face a cliff edge when the UK leaves the EU. All that is correct, but the reason why I have become more optimistic is that this report is understandably UK focused. It is about what UK businesses want and need and not so much about what EU businesses want and need. When the issue is considered from the EU perspective, more grounds for optimism emerge. The reference to avoiding a cliff edge implies that there is a sharp fall on the other side of the cliff, but when the interests of the EU partners are taken into account, I wonder whether that implication is correct.
The report received many representations from outside—for example, from the British Banking Association—which urged the need for a transition period to avoid the cliff edge, which has already been referred to. It is widely recognised that the phrase “a transition period” has two meanings. It can mean an extension of the period in which existing arrangements continue to apply while a new bilateral agreement is negotiated. It can also mean a period after a new bilateral agreement is reached before it comes into effect so that businesses on both sides have time to adjust to the new arrangement. Certainly a transitional period—in both senses of the phrase—is better than a cliff edge, but a rapid agreement respecting the mutual interests of both sides is better than either. The refrain that we most insistently hear from businesses is that they want certainty and they want it as soon as possible.
A report by an official working group for the European Parliament’s Committee on Economic and Monetary Affairs, seen by the Guardian newspaper, warns of the importance of the London market to the EU partners. According to the Guardian, it says:
“The exclusion of the main European financial centre”— that is, London—
“from the internal market could have consequences in terms of jobs and growth in the EU. It is in the interest of EU 27 and the UK to have an open discussion of this point”.
It is relevant that, while 5,500 UK firms benefit from passports for trading financial services in the EU, more than 8,000 EU firms benefit from passports for trading into the UK. It does not follow that we can take equivalence and passporting regimes for granted but I believe it does follow that the EU partners have an interest in not using them in a vindictive manner.
I do not go along with TheCityUK in its view reported last week that Brexit will enable London to become more attractive to worldwide businesses by tearing up those parts of the EU regulatory regime which UK firms find finicky and burdensome. It will still be necessary for the UK to retain harmony with EU regulations. This may involve conforming to regimes and requirements which we will have no formal role in formulating but it does mean that we will have a mutual interest in keeping close to each other. Since the UK has often been a leader in formulating effective regulation, this is likely to be in the interests of both sides. Certainly, when the UK’s approaches have differed from those of our EU partners in the past, it has not been because the UK has been less rigorous.
Those are important issues for companies but there are also important issues for individual citizens. One illustration is the provision of insurance. It would be tedious for UK motorists if they had to start applying for green cards again or pay extra insurance for trips to Europe because it is no longer recognised that UK insurance policies provide the same minimum cover as their EU counterparts, but it would also be tedious for European motorists if their policies were no longer accepted in the UK. A similar point applies to the European health insurance card.
The old injunction against cutting off one’s nose to spite one’s face is particularly apt in both the UK’s and the EU’s approach to these matters. In all these areas we must hope that the negotiations take proper account of the mutual interests of both sides and are not driven by ideology.
My Lords, it is very usual to say how pleased one is to follow the previous speaker but I find myself in a slight embarrassment because I so completely agree with the noble Lord, Lord Butler, that I am not going to be able to put it without repetition and nothing like so well. I congratulate the sub-committee and its chairman on this report. It is a very useful document and needs to be studied with great care. It has been slightly overtaken since the days of the referendum by the 12 principles and the White Paper. Nevertheless, that gives us a theme which is “exit from” and “a new partnership with”. I 100% endorse everybody who says that we need and want a new and productive partnership with the EU and this needs to be negotiated with the best possible will on both sides.
I hope we can achieve an agreement within the two years. There I very much agree again with the noble Lord, Lord Butler. I do not see the argument that two years is never going to be enough as a positive one. I regret that people keep saying two years is not enough. The important thing about the two years is to reach an agreement and then to be clear, because we have a new partnership, on how we are going to handle all the changes that will inevitably follow after two years, and changes would have followed whether we remained a member or not.
Within those two years there is nothing more important to negotiate than financial services. In considering the negotiation we should take very careful account of the present position. As the noble Lord, Lord Desai, said, the background is very complex and quite troubling. After all, 2008 is not so long ago and many things happened then which were unexpected. Although we have made much progress since then, there is still a great deal of risk out there in the world as a whole. Indeed, I think we would be incorrect to think about financial services in the way that we might think about the effect of the single market on, say, the building of aeroplanes or the production of motor cars. The European context does run there to a large degree but it does not run in financial services because they are truly global.
In the G20, which is representative of two-thirds of the world and 85% of its economic activity, we have got six members of the EU and the European Union itself, and based in the Bank for International Settlements there is the Basel Committee, again with nine EU members and the EU and the Financial Services Board. Much of what has been done which applies to Europe, which has 7% of the world’s population, has been achieved by these international institutions. The European Union, some of its members and ourselves have been very deeply involved in all that.
So far, so much the better as a result of all those efforts since 2008, but this is not a time to disrupt the progress. It is not a time in which either the 27 or we have an interest in disrupting the processes which have been going on. That highlights the partnership, the need for it to be approached positively and the need for it to work.
Just as a note of dissent, there is the question of the dealing and settlement in euros. If you look at that on its own, changing the rules in the way that has been suggested is nothing more nor less than a trade barrier and would be very disruptive. It cannot be in anybody’s interest to generate that disruption.
On passporting and equivalence, I hope that the effect of the great repeal Bill will be that on the day we exit, we continue to abide by all the law and regulation which has come to us through the European Union. Logically, that means that equivalence is there. I cannot quite see what the argument against it would be. If we get to that day, the question then becomes: what do the deals say about the way in which we and the 27 approach any changes that they or we feel are necessary? In that sense, we would have a “transition period” that would never cease, because we are going to need to have arrangements for dealing with changes as they take place. I am more optimistic than some other people who approach this problem. I join the noble Lord, Lord Butler, in that optimism.
My Lords, it is a pleasure to follow the noble Viscount, Lord Eccles. I have always respected the sensible approach he has to these practical matters of markets and business. I add my thanks to the other speakers in this debate, particularly the very distinguished, competent and professional chairman of the committee, the noble Baroness, Lady Falkner of Margravine, and her colleagues who produced this excellent report. This is a complicated area, but the report is not too long.
Unusually, I do not agree with my noble friend Lord Butler who said that he feels very optimistic, in contrast to this report. The report is realistic, but it espouses a not irrational, not excessive, but sensible and proper degree of pessimism about the difficulties we will see in the future.
There are many warnings in this excellent report, and I shall quote briefly two significant parts of it.
“We conclude that, if the current passporting regime is not maintained”— and we cannot assume that it is necessarily going to be—
“the Government should seek a deal to bolster the current equivalence arrangements for third country access, to cover gaps in the regime and to ensure the continuation of equivalence decisions as financial services regulation develops”.
“Negotiations on the UK’s new relationship with the EU are likely to take longer than the withdrawal negotiations under Article 50”.
That is a very serious problem. The report also states:
“A transitional period will therefore be needed in relation to financial services following the completion of the Article 50 process, when the UK leaves the EU. This may need to be adapted and extended in the light of subsequent negotiations on a new long-term relationship with the EU. This will enable firms and others such as regulators to adapt to any new business conditions”.
There has been a lot of coverage in the press of the Article 50 Bill, which has now successfully passed its Commons stages and will come to us when we resume after the mini-recess that is just about to begin. It is very interesting to observe how the intelligent commentaries in various parts of the press—but not all of them, unfortunately—are coming increasingly to the conclusion that it would be much better to maintain the status quo in the relationship between the new separate UK total market—financial and other markets, including physical markets—and the rest of the EU.
“I know that this—and the other reasons Britain took such a decision—is not always well understood among our friends and allies in Europe. And I know many fear that this might herald the beginning of a greater unravelling of the EU.
But let me be clear: I do not want that to happen. It would not be in the best interests of Britain. It remains overwhelmingly and compellingly in Britain’s national interest that the EU should succeed. And that is why I hope in the months and years ahead we will all reflect on the lessons of Britain’s decision to leave”.
Astonishingly it has not been noticed by many people, but in the first paragraph of her Sunday Telegraph article on
There was an astonishing mixture of things in an advisory, opinion-giving referendum. We have to bear that in mind. I make no criticism of the Prime Minister; she was not herself elected and she could not be under the system. She took over from the previous Prime Minister, Mr Cameron, whose vote was less than one-quarter of the total voting population. I believe that Theresa May knows that the more she thinks about it, the more she has to sustain the very good relationship that we ought to have with the EU.
Sixty per cent either abstained or voted against the referendum result. That meant that the total amount of the population will have enormous second thoughts. Those second thoughts are developing. We see the post coming in and more and more emails, particularly on the financial sector and worries about the famous London market. I declare an interest tangentially as a member in those days of the London Stock Exchange and a partner in a big institutional firm. We were not part of the financial markets, as such, although we were indirectly. We were all very proud of what the city has achieved and of the London financial markets becoming the leading market in the world. It is a tremendous asset. It is ironic that the very market that has sustained and cultivated the success of the euro itself as a currency—the main market in the world—is in a country where a good number of people have become increasingly psychologically afraid of the euro, because we were driven out of the exchange rate mechanism in humiliating circumstances in 1992. That has lingered as a feeling.
Since the war, there have been eight devaluations of Britain’s currency—three by government action and five in the marketplace. The recent one when the referendum result was announced was modest, and not too bad against the dollar and the euro. That is not a good background for us to be too overoptimistic about our ability to do what we were intending to do for those who did vote in the referendum and voted just about Brexit and nothing else.
I think there was also a blending and mingling of all those emotions, not least the fear of immigrants. Theresa May as Home Secretary was responsible with others for not bothering to invoke some of the articles of the Rome Treaty—the TFEU as it now known—that gave some restrictive possibilities to limit the number of immigrants as if there was no reason to have a free-for-all, which we seem to be accepting, including from Romania.
The definition of optimism given by the noble Lord, Lord Butler, is, I think, a little esoteric for the purposes of this debate. It reminds me of the lovely old Hollywood joke: the true definition of optimism was a 98-year old man who got married for the seventh time and deliberately bought a new house near a school—that kind of optimism, maybe. We have to face up to the realities of this difficult matter.
In the debate in last autumn in the Moses Room on the single currency, I noticed how the noble Earl, Lord Caithness, praised the euro for being a successful currency. It is now the second world reserve currency after the US dollar. It is getting closer and closer to the US dollar. The European Union, of course, has a much lower overall national or international debt coefficient than the United States. As noble Lords know, the difference is $19 trillion for the federal Government in the USA and $12 trillion for the European Union with 500 million people.
There is a lot to be working for. In this feeling that we have a lot of negotiations to come, I wish the Minister very well in terms of the details and add my congratulations on her new post. The conclusions are more and more to do with somehow leaving the European Union in a formalistic sense, but keeping all the relationships going—the markets, the physical relationships and the acquis communautaire. Of course, it will be put into what is going to be the repeal Bill, if it comes along. I do not use the adjective “great”, by the way, because I have my doubts about it. Therefore, we are ending up with the same kind of bureaucratic input that people who did not like Europe were madly complaining about when they said that the European Union was far too bureaucratic and heavy. All those instructions, regulations and requirements will be inserted into the repeal Bill if we maintain the status quo in all the markets in Europe that we are suddenly so keen on.
The whole thing is becoming more and more shaky as an approach for a mature Government in a mature Parliament in a mature country. This country needs to recover the self-confidence we had as an upstanding and successful member of the European Union, whatever the future structure and decisions may be. The Article 50 Bill has only just started. There is a long, painful and bumpy road to come. No one can predict how it is going to turn out, but I think the second-thought syndrome is becoming increasingly powerful.
My Lords, it is a pleasure to follow the noble Lord, Lord Dykes, with his lovely clarity of expression and thinking all round. I declare my interests as set out in the register, particularly in respect of Hiscox insurance group and Schroders plc. I warmly join in the many congratulations for the noble Baroness, Lady Falkner of Margravine, and her committee and staff on producing in double-quick time a carefully thought through and thought-provoking report.
I will confine my remarks to three high-level areas and not descend into the detail. The first is people. There has been a lot of debate and comment from all parts of the House about the 3 million people from the EU 27 who are here in Britain. A strong moral case has been made, saying that the uncertainty they are living with should be made certain.
There are probably two other things relevant to this debate to think about, the first being the need to engender a good atmosphere as we begin the negotiations. I should also have said that I am a Member of the European Union Select Committee, and in that capacity visited Strasbourg a couple of weeks ago for three days. We met 17 MEPs from more than 10 countries and were able to talk about a lot of issues, both on and off the record. What was interesting was how many of these people had friends and relatives living in the UK and how they too felt the uncertainty, in a slightly vicarious way. It would be good to address that, which would help to engender the very positive atmosphere we will need at the start of what will be complex and long-lasting negotiations.
The second and possibly harder-hitting point is the old City adage that capital follows talent. In my commercial career, I have seen that adage acted out time and again. The Minister has a tremendous commercial career behind her too, and a wonderful, sharp and seasoned brain. I am sure many here are thinking what I am thinking: that it is jolly good news that she has appeared at this time for our country in this role. She will be a great help. I have managed financial services businesses, including in continental Europe, for a number of years, using passports of course, and in Bermuda using the equivalence regime. Everything that one did was about trying to manage the talent and keep them attracted to and retained in the business, and when new talent was needed, to attract it. Anything that damages the ability of businesses to attract and retain talent is definitely not in our national interest, and I worry enormously that the uncertainty that people from the EU 27 in the financial services sector are living under at the moment is doing just that. That therefore needs to be coped with, and I would very much welcome the Minister’s comments on that line of thinking.
The second line of thinking, again born out of my business experience, concerns the mindset we should have going into the negotiations. Our mindset should be very much about having regard to the interests of the 500 million in the EU 28—including the United Kingdom—rather than to the narrow interests of the 65 million in the UK. In my experience with repeat order customers—the EU 27 are most certainly repeat-order customers of UK plc—at the end of every transaction one needs to achieve equity in the consideration that has passed between the parties. Everything is about communication, and again, it would be extremely helpful to make sure that our own people who are engaged in the negotiation at every level have that mindset.
I saw as well during our three days in Strasbourg that a number of what one might call macho statements by political commentators and politicians were being reported through the British press and other media. The lingua franca in Strasbourg and Brussels is of course English, so everyone reads the British press and watches the BBC and CNN, for example. Those statements were being faithfully reported, and it is not helpful to the sentiment there if it is seen that we are not having regard to the 500 million but solely to the 65 million. Again, I would appreciate some comments on that.
When we come to the negotiation, there are certain sectors where we have an incredibly strong hand, and we should not play that hand ungenerously. One is the reinsurance sector, which I am very familiar with, where we have the strongest hand. So we should act generously and be seen to be doing that, because that will help us in sectors where possibly we have a weaker hand.
The third area I want to talk about is the cliff edge and the very helpful paragraphs in the report about that, beginning at paragraph 100, and the transitional arrangements. Again, I am happy to report from Strasbourg—where the cliff edge came up—that there was a generally warm feeling towards the transitional arrangements on the part of MEPs. They are just MEPs, but I do feel that their warmth is probably reflected in their countries. I am going to mix metaphors in an appalling way now, but there was certainly a feeling that the cliff edge cuts both ways. They too felt that this was important.
I want to sound a warning bell, again born out of business experience. As the noble Lord, Lord Butler, said, businesses hate uncertainty. Using just an interim arrangement, with the ability to push a horrible negotiation down the road for two or three years, is possibly damaging to business as well. We should try to sort out everything we possibly can in these two years, putting into a transitional arrangement only those things that have to be put there. If we do not, we will cause damage to business.
I cannot resist talking about optimism, because others have. Regarding the bits that I know—the insurance sector and to a lesser extent the fund management sector—I am in the Butler camp. For those sectors, good and sensible deals can and probably will be done, and I feel reasonably optimistic. I do not at all underestimate the very many hard yards ahead. I commend again the noble Baroness, Lady Falkner of Margravine, for her tremendous report.
My Lords, I too would like to express my sincere thanks to the noble Baroness, Lady Falkner, her committee and the members of the EU Financial Affairs Sub-Committee for producing this report as well as to all those who have spoken in this afternoon’s debate. I am grateful to the committee for looking at this issue first of all. Having read the report, I think it is clear this decision was a wise one, given the number of knowledge gaps that undoubtedly exist both in government and industry, and the lack of a strong evidence base which will be required.
In the months following the referendum, the overriding concern has been on what our future relationship with Europe and the rest of the world will look like. In that, there has been an implicit assumption that we have a sufficient knowledge, capacity and basis upon which to make such decisions. The people of this country voted to leave the European Union, and it is our duty to facilitate that. That being said, it will be a process that goes against all the natural instincts of the Houses of Parliament. We are not as institutions good at making a lot of difficult decisions quickly. It will be a strain. That is why reports like the one we are debating today are vital prisms through which we can explore such complex issues. But even such reports, produced and debated in such a short period of time, have to be considered in the current political climate. I wonder, for example, how different this report would have been if we had heard from the Prime Minister prior to its publication.
It will come as no surprise to noble Lords that I am interested in process. I am interested in the mechanics of the system. This report confirmed my suspicions that at present we are not sufficiently prepared for the monumental task of extracting ourselves from the European Union. I do not doubt the determination of the Government in wanting to maintain a strong and vibrant financial service sector here in the UK. However, I doubt whether they have the strategy to achieve this. I fear that, instead of a clear plan, the Government are clinging on to the notion that our position as a global leader in financial services is unshakeable.
Many noble Lords this afternoon have discussed this issue, and there has been a general conversation about being sensible, about this being two-sided and about Europe needing us as much as we need Europe. There have been conversations in Strasbourg and the rest of Europe where that impression has come across. The problem is that the negotiations will not necessarily be conducted by rational people looking at economic advantage; they will be conducted, dare I say, by politicians, who on occasions have been known to be irrational—indeed, tragically irrational.
Our lack of knowledge is well illustrated by passporting, which has become the issue to be discussed whenever Brexit and financial services are mentioned. Passporting is obviously related to equivalence—and, separately, the cliff edge—and those seem to be the key areas of concern. Why has passporting caught the imagination of so many people? Because it perfectly exemplifies our relationship with the EU. Passporting has become integral to the way in which banks operate. As Douglas Flint, group chairman of HSBC, told the committee,
“Everyone is affected by passporting rights to a greater or lesser degree”.
It also cuts across the most significant debates we will have about Brexit—notably, our membership of the single market, which the Prime Minister has confirmed Britain will no longer be a member of, as well as equivalence and regulatory divergence.
Despite all this, it appears that our knowledge of the system in which we are operating is limited. Before we can make a decision about where we want to go, we surely need to figure out what we have been doing and where we are. As the report states,
“It is striking that some firms do not themselves appear to be aware of their reliance on the current passporting arrangements”— the implication being that they do not have a full picture of the reciprocal impacts that passporting has on both the UK and EU financial markets. I for one believe this to be a startling realisation. There is a responsibility on the Government and industry alike to rectify this deficit as quickly as possible.
In a Written Answer to my noble friend Lady Hayter on
“Government ministers have met with a full range of institutions from across our financial services sector”.
It is encouraging that such conversations are taking place, but I wonder whether the noble Baroness could go into more detail than she has provided on meetings that related specifically to passporting rights. Do the Government share the view of the EU Select Committee about the awareness of passporting access across the industry? If so, I would be interested to hear how the Government intend to resolve this problem?
Given that the Prime Minister has made it clear that she has no intention of Britain remaining a member of the single market, could the Minister outline what implications the Government believe that will have for our ability to maintain passporting rights, and whether it will be a priority for the Treasury in the negotiations?
That brings me to the evidence base more generally. I appreciate that not all communications, let alone the detail of those communications, will or should be available for scrutiny. What I am asking for—and I believe that I am justified in doing so—is evidence that the Government are building the robust analysis and filling the gaps which the report made clear are so apparent. Can the Minister say whether, further to the request by the EU Financial Services Sub-Committee, the Treasury is modelling the effect of different scenarios on the deal that will be struck between us and the EU?
Related to that, will those models take into account the executive order signed by President Trump, which seeks to review the working of the Dodd-Frank Act? I know that the Government have been keen not to comment on the domestic policy of the US, but surely when minimum standards of financial regulation are at risk we have a responsibility to advocate measures which were designed to protect consumers.
Indeed, the report warns of the challenges associated with possible regulatory divergence between ourselves, the US and the EU. The UK has played an integral role in the design, implementation and management of financial service regulations. Do the Government intend that we continue to work with our European partners on regulation setting?
We have heard today some of the more intricate matters that the Treasury will have to consider. However, the point that I am trying to make is that, if we do not understand the basics of the overall industry, we will not be properly prepared to discuss the parameters of a debate on, for instance, as mentioned by a number of noble Lords today, our continued position as the European clearing centre, or—we have heard less of this, but it is important to London—as a hub for fintech development. Too often these basics are overlooked.
We must not confuse the mass of detail that we have for understanding the industry as a whole. The report left me with the impression that we do not have the necessary understanding of the industry to enter these negotiations, that the industry does not have a complete understanding of itself and that the Government have yet to find the tools with which to fill these knowledge gaps. I hope the Minister’s response will put my concerns to rest.
My Lords, the noble Baroness, Lady Falkner of Margravine, and her committee have produced an excellent, clear report. I thank her, and others, for the warm welcome they have given me in my challenging new role. I join others in thanking her and members of the committee—some of whom, along with others, have spoken with great clarity today—for their work. I especially thank the clerks, who have done a really good job at great speed.
It is obvious that financial services will be an important component of the EU exit discussions and it is helpful to have a comprehensive document covering all the issues at this exact stage—as well as to have this debate before we submit our government response to the committee. This debate is especially useful to me, as only last week I was given responsibility within the Treasury for EU exit on financial services. I can reassure noble Lords that I have a long history of working with, and operating in, the EU and I believe that we can build a strong new partnership on financial and economic matters.
The links between the UK and our nearest neighbours in Europe are numerous and long-standing, as the Prime Minister said when she highlighted financial services as a priority. Above all, it is in our interest for the EU to flourish and we will be aiming for the freest possible trade in financial services between the UK and the 27 member states.
I am especially grateful to my noble friend Lord Caithness, who gave us the benefit of his experience at the Treasury and an insight into the global future. This underlined to me the importance of maintaining the UK’s pre-eminence in financial services. Having, like him, operated for many years in the EU, working with EU partners, I very much agree about the importance of language. Notions such as seeking common ground are good concepts in negotiation.
The noble Earl asked about the risk of currency devaluations. He will remember that Treasury Ministers have to be very careful about what they say regarding currency. However, since the financial crisis, the Government have strengthened the domestic financial stability policy framework and, as the Governor of the Bank of England noted, the UK financial system has passed several tests over the past year. The Treasury, the Bank, the Prudential Regulation Authority and the Financial Conduct Authority will continue to monitor any risks closely. That is very important and reassuring.
As a glass-half-full person, I was glad to hear the noble Lord, Lord Butler of Brockwell, sound more optimistic than he did at the time the committee produced its report. My noble friend Lord Eccles and the noble Earl, Lord Kinnoull, felt the same. The noble Lord, Lord Butler, is right about the interest that the EU has in a sensible outcome. He may well know that four-fifths of EU 27 capital market business is conducted through the UK, and he is also right to say that we need to keep close to each other.
One key issue that the report discusses is that of access to EU markets. I listened with great interest to the noble Lord, Lord Dykes, who said how important it was to remain a confident country in this time of change. The Prime Minister helped us here with her speech at Lancaster House, in which she made it clear that we would not seek membership of the single market. Instead, we are seeking a new strategic partnership with the EU that complements the needs of our industries, including the needs of financial services companies and their customers.
That means that we are working closely with firms to understand what issues Brexit raises for them and what a good outcome might look like. Our work so far shows that the answer to that question varies enormously according to whom you ask. Many firms, for example, across banking, asset management, insurance and payment services, which currently trade across borders, benefit from passporting rights, but that is less true of firms that provide retail financial services chiefly within the UK, such as domestic insurance firms and high street retail banks.
We are working to understand the needs of the wide spectrum of financial services interests in the UK. That includes, for example, the car companies, which provide lease financing for most new cars bought in Britain today. It means understanding the interests of the wider financial and related professional ecosystem—a word that others have used—including accountants and lawyers, as well as thinking about the interests of consumers of financial services, including the less well-off or those who might be misled. I liked the example given by the noble Lord, Lord Butler, about car insurance for travellers in Europe.
As the report rightly notes, various elements of EU financial services legislation contain equivalence provisions, some of which can offer a basis for firms from third countries to provide services across the EU. We have heard calls from our stakeholders on this and studied the industry analysis proposing these equivalence regimes as the basis for future market access.
The noble Lord, Lord Tunnicliffe, asked about the depth of discussion on passporting rights. The simple answer is that at nearly every meeting on financial services interests there is a discussion of passporting rights—but, as with equivalence, different people are talking about different things. We need some flexibility in our negotiations, but I reassure this House that in our new strategic partnership we will seek the freest possible trade in financial services between the UK and the EU. In the Prime Minister’s words, it will be on the basis of a “bold and ambitious” free trade agreement.
As the committee’s report noted and our debate today has illustrated, this is an exceptionally complex set of issues. For this reason, I am determined that consultation with our industries and stakeholders should continue throughout the negotiating process, which will enable us to improve our evidence base and understand the impact of different scenarios. Those themes from the report were picked up by the noble Lord, Lord Tunnicliffe. The noble Lord also asked about Dodd-Frank. It is frankly early days on that. Our simple aim is to secure the future of a sector responsible for 7% of GDP and over 1 million jobs.
A second area of enormous significance to the sector is to avoid a so-called “cliff edge”. As the report highlights, this will be important to a large number of industries across the entire EU. For financial services firms, this is of particular importance because of the deeply integrated market for financial services and long-established regulatory coherence. To pick up on the points made by the noble Baroness, Lady Falkner, we want to give businesses enough time to plan and prepare for the new arrangements that will be in place. We want the change from where we are now as EU members to our new relationship with the rest of the EU to be as smooth and orderly as possible. It is in recognition of this that the Prime Minister has made it clear since the committee reported that a phased process of implementation will be sought.
I understand the noble Baroness’s point about the need for an early agreement on phasing to help allay the concerns of the financial services industries. We also believe that such a phased process of implementation can be in the mutual interest of the UK and the EU. Inevitably, the details of the timing of the implementation period will have to be discussed through the process of negotiation with our EU partners.
A third priority that many noble Lords touched on, including the noble Lord, Lord Desai, and the noble Earl, Lord Kinnoull, and which I think is extremely important, is access to talent. The noble Earl, Lord Kinnoull, warned that capital follows talent. I certainly remember that from my time in business. For some, it is the overriding issue. Fintech firms, for example, tell us they rely on drawing from an international talent pool. Europe leads on fintech, much of it here in London, and we are committed to staying at the cutting edge of financial innovation. Let me highlight the statistic from the report that is so telling on talent: of the 1 million or so people who work directly in our financial services, 60,000 are EU nationals and 100,000 are non-EU nationals. To respond to the noble Earl, we recognise that the ability to attract and look after highly qualified staff and transfer them easily between the UK and the EU is a key issue, including for insurance.
In future we must ensure that we can control the number of people coming to the UK from the EU. We are considering the options for our future immigration system very carefully. As part of that it is important that we understand the impacts of different options on different sectors of the economy and on the labour market. Companies are not only discussing with us how we keep attracting new talent; they want to know what it means for the international staff they already have and value. It is a priority for the UK to be able to guarantee the rights of EU citizens already living in Britain, and the rights of British nationals living in other member states, as soon as possible. That must be agreed on a reciprocal basis and we stand ready to sign up to this and to do so soon if it can be agreed with our EU partners.
I turn now to the international dimension. My noble friend Lord Caithness asked about the Prime Minister’s meeting with President Trump in the United States. The trip in January was very positive. I felt very proud of the Prime Minister. Obviously I cannot comment on the private detail of the conversation but the Prime Minister set out that there is a shared commitment to economic co-operation and trade between the United States and the UK. The UK has always been a leading voice for free trade in the EU and globally. That will continue. I always say that trade is in our DNA.
The Government agree with the committee’s assessment of the UK as a global financial services hub and the depth of capital market activity it fosters—to the benefit of Europe as a whole, its pensioners, its businesses and its public sector bodies and their customers. The UK and the EU have a mutual interest in ensuring that specialist activities, such as clearing do not end up in New York. The noble Lord, Lord Shutt, talked about possible job implications. I will say two things. First, I saw Mr Xavier Rolet today. He is one of the first experienced leaders in this industry that I have had the pleasure to consult. He gave me a copy of the EY report.
Secondly, as the committee’s report identifies, many firms in the UK, in the rest of Europe and internationally benefit from London’s multicurrency clearing structure. The Chancellor himself has pointed out that any changes to the structure could force up the cost of clearing, with a substantial cost to the European economy and to firms in the 27 member states—and cost is an important motivator. We will look at the committee’s recommendations on clearing very carefully in responding to the report.
My noble friend Lord Caithness asked about financial services regulatory co-operation in future trade deals, which was a very good question. The Prime Minister has said that the UK will be free to strike trade deals around the world after exit because of the approach that we have taken. That includes financial services. Trade deals involving non-tariff barriers, which have been mentioned, such as regulation, are also important and can be part of discussions on any new trade deal.
As the noble Lord, Lord Desai, said, we have played a major part in the architecture of the international financial system. We agree that we need to ensure that the UK, with its expertise, experience and eye for detail, continues to have influence over international standards with a voice on things such as the Basel Committee, the Financial Stability Board and other international fora such as the International Organization of Securities Commissions and the International Association of Insurance Supervisors. These international bodies could not be more important.
A priority of the Government is to consult external expertise extensively at this time and I am grateful for the vast amount of input that we have already had at every level in the Treasury and in DexEU. We are not talking just to those businesses with whole new Brexit strategy departments and consultants. We are also talking to those with none and to start-ups, supply chains and other stakeholders. We are also engaging outside London, where, as the noble Lord, Lord Shutt, said, we have large numbers of financial services jobs. There are, for example, around 140,000 people in this sector in Scotland, Northern Ireland and Wales—think of Standard Life or Virgin Money in Edinburgh, Legal & General in Cardiff, and Citi in Belfast. Indeed, next week I will visit Wales in my new role and hope to meet some financial services stakeholders.
We will keep up this process of listening to expert views from a range of standpoints as the negotiations kick off and progress. I hope not to be criticised by this House for lack of vigour. I know that many noble Lords have expertise in these areas. I therefore take this opportunity to invite them to contact me if they have advice to proffer.
I have focused my remarks largely today on two things: the needs of our varied financial services sector as we leave the EU, and how we are researching, understanding and analysing those needs. While some are more optimistic than others, there is a wide measure of agreement today that we need to secure the freest possible market access, the smoothest possible transition, and the ability to recruit and retain the best and the brightest. This matters to those people whose jobs depend on this industry—more than 1 million people in this country. It matters to the wider UK economy. Financial services contribute around £66 billion a year in tax and represent a growing percentage of our exports. It matters to our partners across Europe—and, of course, we are a gateway to the world of international finance.
It has been a pleasure to debate this perceptive and timely report. I again express my appreciation to the noble Baroness, Lady Falkner of Margravine, and the team that she chaired so expertly, for their conclusions.
My Lords, this has been an extremely fruitful debate and I am particularly grateful to the Minister for giving us, in the absence of a formal government response, a clear line of vision about how she is proceeding with her role. I particularly want to thank those noble Lords who spoke in this debate today who were not members of the committee—the noble Earls, Lord Caithness and Lord Kinnoull, the noble Viscount, Lord Eccles, and the noble Lord, Lord Dykes. We have benefited greatly in this House from hearing from them as well.
The tone of the debate touched on optimism and pessimism. As all Select Committees should do—and I believe do—we followed the evidence. When our interlocutors were extremely concerned about their future businesses, workforces and livelihoods, we reflected that in the debate. Frankly, we did not encounter too many voices cheering the impact of Brexit on financial services from the rooftops.
Where I entirely agree with the optimists is about the durability of the City of London to innovate, reinvent itself anew and adapt. Voltaire picked this up in the early 18th century when he was in London—enriching himself on the back of the City of London. He exhorted the French to move in the same direction. “Nobody understands commerce like the English,” he said. As I reminded the House today, President Hollande is, somewhat belatedly, trying to take France in that direction.
In conclusion, it is people who are at the heart of this. It is not fashionable to defend bankers, nor to say that the financial services sector does a very good job in liquidity and capital markets. Our committee saw how important it was that the livelihoods of people in this country and in the European Union should continue to benefit from that most essential commodity—capitalism.
House adjourned at 4.31 pm.