Brexit: The Crown Dependencies (European Union Committee Report) - Question for Short Debate

– in the House of Lords at 6:28 pm on 23rd January 2018.

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Photo of Lord Boswell of Aynho Lord Boswell of Aynho Chair, European Union Committee, Principal Deputy Chairman of Committees 6:28 pm, 23rd January 2018

To ask Her Majesty’s Government what is their response to the Report from the European Union Committee Brexit: the Crown Dependencies (19th Report, Session 2016–17, HL Paper 136).

Photo of Lord Boswell of Aynho Lord Boswell of Aynho Chair, European Union Committee, Principal Deputy Chairman of Committees

My Lords, I am delighted to introduce this short debate on the EU Select Committee’s report, Brexit: the Crown Dependencies. I preface my remarks by being even more vehement and enthusiastic than is perhaps my habit in thanking colleagues and members of my committee and the staff, both for producing this report and for the immense support they have given me, along with Members from all sides of the House, during my recent illness, for which I deeply grateful.

The report is part of a series of inquiries undertaken by the committee into what Brexit means for the United Kingdom’s various constitutional relationships, both internally and externally. We have also examined the impact of Brexit on UK-Irish relations, devolution, Gibraltar and the UK’s Overseas Territories. The report discussed tonight was published in March last year and drew on evidence received in a valuable joint appearance before the committee by the Chief Ministers of Jersey, Guernsey and the Isle of Man, as well as evidence received from academic and legal experts and the Parliamentary Under-Secretary, Robin Walker MP.

The Isle of Man, the Bailiwick of Jersey and the Bailiwick of Guernsey—which includes the three jurisdictions of Guernsey, Alderney and Sark—each have a unique relationship with the UK. They are not part of the UK but are self-governing dependencies of the Crown with their own directly elected legislative assemblies, administrative, fiscal and legal systems and their own courts of law. They are not represented in, nor accountable to, this Parliament. The UK Government are responsible for the defence and international relations of these islands. Citizens of the Crown dependencies hold British citizenship under the British Nationality Act 1981, and the islands are part of the common travel area. They cannot sign up to international agreements in their own right but can have the UK’s ratification extended to them or sign specific international agreements if—this is the technical word—entrusted to do so by the UK.

The Crown dependencies also have a unique relationship with the European Union, set out in Protocol 3 to the UK’s 1972 Treaty of Accession to the European Community. The dependencies are not part of the EU. However, under Protocol 3, they are nevertheless part of the customs territory of the Union and therefore Union customs matters, the common customs tariff, levies and the prohibition against quantitative restrictions apply. There is free movement of agricultural goods and derived products between the islands and the EU, and measures relating to trade in such goods with third countries are also included.

However, other EU rules do not apply. The implementation of the provisions on the free movement of persons, services and capital is not required. Only this morning I was discussing with the Latvian Minister and her ambassador the position of Latvian nationals who are resident and working in Guernsey, as an example of the complexity of this. So they are not required to implement the free movement of persons, services and capital but, equally, they are not eligible for assistance from EU structural funds or under the common agricultural policy. EU tax instruments, justice and home affairs measures and the Schengen acquis do not apply, although the dependencies have applied for equivalent status in a number of legal and policy areas.

The citizens of the Crown dependencies did not as of right participate in the EU referendum. Nevertheless, the consequences of Brexit for the Crown dependencies are significant. The evidence that we received drew attention to three intertwined and potentially conflicting priorities for the Crown dependencies in the Brexit negotiations. The first is the maintenance of their centuries-old constitutional relationship with the UK. The second, notwithstanding the loss of Protocol 3 on the UK’s withdrawal from the EU, is the retention so far as possible of the benefits of the existing relationship between the Crown dependencies and the EU. The third is the evolution of the Crown dependencies’ international identities while respecting the UK’s constitutional obligation to represent them in defence and international relations.

While each of the Crown dependencies has its own specific priorities—they have been assiduous in keeping us in touch with their concerns as well as, I am sure, the Government—the implications of Brexit appear most significant in a number of areas. The dependencies wish to continue to trade freely in goods, including fisheries, agriculture and manufacturing, with both the UK and the EU.

They are also cognisant of the impact on their important financial services sectors, particularly the Crown dependencies’ continued ability to secure regulatory equivalence where appropriate. The Crown dependencies wish to continue to attract EU citizens to live and work there, particularly in sectors such as agriculture, health, financial services and tourism, while at the same time retaining the common travel area with the UK. The Crown dependencies also have important links with the EU in data protection co-operation, transport and communication, and energy co-operation.

There is a wider concern that the priorities of the Crown dependencies will be overlooked in the Brexit negotiation, or that we will run out of time to give them sufficient attention. This fear is to some extent informed by memories of the European Community accession negotiations. In the words of the Chief Minister of the Isle of Man, Howard Quayle, while it had ultimately served them well,

“the drafting of Protocol 3 was done almost as an afterthought”.

The UK Government have a constitutional and moral responsibility to represent the interests of the Crown dependencies in the Brexit negotiations, and our report called on the Government to ensure that the Crown dependencies remain fully involved as negotiations proceed and that their concerns and priorities are properly taken into account by the UK negotiators.

I therefore conclude with a number of questions for the Minister. First, how are the Government engaging with the Crown dependencies in relation to Brexit? What steps are they taking to address the dependencies’ specific policy concerns? How will the Government ensure that the Crown dependencies are able, as far as possible, to retain the benefits of their existing constitutional relationship with the UK and the EU? How will our Government ensure that the Crown dependencies are kept fully apprised of, and given the opportunity, where appropriate, to participate in, future free trade agreements with third countries? Are they supporting Guernsey and Jersey in their efforts to ensure that the UK’s WTO membership is extended to cover them, as it already does the Isle of Man? Can the Minister give a commitment that the Government will continue to fulfil their constitutional obligations to represent the interests of the Crown dependencies in international relations, even when these differ from those of the UK, both during the Brexit negotiations and beyond?

I raised many of these issues in a letter to the Secretary of State on 22 November, to which we have as yet received no reply. Can the Minister give a commitment on his behalf that a reply will be provided as a matter of priority?

In conclusion, our report is a matter of raising awareness of the complex constitutional issues and indicating the importance of the Government’s engagement on them. I make no accusations—I think that at the moment there is a good working relationship—but it is essential that it continues through the negotiations and beyond.

I look forward to this evening’s debate, and to the noble Baroness’s reply.

Photo of Lord Northbrook Lord Northbrook Conservative 6:38 pm, 23rd January 2018

My Lords, we are all grateful to the European Union Committee for its report Brexit: the Crown Dependencies, and I am delighted to welcome back the noble Lord, Lord Boswell of Aynho, after his illness. The report is very detailed and the conclusions are clear. In the time available, I will be able to focus mainly on the conclusions, together with the government response to the report and the briefings I have received from the Governments of Guernsey and Jersey.

As stated by the noble Lord and in the summary, the Crown dependencies are part of neither the EU nor the UK. Nevertheless, they have a unique constitutional relationship with the UK and, as encapsulated in Protocol 3 to the UK’s treaty of accession, with the EU. The consequences of Brexit for the Crown dependencies are therefore significant.

As the report states, there are three major priorities for the Crown dependencies in the context of the Brexit negotiations: maintenance of their centuries-old constitutional relationship with the UK; retention as far as possible of the existing relationship between the Crown dependencies and the EU; and the evolution of the Crown dependencies’ international identities, while respecting the UK’s constitutional obligation to represent them in matters of defence and international relations.

So how are the dependencies faring thus far? I have received most helpful briefings from the Governments of Guernsey and Jersey, giving their reaction to the report. For the Isle of Man, I am relying on the Chief Minister’s evidence. Starting with the Government of Guernsey, they have set out their four Brexit priorities. These are: customs and trade; free movement of people, including immigration and the common travel area; fisheries and agriculture; and financial services.

In the Government’s response to the report, David Davis, the Minister, places great emphasis on the regular meetings that have been established between the Chief Ministers of Guernsey, Jersey and the Isle of Man, and Robin Walker, Under-Secretary of State at DExEU. The response states:

“We will continue to engage with the Crown Dependencies on these areas, ensuring they remain fully involved as negotiations proceed”.

However, the Guernsey briefing conclusion takes a more pragmatic and cautious view of the current situation, stating that the UK Government have been delivering on their commitments to engage with the Crown dependencies and ensure that their interests are taken into account. It goes on to say that the Crown dependencies are waiting for a number of clear positions in terms of the future partnership and implementation period to be able to make strategic and legislative decisions, including on matters relating to entering into a customs union and the future immigration regime, as well as on fisheries and trade policy. With this in mind, it will be important to understand the timeline for the implementation of any new agreement in making strategic and legislative decisions.

The main features of the Jersey briefing echo those of Guernsey. It gives its four major objectives for Jersey as a result of the Brexit negotiations. These are, first, to continue the fundamentals of its existing relationship with the UK. This includes membership of the common travel area, a common customs territory, freedom of movement of capital and external trade based on tariffs in common with the UK.

Secondly, it wishes to continue the benefits of its relationship with the EU, as under Protocol 3. These include: access to EU goods markets on terms no less favourable than the UK has; access to EU markets for financial services through meeting requirements of equivalence; mutual recognition of regimes for third countries; and securing a no less favourable deal on movement of persons in the EU for British nationals resident in Jersey than for British nationals generally.

Thirdly, Jersey wishes to ensure that it has the right agreements and international relationships to benefit from global opportunities. This includes extension of the World Trade Organization application to Jersey. Guernsey also wishes for this, unlike the Isle of Man, which is already, through the UK, a member. It also includes strengthened relationships with non-EU global markets; an expanded network of international agreements; and entrustment to negotiate bilateral investment treaties between Jersey and key trading partners.

Fourthly, Jersey wishes to mobilise the UK Government to ensure: the uninterrupted functioning of relevant law in Jersey related to EU legislation; that Jersey will still control access to its housing and labour markets; and that it will work with Guernsey and the Isle of Man to exercise maximum influence on the UK’s Brexit negotiations.

The Isle of Man, as I mentioned, has different needs. As set out in the report, it already has a customs and excise agreement with the UK, signed in 1979, which provides for the sharing of VAT and other revenues between the island and the UK. Also, the Isle of Man is part of the UK’s membership of the WTO. The Chief Minister of the Isle of Man told the committee that one of their two key concerns related to the freedom of movement of goods. He also informed the committee that the impact of Brexit on agriculture, exports and animal welfare was key. Another of his major concerns was the manufacturing industry, particularly in the area of aircraft parts. His other main worry was about retaining, as far as possible, the current freedom of movement of people from the EU, because of the island’s ageing population.

Like the noble Lord, Lord Boswell of Aynho, I ask the Minister for a response to the noble Lord’s letter of 22 November, which includes many of the questions posed by the Guernsey and Jersey briefings and the Isle of Man evidence. It seems discourteous that no reply has yet been forthcoming, although it was requested by 5 December last year.

Paragraph 113 of the report sums up very well, emphasising the,

“Crown Dependencies’ continued ability in trade freely in goods … The financial services sectors in the Crown Dependencies, and … The ability to continue to attract EU citizens to live and work in the Crown Dependencies”,

as well as,

“Existing data protection cooperation, transport and communication links, and energy cooperation between the Crown Dependencies and the EU”.

This has important implications for Brexit.

Photo of Baroness Pitkeathley Baroness Pitkeathley Deputy Chairman of Committees, Deputy Speaker (Lords) 6:46 pm, 23rd January 2018

My Lords, it is a pleasure to take part in this debate and to see the noble Lord, Lord Boswell, back in his place.

I am well aware that, in the extraordinarily difficult situation in which the United Kingdom Government find themselves at present and the complex negotiations in which they are engaged with regard to the EU, the concerns of a few tiny islands off the coast of France may not seem to be at the top of their list. But I speak as a native of one of these islands, as a proud Guernsey woman, as president of the All-Party Parliamentary Channel Islands Group and as, I think, the only Channel Island member of either House of Parliament. Your Lordships will understand my reasons for speaking, though very briefly, in this debate tonight.

Such is the close connection between United Kingdom and the Channel Islands that it is often very difficult for people to understand that they are not part of the United Kingdom and never have been, a fact brought firmly home to me 20 years ago when I entered your Lordships’ House. When discussing the issue of my territorial designation, the then Garter King of Arms told me that I could not use the place in Guernsey where I was born, as had been my intention, because it was “too foreign”. When I questioned the use of foreign place names by other noble Lords, I was told that I would have had either to take it in battle or sack it. As I had done neither to the tiny parish of St Sampson on the island of Guernsey where I was born, I agreed to another designation.

The relationship between the Channel Islands and United Kingdom has always been a complex one, and this complexity will be exacerbated as the UK leaves the EU. The complications centre around the three themes so clearly set out in the report and set before us by the noble Lord, Lord Boswell. Maintaining the very old and long-standing relationship goes back to 1066, when we Normans, subjects of the Duke of Normandy, came over and conquered you at the Battle of Hastings. We must maintain that existing relationship —the existing relationship as well as the very old relationship. There must be an opportunity for the Channel Islands to develop their own international identities and forge new relationships in the new scenario where nobody quite knows how it is going to pan out.

I remember very clearly the anxiety in Guernsey in 1972, when the UK joined the EU. My father grew tomatoes for a living, as many people did in those days. Some of your Lordships may be able to remember when tomatoes were a seasonal fruit, and we all looked forward to March, when Guernsey tomatoes came into the shops. I remember how terribly worried he was about the future of agriculture and horticulture. That worry is there even more strongly nowadays, when those involved in the financial services sector, so vastly developed in recent years, and those involved in tourism and hospitality, are all so concerned about their futures.

EU policy and Brexit are far from being my field of expertise, so I can offer no suggestions about how these circles are going to be squared. All I can do from my very personal perspective is to urge the greatest possible communication between the Crown dependencies and the negotiators. The Minister, David Davis, seemed to promise this in his letter in October to the noble Lord, Lord Jay, in response to his excellent report. He said that the government negotiators are seeking the best possible deal for all jurisdictions and will ensure that we take full account of the Crown dependencies’ interests in the negotiations. He also undertakes to ensure that the Crown dependencies remain fully engaged as negotiations proceed.

This is most welcome, but in the briefing we have received from the Bailiwick of Guernsey, already quoted by the noble Lord, Lord Northbrook, we are reminded about the importance of timing. They say that:

“The UK Government have been delivering on their commitments to engage with the Crown Dependencies and ensure that their interests are taken into account”.

However,

The Crown Dependencies are waiting for a number of clear positions”,

and:

“The time to implement these decisions will be critical. This includes matters relating to entering into a customs union, the future immigration regime as well as on fisheries and trade policy”.

It will be so important that all these negotiations, and any decisions about transitional relationships, are communicated at the earliest possible stage. This is not just to ensure that there is time to put matters before the three legislatures in the Bailiwick of Guernsey—yes, three legislatures in a tiny island—but also to provide businesses with the confidence and the basis on which to plan and make investment decisions.

A smooth and orderly transition is in the best interests of Guernsey and, of course, of the United Kingdom. We must ensure that this happens, and in good time. I know that the Governments of Guernsey and Jersey will make every effort, not just because of the constitutional obligations but because of the strong and very affectionate ties between the Channel Islands and the United Kingdom. I trust that the Government will do the same. Your Lordships may know that Channel Islanders refer to the mainland of England as the other side, as in, “my plane has been held up by bad weather on the side”; or “she married a man from the other side”, as they say about me. We must not be on opposite sides as these negotiations continue.

Photo of Lord Shutt of Greetland Lord Shutt of Greetland Liberal Democrat 6:52 pm, 23rd January 2018

My Lords, I declare an interest as vice-chairman of the Isle of Man All-Party Parliamentary Group. I have been a regular visitor to the Isle of Man since the 1940s. I have holidayed in the Channel Islands on three occasions and have been to five of them. This report by the European Union Committee is of the usual high standard that we expect. The noble Lord, Lord Boswell, has given a clear synopsis. In a sense, there is not much to say about the report because he has said it, but there it is. He has been amazingly polite. I hope to be polite too, but direct.

The report was sent for publication on 14 March 2017, 10 months ago. I do not know when the committee started on it, but I suspect it was over a year ago. It is not the fault of the committee that we are discussing a very dated report today. We are supposed to be in a rush to exit Europe; we are supposed to be out by March 2019. Yet a year has gone since work was started on this report on the Crown dependencies. After seven months, the Government sent a response; then, a mere two months ago, on 22 November, the noble Lord, Lord Boswell, asked five questions—one sheet of A4 paper. These are simple but very relevant questions for his committee to ask. It is now 23 January and there has been no answer, even though the noble Lord, Lord Boswell, said that it would be a good idea if the Government could answer by 5 December. That suggests the Government are not bothered about our European Union committees and the serious work that they do. It is interesting to see how different arms of government respond to your Lordships. I note that on 11 January last—not long since—the noble Lord, Lord Best, initiated a debate on housebuilding. As early as 17 January—six days later—the noble Lord, Lord Bourne of Aberystwyth, had responded with an “all Peers” four-page letter covering several important points. He responded in six days, giving very important and valuable information to all the people who had taken part in that debate. Do not government departments differ?

These islands may well be small, with a quarter of a million people between them. Their interests were perhaps formerly only tourism, agriculture and fishing but are now far wider, with manufacturing and financial services prominent. Therefore, the needs of the Crown dependencies are complex. I do not fault in any way the report’s conclusions. I was going to quote from it but that has been done twice already.

Looking at the report itself, I am surprised at the comparisons between the contributions of the three Chief Ministers, who seem to believe that the discussions appeared to bode well for them, yet the lawyers and academics were far more sceptical about satisfactory negotiations. That comes through to me from the report.

I was also surprised to see that Jersey had set aside £4 million to create a Brexit unit. I wonder whether that means that the three islands between them are having to spend £10 million on this sort of work—another expense of Brexit.

Paragraphs 94 to 97 show how some of the committee’s witnesses see the international negotiations that are needed and how they may take place in practice. I particularly noted the phrase from the Guernsey Chief Minister in relation to the Crown dependencies,

“the United Kingdom’s responsibility to represent our interests, even where they may not be the same as the United Kingdom’s”.

How will the negotiations be conducted? Can the Minister tell us? I can imagine the scene where a Minister says in negotiations, “I am here to represent the United Kingdom. There are 60 million of us and 40 million or so have votes. I want to do my best for them but then I am also here to represent three Crown dependencies. There are a quarter of a million of them. Some of them have votes but not for my Parliament. Their needs are different from the UK’s but I am trying to do my best for them as well”. That does not ring true. Were W S Gilbert alive today, there could well be the makings of a new Savoy opera. Or will there be two UK Ministers in the meetings, one saying, “I speak for the paramount needs of the UK”, and one rooting for the Crown dependencies?

There is a reference in the report to a European Union occasion, described as a unique occasion when a representative of Jersey was allowed into a room to explain Jersey’s corporate tax legislation. Will this be a way forward in the negotiations? Will the Crown dependencies have direct involvement in this important work?

The letter of the noble Lord, Lord Boswell, of 22 November asks for an update following the discussions that took place on 13 November. Surely now is the time for the noble Baroness to tell the whole House where things now stand.

Photo of The Earl of Kinnoull The Earl of Kinnoull Crossbench 6:59 pm, 23rd January 2018

My Lords, it is a pleasure to follow the noble Lord, Lord Shutt of Greetland, with his customary clarity and directness. I envy him that—we are not as direct as that in Scotland.

I declare my interests as set out in the register of the House, particularly those in respect of financial services. I begin by congratulating the noble Lord, Lord Boswell of Aynho, on three things: first, securing this long-overdue debate on this important subject; secondly, the thorough way in which he introduced the debate—I agree with the noble Lord, Lord Shutt, that it is difficult to say anything extra after that; and, thirdly, his being back. On the EU Select Committee we always enjoy the bon mot which inevitably comes as our spirits are low at the end of a meeting. It is nice to see him back and on good form. I envy him his new slimness—something I have been working on in January with a total lack of success.

I also pay tribute to our staff. On the EU Select Committee as a whole we have 24 staff. They have worked blooming hard over the last 18 months or so and have produced 24 reports so far—there are three more in the pipeline, loaded and ready to come out. Of those, 22 are sectoral reports. This was one of those, and it was reserved for the main committee of the EU Select Committee structure. It is of course self-evident why, with the ties of history and blood and the very substantial mutual economic interest between the UK and the Crown dependencies. I will make only one general comment and will put two points to the Minister.

In comment terms, on 5 December last year, the EU adopted Council conclusions concerning non-co-operative tax jurisdictions. The conclusions amounted to 38 careful pages. On page 5 the EU Council affirms that,

“these actions collectively taken by the EU Member States are in line with the agenda promoted by the G20, the OECD and other international fora”.

None of the Crown dependencies is on the blacklist in that EU document. Annexe 2 of the adopted conclusions lists countries in various categories which have agreed to make changes by the end of this year. It is a long list. In so many words, providing the changes are made, in the EU Council’s view the countries will be fully compliant with the EU, G20 and OECD thinking in this area. Some 23 countries are making changes to improve transparency, but none of the Crown dependencies is listed. Some 22 countries are making changes in anti-BEPS measures—a sophisticated corporate tax dodge. None of the Crown dependencies is listed. Some 26 countries—including Switzerland and Hong Kong—are making changes to amend or abolish what are called “harmful tax regimes”, but none of the Crown dependencies is listed. Some six countries, including Guernsey, Jersey and the Isle of Man, have agreed to address,

“concerns relating to economic substance”.

This is the only place the Crown dependencies appear in the annexe.

Pierre Moscovici and his team have carried out an exhaustive process of work which is aligned with that of the G20 and OECD, and the Crown dependencies have agreed to take what is a small amount of corrective action so that by year end they will be deemed fully compliant by the EU and aligned with G20 and OECD practice on matters of tax. The timing of this is clearly a great help in allowing the UK to represent the interests of the Crown dependencies with clarity in the Brexit negotiations. I commend the Crown dependencies on all their hard work in ensuring that they are well set up, work in which Hong Kong and Switzerland are playing catch-up.

On my two questions, the Secretary of State David Davis wrote in his response to our report in October, over three months ago,

“We will work with the Governments of the Crown Dependencies to take into account their priorities, including discussing with them their potential participation in future free trade agreements with countries beyond the EU and working with them on the issues around extending the UK’s WTO membership”.

I should say that Jersey and Guernsey are not part of our WTO membership but the Isle of Man is. My questions for the Minister are, first, to ask for an update as to how the Crown dependencies are being involved in the fresh trade deals that the UK is seeking to make, and secondly, to ask for an update on the progress in extending the UK’s WTO membership to Jersey and Guernsey. I very much look forward to the responses to those questions.

Photo of Lord Selkirk of Douglas Lord Selkirk of Douglas Conservative 7:04 pm, 23rd January 2018

My Lords, I congratulate the noble Earl on the excellence of his speech and his understanding of this subject.

The wonderful Bayeux tapestry, and its possible first ever exhibition in the UK, has been in the headlines recently. Even before this exquisite 11th-century work was being stitched into existence, control of what we now know as the Channel Islands had already passed to the English Crown. As part of the Duchy of Normandy, they came in the wake of the substantial army of William the Conqueror after he won the Battle of Hastings—the momentous event which forms the centrepiece of the tapestry. They are self-governing Crown dependencies—now along with the Isle of Man, which first came under the control of England in 1341—so the British Government have the clear legal and moral responsibility to represent and defend their interests as the latest stage of the Brexit negotiations get under way, as the noble Lord, Lord Boswell, pointed out.

The report we are considering today from the Select Committee, of which I am a member, rightly stresses that the British Government have a constitutional responsibility to represent internationally and in defence matters the “concerns and priorities” of what are historically described as the bailiwicks of Jersey, Guernsey and the Isle of Man. That is the case even when their interests may differ from those of the United Kingdom.

While the big issue of exactly what kind of future trading arrangements we can secure with the European Union will dominate the Brexit discussions, I am anxious that we should not overlook the position of the smaller players, who have been forced on to the field even though they had no vote in the referendum.

Speaking in a debate last year, I urged the Government to take on board the special interests of Gibraltar, whose citizens were able to take part in the referendum, and not to let down these loyal friends. I do the same over the Crown dependencies, although of course their position with regard to the European Union, currently governed by Protocol 3 of the UK’s accession treaty, is unique and different from that of the Rock. We must make sure that they can contribute fully to the Brexit discussions while we try to do everything in our power to preserve their special and historic relationship with the United Kingdom.

At the same time, it is important that they are able to benefit from the global opportunities which the United Kingdom’s new post-Brexit trading arrangements may afford. The Crown dependencies are not of course members of the European Union but they are anxious to retain in some form the trading relationship that they currently have with Brussels as part of the customs union. They are also essentially within the single market with regard to the trading of goods, and, as we have heard, their priorities include agriculture and fisheries, as well as financial services.

It was not the job of the report to examine the tax regimes of small territories such as the Crown dependencies. However, they themselves have pointed to the fact that they received the highest compliance rating in a report on tax transparency by the Organisation for Economic Co-operation and Development—I refer particularly to Jersey and the Isle of Man. It is, however, important with regard to their international profile, and following the disclosures in the Paradise papers, that they remain as helpful and open as possible to Her Majesty’s Revenue and Customs in their endeavours to uphold the law,

The Prime Minister has told the Chief Ministers of the Crown dependencies that the United Kingdom’s relationship with them is “valued, historical and special”. In responding to this report, David Davis, the Secretary of State for Exiting the European Union, said:

“We are determined that the bonds between us should be strengthened, not weakened, as we forge a new relationship with the EU and the wider world”.

As the clock ticks, the pressure mounts and the tension rises in the corridors of power in Brussels and Whitehall, can the Minister please assure us that the wise counsel of David Davis will indeed continue to be the case?

Photo of Lord Beith Lord Beith Liberal Democrat 7:09 pm, 23rd January 2018

My Lords, the noble Lord’s analogy of the ticking clock is appropriate, especially as noble Lords have referred to the amount of time that has already elapsed without many of these issues being settled. We are indebted to the noble Lord, Lord Boswell, for the report and his clear presentation of it.

I declare a minor interest in relation to Sark but my real interest arises from having spent time as chairman of the Justice Committee in the House of Commons working out how we could improve the constitutional relationship and the way it operates. Thanks to colleagues in the then coalition Government a great deal was achieved, except in one area—to which I will return—which was how international representation is handled. That was the one subject on which the Government did not accept our recommendation.

I endorse what many noble Lords have said about the issues that will be important to the dependencies. The Crown dependencies are not in the European Union but a great deal of their trading activity is affected by the EU. They are in the customs union under Protocol 3 and in the single market for goods, although not for services because they did not want to be. They benefit from free trade in goods with the EU and from the free trade agreements which the EU has with third countries around the world. They will need to be involved in whatever trade deals the UK makes with the European Union and with third countries.

As far as the EU is concerned, this has a direct effect in areas such as fish exports. The fish caught by fisherman from Jersey, Guernsey and Sark are exported primarily to France. That is also true for the fisherman in Northumberland. The French consumption of shellfish in particular means that it is a good market on which the Crown dependencies also depend. These are important issues and need to be resolved.

The most important trade and common travel relationship that the dependencies have is with the UK, but even that could suffer adverse and unintended consequences if matters are not watched carefully. Only the Isle of Man currently has what amounts to a customs union with the United Kingdom and WTO membership so far applies only to the Isle of Man and not to the Channel Islands. There are other areas where international treaties will be important—for example, in relation to intellectual property.

All the dependencies will have considerable legislative provision to put in place. It will not be as massive as the withdrawal and other Bills for us because it is a bigger change in our situation, but they will have legislation to get through. That will include all five legislatures. As the noble Baroness, Lady Pitkeathley, said, the small legislatures of Alderney and Sark will have requirements placed upon them and the law officers of Guernsey will be advising all three of the bailiwick territories. There is a lot of work to be done. How is that going to be managed in the timescale? Surely some transitional arrangements will be required for the dependencies if decisions are not taken until a late stage in the negotiating process.

As several noble Lords have pointed out, the free movement of people has been important. This is because all the dependencies have significant numbers of EU citizens. Some of them are working for international businesses and it is beneficial that they can move freely between the various offices of those businesses; many are working in the tourism industry—the long links, for example, between the Channel Islands and Portugal because of Madeira provide many employees in the tourist industry; and all the dependencies have the demographic problem of not having enough young people in their populations to meet the requirements of their successful economies. This is another area at which we have to look carefully.

These are just some of the issues touched on in the Lords report and in a report published at roughly the same time by the Commons Justice Committee on the implications of Brexit for Crown dependencies.

The Government have earned praise from the Crown dependencies for the way that they have been handling things so far. There is no doubt that there have been quite warm commendations for the engagements that have taken place so far. The problem is that we have not got down to the difficult business yet. Many questions are being asked, particularly about what the Crown dependencies can do to get into the appropriate trade negotiations, but we are at the point at which the Government themselves do not know what the outcome of the trade negotiations will be. It is not even clear what the Government’s own position is on these issues. Besetting our whole Brexit discussion is the fact that the Government are unclear. Do they want to be in the customs union and the single market? Are they serious about not being in either of them? When the Crown dependencies try to work out what their position is in relation to that, it is doubly difficult, so the engagement will not be tested properly until we are much closer to the deadline, but that is the point at which the interests of the dependencies tend to be unintentionally forgotten. That is what happened when the UK entered the European Community. It was only at the last minute, almost literally at the 11th hour, that Geoffrey Rippon agreed under considerable pressure to take the steps that were necessary to produce what we keep referring to as Protocol 3.

It is going to be extremely difficult when there is no real difference between the interests of the United Kingdom and those of the Crown dependencies, and I think that that will be the case on a lot of issues. But imagine the difficulties, to which my noble friend referred, when there is a real difference. As I indicated earlier, previous reports from the Justice Committee have sought to set clearer arrangements when there is a difference of view so that, for example, we can be certain that representatives of the dependencies are either outside the room or preferably in the room when their particular interests are being dealt with. The idea that the Minister can wear two hats is not convincing unless he brings with him people from the dependencies who can speak more directly to their interests. That was properly lampooned by my noble friend.

The Commons report to which I have referred states:

“Engagement encourages—but does not entail—representation, which could become awkward were the interests of the UK and the Crown Dependencies to diverge. The current approach does not guarantee that such a scenario would be handled satisfactorily”.

That is from the summary of the report on these issues. It goes on:

“We recommend that the Government clarify its position on representing any of the Crown Dependencies’ interests that differ from the UK’s own”.

This is a longstanding issue which was highlighted during the Icelandic bank crisis. That led the Justice Committee at the time to pursue it in some detail, but it is still not properly resolved. In difficult negotiations the United Kingdom might need to use some negotiating capital to protect the Crown dependency interests. None of us would want to see a situation in which Crown dependency interests were either bargained away or indeed used by the other side of the table to create difficulties. It might then be necessary for the United Kingdom to give some ground.

The message of this debate is that amid all the issues that the United Kingdom faces, which are formidable if Brexit goes ahead because they will occupy the attention of Ministers and of both Houses of Parliament, we must not forget the Crown dependencies when the going gets tough.

Photo of Lord Teverson Lord Teverson Chair, EU Energy and Environment Sub-Committee 7:18 pm, 23rd January 2018

My Lords, I declare an interest as a board member of the Marine Management Organisation because I want to mention fisheries during my short speech. From these Benches I also want to warmly welcome the noble Lord, Lord Boswell, back to his seat in this House and as the chair of the European Union Committee. We have greatly missed him and we all welcome him back.

The thing about the Channel Islands in particular, but also the Isle of Man, is that they are probably the communities that will be most affected by Brexit but that they did not have a vote on that decision. The effects will probably be equal to or even more than on the citizens of the Republic of Ireland. That is why this debate is so important, because that vote and the measures which the Government are taking at the moment towards Brexit will affect those communities. We have a particular moral and ethical need to make sure we represent those communities strongly in our negotiations, even where some of those interests divide.

One of the great things about the report of the committee chaired by the noble Lord, Lord Boswell, is that it explains some of the constitutional differences that so many of us on this island do not understand. I was interested in the term “customs territory”, rather than customs union; I have not come across it in the lexicon before. The report somehow tried to explain this relationship. I was particularly reminded—my noble friend Lord Beith mentioned this—that back in 1972 this was pushed into the negotiations to enter the European Union at the last minute. We should remember that, as far as those communities and the UK’s relationships with the Crown dependencies are concerned, they were an afterthought at the time.

I want to say a little about fisheries. Indeed, a number of noble Lords talked about the trade in fisheries, but that is not the only issue. The Crown dependencies have their own territorial waters, but they have a strange relationship with the common fisheries policy: although they are not part of it, they share quotas with it. A number of conflicts can happen there. I am interested to hear from the Minister whether the Channel Islands will set their own quotas and fisheries management in the new regime, or whether there will still be a relationship. As the report outlines, there was a breakdown in relationships between Guernsey, Defra and the UK over fishing quotas last year or the year before. How will that be resolved? Will we still make sure that the Channel Islands have access to the markets, as well as to their own fishing territories?

Coming back to the argument on the customs union, as a number of noble Lords pointed out, the Channel Islands are not members of the WTO. I am interested to understand whether the Government have made any decisions as to whether they will encourage, allow or help the Channel Islands to become part of the UK’s WTO membership, as the Isle of Man is. What is the Government’s position? I hope it is one of enabling the same relationship if that is what the Channel Islands want. Do they have the authority to negotiate their own independent membership if they want it? I am not sure whether that comes under foreign relations and therefore UK jurisdiction or whether it is a matter they have as sovereign. I would be interested to hear the Minister’s view on that. There is clearly a difficulty there because some of the trade relationships with the continent and the remainder of the EU are important, and trading relationships with the UK are important as well. They will have a great dilemma until they know what the future trading relationship between the UK and the EU—and, indeed, the rest the world—will be.

I was particularly struck by the comments of our witnesses from the Channel Islands, who pointed out that once the UK starts to negotiate its own trade agreements worldwide—the EU already has 50-plus that we are a beneficiary of—how will the Channel Islands and the Isle of Man manage to keep involved in all of them, let alone in the Brexit negotiations with the European Union? It is of great concern to them.

I come back to the financial sector, which the noble Earl, Lord Kinnoull, mentioned so well. Part of the evidence we took for this report was that the issues around equivalence that have been dealt with since Brexit in terms of financial regulations have become more difficult, as have the political decisions. Certainly, I have a concern that as time goes on the equivalence that they have managed to benefit from over the years while we have been a member will become ever more difficult. Indeed, I question whether the Channel Islands, not through their fault or because they are behind the curve—they are ahead of the curve—will face greater risks around blacklisting on certain lists than they have to date. I will be very interested in the Minister’s view on how the British Government can include equivalence in their negotiations around future financial services with the European Union and its single market.

I mentioned, as have other noble Lords, Protocol 3, which is quite unique and was written at the last moment before our accession to the European Economic Community, as it was at the time. The fear, I think, from many of us around the House is that in the fast and very hectic negotiations that we will have during the next year, up until March 2019, the issues of the Channel Islands and the Isle of Man are likely to be marginalised, as they were at that time. I hope, like many others, that Ministers can assure us that that will not be the case but I will be very interested to hear from the Minister whether the Government intend to include the Crown dependencies in any agreement around transition.

Photo of Baroness Hayter of Kentish Town Baroness Hayter of Kentish Town Shadow Spokesperson (Business, Energy and Industrial Strategy), Shadow Spokesperson (Exiting the European Union), Shadow Deputy Leader of the House of Lords 7:26 pm, 23rd January 2018

My Lords, the report, as clearly written and as well-researched as all the EU Committee’s outstanding output, starts with the words we have heard already:

“The Crown Dependencies are neither part of the EU nor of the UK”.

It is something I had to learn from the report. Having travelled with friends with their dark passports, when I was young, and more recently their mauve ones, I had not realised. It is perhaps a surprise to anyone who has laughed and cried over that wonderful book, The Guernsey Literary and Potato Peel Pie Society, which I recommend to anyone who has not read it. It is also, perhaps, news to holidaymakers who spent their pounds, shillings and pence there in the past and more recently, their pounds and pence.

In thanking and congratulating the noble Lord, Lord Boswell, both for the report and for today’s debate, I join others in welcoming him back to his rightful place here and thanking him for alerting us all to the outcome of the referendum on some quarter of a million British citizens who, as has been said, had no vote in June 2016.

The thrust of the report has been well laid out already so I shall make only a few short points. First, rather like the noble Lord, Lord Shutt, I am sorry that the Government have been so dilatory in responding to the committee. It took from March to October. I had to jog them in July that they should respond, but that did not work. Then there was their failure to reply to the letter of the noble Lord, Lord Boswell, of 22 November. The Crown dependencies may not seem very important to the Minister, but they certainly are to the residents and to all the businesses located there.

Secondly, and related to this delay, is the issue of no deal and what that might mean to these areas, as we discussed in this Chamber on 16 January. A cliff-edge exodus would have dire consequences across the UK, but in such smaller areas, dependent on EU labour, on access to the financial markets and on duty-free agricultural exports, their economies could be severely damaged. They need, therefore, to be fully involved in any government consideration of crashing out without a deal, so that their interests are not overlooked. Will the Minister confirm that such talks are taking place, as the noble Lord, Lord Boswell, asked, and in a timely manner, as my noble friend Lady Pitkeathley emphasised? Can the Minister inform the House whether, as a precaution, the UK’s membership of the WTO is being extended to the Channel Islands, as mentioned by the noble Lords, Lord Northbrook and Lord Teverson, and the noble Earl, Lord Kinnoull?

Thirdly, the islands’ specific interests needs to be factored into the Government’s negotiations over both the transition deal and the longer-term trading relationships, in addition to the current discussions on the withdrawal deal. Can the Government confirm that their representatives will be closely consulted on all these issues, every step of the way, as the report recommended?

Fourthly, as has been said, the UK Government are responsible for the defence and international relations of the islands. What assurance can the Minister give the House for their continued security once we leave the EU and lose such facilities as judicial co-operation and the European arrest warrant?

Fifthly, these islands are part of the common travel area, along with the UK and the Republic of Ireland. Can the Minister confirm that this will continue, with no checks between, say, Jersey and Dublin or Jersey and Belfast once we have left the EU?

Finally, a major concern for these areas is access to the EU workforce, as was emphasised by the noble Lord, Lord Beith. Can the Minister outline how that requirement is being factored into the Government’s planning for a new immigration regime?

As we have heard, there are other vital issues: transport and open skies; VAT; energy; fishing, which has been mentioned; tourism; data protection; mutual recognition and equivalence. I hope therefore that the Government’s response will answer all the questions posed today and provide some comfort for these areas that their concerns have not been overlooked.

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), Baroness in Waiting (HM Household) (Whip) 7:32 pm, 23rd January 2018

My Lords, it is a privilege to respond to the debate today on the Select Committee’s report, Brexit: the Crown Dependencies. I put on record my appreciation of the work of the European Union Committee, chaired by the noble Lord, Lord Boswell. It is very good to see him back among us in svelte form—I envy him greatly in his new shape. Perhaps I may deal first with the important matter of the noble Lord’s letter of 22 November 2017, which was raised by him and a number of other noble Lords. I regret the delay in responding, and I apologise for that. I can assure him that he will receive a response to his letter of 22 November. The phrasing I have been given is “with the utmost celerity and alacrity”. If I remember my English classes at Greenock Academy correctly, that is going to be very soon. I am sure the noble Lord will let me know if it does not materialise in the very near future.

The committee’s report represents a thoughtful analysis of the implications for the Isle of Man and for the Bailiwicks of Guernsey and Jersey of the UK’s decision to leave the European Union. The committee’s expertise and strength of analysis is clearly demonstrated in this report. The Government recognise the implications of EU exit for the Crown dependencies and we remain fully committed to seeking the best possible deal for all jurisdictions. We will ensure that we take full account of the Crown dependencies’ interests throughout the negotiations and beyond. That relationship is not only an ancient and enduring one, as my noble friend Lord Selkirk said, but an intimate one. It is a very important one, and in that respect it is unique.

Ministers and officials have engaged regularly and positively with the Crown dependencies to ensure that their priorities and interests are accounted for, and reflected in, the UK’s negotiating positions. Many of the points raised by this report about our future partnership with the EU and the priorities of the Crown dependencies relate directly to the second phase of negotiations, which we are currently embarking upon. These are the most important negotiations our country faces. Reaching a new partnership with the EU is in the interests of both sides and, as such, I hope that noble Lords will understand that I am unable to go into great detail on some areas at this stage.

I will now seek to cover some of the issues covered in this evening’s debate. The important issue of engagement with the Crown dependencies arose and I was asked how the Government are effecting that engagement. My honourable friend Robin Walker, the Minister, leads on engagement with the overseas territories and the Crown dependencies at the Department for Exiting the European Union. We remain fully committed to engaging with the Crown dependencies as we prepare to leave the EU. My honourable friend chairs quarterly meetings with other departmental officials and the Chief Ministers of the Crown dependencies, the most recent of which sat in November last year. I can confirm that these discussions have been constructive and positive, and I look forward to them continuing as we enter the next phase of the exit process.

In addition—this is important—these meetings have been supported by a series of technical round tables which bring together UK government experts and representatives of the Crown dependencies with the aim of developing a full and detailed understanding of their interests and objectives on specific issues and what work they need to undertake in order to be ready for exit. The Chief Ministers have expressed satisfaction with the Government’s engagement. The noble Lord, Lord Shutt, was sceptical, but the opinion of the Chief Ministers is important. They know that we are negotiating for the Crown dependencies as we are negotiating for all other parts of the United Kingdom.

The other important issue that arose tonight, to which a number of noble Lords referred, was protecting relationships with the Crown dependencies. The noble Baroness, Lady Pitkeathley—I was interested to learn that she is a Guernsey girl—observed that Guernsey tomatoes are very good. They are very good, but so are Scottish ones, which is not to be forgotten. The debate has raised important points about how we protect our relationship with the Crown dependencies. It is extremely important that our exit does not adversely affect the close constitutional, economic and cultural relationship. This is a point rightly emphasised in the report. Indeed, the UK shares the primary aim of the Crown dependencies in exit to protect that precious constitutional relationship. It is valued, historical and special.

A number of noble Lords asked how we represent the Crown dependencies in negotiations and how we take full account of their priority interests in that process. The noble Lord, Lord Boswell, my noble friend Lord Northbrook and the noble Earl, Lord Kinnoull, all referred to this. The Crown dependencies have identified six priority areas where the UK’s exit from the EU is likely to have the greatest implications for their jurisdictions. They are: justice, security and migration; agriculture and fisheries; customs; financial services; transport; and the digital single market. We are committed to remaining engaged with the Crown dependencies on these areas.

The noble Lords, Lord Beith and Lord Teverson, and the noble Baroness, Lady Hayter, raised the common travel area. I confirm that in relation to the Crown dependencies, we are committed to protecting it and the co-operation on immigration that underpins it. I think that was the point the noble Baroness raised.

I think it was the noble Lord, Lord Teverson, who asked whether the Channel Islands set their own quotas for fisheries. The close co-operation between Defra and the Crown dependencies continues at the officials level of round-table discussions. That means that the distinct fisheries concerns of the Crown dependencies will be taken into account in the fisheries Bill that we will be introducing. Engagement on these priorities is led by the relevant departments with senior officials engaging regularly through round-table meetings with Crown dependency officials in order better to understand their interests and objectives in each area.

These round tables also have an important role in sharing information on operational readiness planning —an aspect alluded to by a number of your Lordships—so that the UK and Crown dependencies can co-operate effectively in preparing for the practical changes which the UK’s withdrawal from the EU will have for them. I think the noble Lord, Lord Boswell, my noble friend Lord Northbrook, and the noble Baroness, Lady Pitkeathley, all raised this issue. I confirm that this preparation includes planning for any transition period.

The future partnership has yet to be negotiated, but the Government set out their plans for the partnership in position papers in August and September last year. We continue to engage with the Crown dependencies to ensure that their interests are taken into our work on the future partnership. On the implementation period, I am pleased to confirm that officials have been keeping key officials from all the CDs informed, including as recently as last week.

The noble Earl, Lord Kinnoull, and my noble friend Lord Selkirk reminded us of the important status of the Crown dependencies as EU co-operative jurisdictions, which is a very significant matter. It is certainly relevant to these negotiations and can only help them. The noble Lord, Lord Teverson, raised financial services and equivalence. I cannot give a specific response to that, but the financial services sector is very important for the UK and the Crown dependencies, and that has all formed part of the negotiations.

A number of your Lordships referred to what opportunities would exist for the Crown dependencies post exit. We are taking advantage of all opportunities available to us to ensure that Britain becomes a global leader in free trade once we leave the EU. I say to the noble Lord, Lord Boswell, my noble friend Lord Northbrook, the noble Earl, Lord Kinnoull, and the noble Baroness, Lady Hayter, that the Government are committed to securing continuity in the effect of existing EU free trade agreements and other EU preferential arrangements as we leave the EU.

I can say to the noble Earl, Lord Kinnoull, that the UK is a full and founding member of the WTO and has been since 1884. I did not know that, so I have learned something—good heavens, it is a venerable institution. We fully recognise the desire of the Bailiwicks of Guernsey and Jersey to have the UK’s membership extend to them, and we have been working closely with them to ensure that they are WTO-compliant. We will obviously take into account the views of the Crown dependencies as we develop our trade policy, including their priorities for future trade agreements.

I think my noble friend Lord Northbrook raised a few issues about customs matters. We are working closely on those. A series of technical round tables has been held between HMRC and the Treasury to discuss them, and the Government have also taken steps to ensure that we have relevant legislation in place, with the inclusion of provisions in the Taxation (Cross-border Trade) Bill.

In conclusion, we remain fully committed to getting the best possible deal in negotiations on Brexit, not just for the United Kingdom but for all British jurisdictions, including the Crown dependencies. Our ongoing, regular engagement at both ministerial and official levels demonstrates this. We remain fully committed to continuing to work closely with the Governments of the Crown dependencies to ensure that their priorities are taken into account throughout the exit process and beyond.

I am very grateful to all noble Lords for their contributions over the course of a wide-ranging and informative debate. The committee’s report has been a most useful contribution to that debate, raising important issues. It is vital that they remain on the radar screen and that the Government are mindful of them. I am sure that this House will continue to play a valuable role as the negotiations proceed and has the capacity to contribute to this vital discussion as we look ahead to a new future for this country. I know that these contributions will help in securing a deal that works for everyone. Finally, I once again thank the noble Lord, Lord Boswell, and his committee for their very helpful work and thank all of your Lordships who participated in the debate this evening.

House adjourned at 7.44 pm.