Click on the title of a speech to read the full text or view the video clip...
Click on the title of a speech to read the full text or view the video clip...
"Britain and Europe, Alimony, Custody and Eating Cake"
Lecture to the Royal Society of Actuaries
Edinburgh - 7th December 2016
The Scale of the Challenge
We are at a critical time. The actions and decisions that political leaders here and abroad will take over the next few months will shape the long-term future for our country and its relationship with its neighbours throughout Europe.
Therefore, it is very important to be well prepared for the negotiations ahead. We need to identify the risks and challenges we face and to understand both the threats we need to meet and the opportunities that we may be able to utilise as we develop this new relationship.
Ladies and gentlemen, we cannot underestimate the significance of the decisions that will be taken over the next 30 months or so.
They will determine our own political and economic future for more than a generation.
As we approach these negotiations, we need to keep in our minds the challenges we will face in the century ahead. Economic power is swinging back to Asia in a way the world has not seen in at least the past four hundred years. We face security threats by terrorist groups and authoritarian leaders in our own neighbourhood. And, for the first time in generations, the most politically advanced nations on the planet will no longer be the most economically powerful.
The consequences of this transformation of global power will be enormous.
Therefore, it is vitally important for ourselves, Europe and the wider western world that we get Brexit right. This is not the time for instability or uncertainty. All sides must put thoughts of punishment firmly behind them. If we are to avoid the fall out of an acrimonious divorce we must all raise our sights.
We should enter into negotiations with a mind-set focused, not just on ending a past relationship, but also on building our future relationship. I believe the vast majority of people across the EU and the UK want to find a mature and pragmatic approach.
What kind of partnership do we want to see in 10 to 20 years between the United Kingdom and the European Union? For that is the partnership we need to start building today.
Whilst the geopolitical macro-economic context must be kept firmly in mind, we must also fully understand the micro-economic dimension and consider how the agreement will impact on the ordinary day-to-day lives of individuals and businesses across our country and indeed our continent.
In the past few months, I have been criss-crossing the United Kingdom and Europe; meeting local and national businesses, universities, and voluntary sector organisations. As Chairman of the European Parliament's single market committee, I have met politicians all across the European Union. I have listened to their ideas, their concerns, their advice, and their thoughts about what the future relationship between the UK and the EU might look like.
I would like to share some of these thoughts with you.
The need for unity
A key consideration must be how we bring our country together on this issue. Whilst 52% voted to leave, 100% of the country is leaving. The decision has been taken - about that there can be no doubt. But the terms of our departure are yet to be set and will be determined by an ongoing debate.
This debate needs to unify the whole country and forge a new national consensus both about our own future and our future relationship with our European friends and allies.
I am of course acutely aware as I stand here in Edinburgh today that a majority of voters in Scotland voted to remain in the European Union. In my own county of Cambridgeshire, the southern half, around the City of Cambridge and the knowledge cluster voted 70/30 remain but the northern half, in the Fenland area dominated by farming and food production, people voted 70/30 Leave. Just as my own county was split, so was the result across the whole of
the United Kingdom. We need a spirit of reconciliation to work for an agreement that delivers the referendum result voted for by the majority but also reassures the minority.
Let me add, that all my conversations with leaders across Europe reinforce my belief that we are talking about one agreement.
Tonight, it would not be appropriate for me to stray into Scottish politics, but it does appear clear to me that there is no interest - and indeed in some countries there is active hostility - about any kind of arrangement that would treat certain parts of the United Kingdom differently to the rest.
Because as many of our partners in Europe have stated, there was one UK-wide referendum with a result for the whole country.
Scotland's relationship with the EU Single Market is important but its trade with the UK´s own domestic market is four times larger and thus four times more important to Scotland than the Single Markets across the EU. Therefore, just as I seek to find a new relationship that works for both the North and South of Cambridgeshire I believe we will all be best served if we find a future that works for both North and South of the border.
If we are to make progress in the debate, we must consider the wider European context.
Whilst the issues surrounding Brexit are amongst the most important on our domestic agenda, we need to remember that this is not the case in Berlin, Paris, Warsaw, Madrid or Rome.
Other EU Countries have their own political and economic crises. There are elections in France, Germany and the Netherlands, economic growth remains slow, banks are still under pressure, the migration crisis remains acute, and we are facing an uncertain relationship with Russia, which may yet create instability in the Baltics and Eastern states.
Other EU leaders would have preferred not to have to deal with Brexit.
However, some of their concerns may help to reach a more positive cooperative relationship going forward.
For example, security and counterterrorism is a top concern for many. They value the UK's expertise and assistance as well as our history as a strong NATO ally. Our Prime Minister has made it very clear that security and defence is an area where she can see the need for even stronger cooperation between the UK and Europe, and acting as a helpful ally in this area may aid negotiations on trade.
The UK and the EU are significant trading partners. A well-designed market access arrangement would be mutually beneficial. It is important for us because nearly half of British
exports go to other EU markets and it is important for them as Brits make up their largest consumer group. We buy more than we sell and have a large trade deficit.
However the trade benefit is not spread equally across the other 27 countries, some of them have very little trade with Britain and a new trade deal will need the unanimous consent of all 27 EU countries.
So what are some of the options and issues to consider?
No 'off the shelf" option
- First of all, it is vitally important to realise that no "off the shelf" existing relationship "model" gives an ideal long term outcome.
- The UK's economy is too diverse to follow Norway's path, as to be in the single market Norway needs to accept the vast majority of EU laws without a say.
- We are too big to have a relationship like Switzerland's where each side would face losing preferential access to the others' market every time there is a slight divergence in regulatory strategy.
And our trading relationship with Europe is too sophisticated for it to be replaced by a cut and paste of the Canada-style free trade agreement as this does not give certainty or stability for key 21st century economic sectors like financial services, or digital.
Falling back on WTO rules as a backstop is high risk for us, since it does not cover services or much of the broader commerce we can sometimes take for granted with the EU. It could result in significant tariffs on many exports and imports. But it would also be destabilising for the rest of the EU, bringing uncertainty for their own trading relationships with other parts of the world and resulting economic risks.
Staying where we are, or were is also not an option. Of course there have been benefits from being at the helm of Europe's Single Market. It allows our businesses to trade across a market of 500 million consumers but I have also seen how its sometimes top-down, one sized approach can stifle innovation, add costs, and hand-break investment. Consider the new European rules for Insurance Companies on Solvency, which are limiting them, our most natural long term investors from putting funds into infrastructure, our most needed long term investment. Furthermore, there are increasing signs that the Single Market of the future risks being increasingly less free, more protectionist and far less flexible.
So to conclude, we cannot cut and paste anyone else's relationship and we need to find a completely new way forward. This is not trying to have our cake and eat it; it is in the interests of many other countries to find a new way as well.
The Prime Minister has stated she wants a mature cooperative relationship. She has already outlined three priorities:
firstly to re-establish the UK's own authority over immigration policy, it was a major factor in the referendum decision;
secondly to maximise free trade in goods and services;
and finally to regain control over regulatory decisions, to be "a rule maker" not a "rule taker"
These three issues - immigration control, market access and regulatory control - are all linked. Like a three legged stool, if one is prioritised more than the others then it can all become unbalanced.
I believe that many of these items are much more nuanced than often perceived so let me consider each in turn, starting with immigration.
When talking about immigration controls, politicians on both sides of the channel risk being locked into positions based on ideological purity, asserting that "free movement of people" is non-negotiable.
And we should not underestimate how deeply cherished the right to free movement is in other parts of Europe. Especially for those that were held under Communist rule where there are recent and often emotionally painful memories of the heavy restrictions on movement.
However, there are many real world examples that show there already is a broad spectrum of interpretation as to what free movement actually means and many examples of existing controls.
For example, in Belgium, the home of the EU Institutions. It is impossible in practical terms, to move into the country without a well paid job: one cannot access any local services, or rent or buy a property without a social security card and you cannot get a social security card unless you have an employer paying a social security contribution. Many other EU Countries have similar systems.
In Germany, politicians are in the process of removing benefits for migrant workers until they have been in the country for five years.
The EU has preferential Single Market deals with Switzerland and Liechtenstein. The first is about to introduce new rules so that jobs must be advertised to local people before non-domestic residents and the second has a firm cap on annual migration numbers.
I would urge those who say we must give up on single market access because we need to control migration to keep looking for ways to maximise both objectives and see if there is room for manoeuvre.
Unfortunately, British politicians are hearing repeated statements again and again from the very top of the Commission and from those nominated as negotiators that the single-market means "four freedoms or none," and offering no room for flexibility for the UK on free movement, whilst turning a blind eye to the manner in which it's interpreted in their own back yards. This narrative is impacting all elements of the negotiations and if it continues it risks sending the UK and EU into a much more detached long term relationship than may have been otherwise achievable.
On Market Access, let us consider what kind of access to the single market might be optimal. "Market access" is about so much more than just eliminating tariffs.
The Department for Exiting the EU is looking at a sector by sector approach on fifty different areas. Many groups have shared with me their submissions on what they would like to see prioritised in negotiations ahead. So what does market access mean to some of them?
For the digital entrepreneurs, it is access to cross-border data flows;
For the car manufacturers, it's knowing that once a vehicle has passed its safety and emissions tests in the UK they don't need to go and get the same vehicle tested and approved again before selling it across the continent;
For the creative sector, market access includes being able to have a joint action to stop cross-border infringements of copyright;
For pharma companies, it is being able to continue to run cross border clinical trials and to have a single approval for the new medicines or medical devices that result;
For scientists, it is being able to take part in collaborative research across borders to share knowledge;
For banks, it's making sure that once they pass regulatory tests in the UK they can offer the same mortgages, loans, insurance in other countries with a passport
It is in the interest of negotiations from both UK and EU trading partners to accommodate these. But it is crucial to recognise that not one of these requests will be achieved if we are forced into a trade agreement like the one the EU is signing with Canada, even though this is the most advanced trade deal the EU has ever negotiated. Our long-standing market access relationship with the EU is so much deeper than any of trading relations with other parts of the world.
There is also the Customs Union. Our current arrangement gives the benefit of tariff free UK/EU trade but also sets rigid fixed rates for our trade with other parts of the world. This needs to be changed if we are to negotiate new tariff rates with 3rd countries. Scotch Whisky is probably the most prominent example of an export that could accelerate if the tariffs with third countries could be negotiated bilaterally. India has a 150 percent tariff on Scotch Whisky. The result is that they drink a lot of whisky but not Scotch. If we could abolish that huge tariff through a free trade deal, Scotland would not have enough Glens to keep Indians stocked up and happy.
But, our relationship with the EU on Customs Union has other benefits. For example, it is important for advanced manufacturing and automotive producers that cumulative country of origin rules are addressed. Otherwise they face complexity and additional costs when the component parts are sourced from multiple jurisdictions. Customs Union also enables joint action on anti-counterfeiting, preventing trade in illegal goods, and it is underpinned by a market surveillance network of local trading standards officers who share information on dangerous toys, faulty electrical items, and harmful cosmetic products. Surely we would want to stay part of this?
Smooth delivery of goods across borders is important. Currently goods that come into the UK ports from other parts of the world can be sent onwards across Europe without needing new customs inspections or checks. This autumn I stood on a Scottish quayside and watched thousands of freshly caught live crabs being loaded into crates and put onto a Spanish lorry for delivering to markets within the day. Some 50% of UK fish and shellfish caught are exported to EU countries. This was an industry that suffered greatly when Operation Stack - turned the M20 into a lorry parking zone and delayed channel crossings. Fishermen loathe the Common Fisheries Policy. Almost to a man they voted to Leave. Yet it is crucial for them to be able to sell their fish to the European market without unnecessary barriers.
If full customs controls are needed for goods moving between the UK and EU, HMRC estimates that the number of declarations would increase from 100 million to three hundred and fifty million every year. Our port operators warn that this could lead to huge delays at ports and airports. We need to make sure that unnecessary customs delays do not put jobs and livelihoods at risk. 'Just in time' deliveries are necessary for a modern competitive economy.
The UK Government and the European Commission say they are committed to reducing red tape. Therefore, they must look for a new relationship with the Customs Union, which does not create a new tangle of regulations and procedures.
We do need a relationship that avoids country of origin pitfalls, minimises unnecessary border checks and duplicating inspections, and shares intelligence on market surveillance.
Let me turn now to the third leg of the negotiating stool: regulatory cooperation.
Fundamental to the Single Market debate is the thorny issue of regulatory equivalence. If we are to maintain relatively barrier-free trade then continental producers will demand their UK competitors also have to comply with any EU rules and product standards. It will clearly not be politically acceptable if the UK has no say on those rules, with only a rubber-stamping role like that of Norway.
"Taking back control" of regulations was given by many people as their reason for voting Leave and often there is too much micro managing through EU regulation. My own in-box has been full of complaints on issues like restrictions on glyphosate weed killer, prohibiting car insurance offers for women and the exorbitant costs of putting a CE mark on each welded joint. All areas where British public opinion does not support a one-size-fits-all EU approach.
However, there are areas where international trade requires agreement on international regulations. Even Lord Dyson, a vocal Brexiteer is now calling for common European standards to be adopted for many of the products he manufactures. Ten percent of everything we produce in the UK is exported elsewhere in the EU and the vast majority of those who make these products say they do not wish to face multiple regulatory regimes. They also want predictable regulatory decision making, where those affected by a change in the rules have a chance to be consulted before the changes are made.
Some of my colleagues ask why we need any regulations or product standards at all - let the market decide they say - But no regulation at all? I suggest they try explaining that to an irate Volkswagen owner.
A new strategy is needed. We need a cooperation agreement that allows us to work together on the rules and regulations affecting our cross-border businesses but also respects the rights to regulate separately. It needs to be an arrangement where minor divergences in regulation do not risk closing the door for British companies wanting to access European markets, and vice versa.
This again needs to be a bespoke arrangement.
Some trade experts point to the "regulatory cooperation" model of the EU/Canada trade agreement, but this would not be up to the job for UK/EU. It would not give a British car maker or insurance company the confidence that they will be consulted on a new market rule let alone have their issues taken into a consideration.
Others suggest we should move more of our regulatory cooperation up to a global level. Relying on the Basel committee for more detail on their decisions for banking regulation, on IOSCO for securities transaction, on the UNECE for more global harmonisation on car regulation, more ISO standards on digital, and so forth. Where global rule making works well it is helpful but it is not sufficient in itself, to fill all the gaps in takes time, and it only covers the minority of products or services and has no enforcement mechanisms.
Furthermore, global regulatory cooperation tends to be driven by the bottom-up not top-down. It is easier to get a global agreement on the fine detail if you've ironed it out at a lower level first. For example when we in the UK wanted new global rules on how to resolve a cross border bank failure in aftermath the Royal Bank of Scotland, we agreed the broad principles at the G20 but we then nailed down the nitty gritty with our EU neighbours first and used that detail to springboard back to the global level.
Instead of Canada-style, or going global we might look down-under. The Australian and New Zealand authorities have long-standing arrangements in working together in analysing situations, coordinating impact assessments and recognising each other's regulations where similar.
Perhaps we can learn from their experience.
Finding a new approach to regulatory cooperation between the UK and the rest of Europe does have many mutual benefits. In many areas, the EU needs UK expertise. For example, the UK's MHRA is the most significant contributor of expert advice to the European Medicines Agency. The European Banking Authority, European Markets and Securities Authority and many others also rely heavily on UK expert contributions.
In the future, we will not have British Ministers in the Council or MEPs in the European Parliament but there is a strong case for the myriad of British experts who take part in specialist stakeholder groups, standard setting bodies and trade associations to keep their seats and continue to contribute. Keeping these seats is not automatic we must push for it also push to keep seats in areas like the Transatlantic Financial Markets Regulatory Dialogue.
I believe that we should aim for bespoke UK/EU relationship on regulatory cooperation focusing on key sectors where there is true international need for a cross border consensus. We should also seek a more objective-based solution, one which recognises that the same regulatory aims can be achieved by means of different pathways, and leaves room for divergences. A new approach will be needed to address the issue of how to resolve disputes, it must allow time for discussions before any sanctions are imposed. This need not be seen as a new concept for the EU: it used to the principle by which members used to reach agreements.
Clearly, recourse to the ECJ would not be acceptable, nor would non-public arbitration. But just because the existing models do not fit does not mean that negotiators across the channel have closed their minds to other alternative suggestions, and we should imagine a new forum.
I hope I have given you additional perspective on some of the important areas for the negotiation process: immigration, market access and regulatory cooperation.
From where we are today to get to where we need to end up will need transitional arrangements. It is important for both sides that we minimise the cliff edges. Furthermore if we are to stabilise economic uncertainty in the interim, then there needs to be clarity regarding investment decisions so that those which are taken today do not find themselves suddenly subject to a change of basis - this means establishing grandfathering principles.
I am not trying to minimise the scale of the task - but let us not give up before we've even started.
I hear the siren voices calling us towards a supposedly easier life, those people who say:
we can't do a deal on migration - so let's give up on accessing the single market;
sophisticated market access is too hard to achieve - so let's just retreat to the imagined utopia of the rules of the WTO;
regulatory cooperation is just too complicated - so let's just go for a tariff-free deal.
Well, to them I say: this is not a time for timidity or feint-hearts. We need ambition, confidence and optimism.
Once article 50 is triggered and the negotiation starts, we can get down to the real business. And once we get through all the elections to be fought next year, the other members of the European Union will be able to focus on the details of the negotiation in a calmer atmosphere. We all, in the UK and the EU, need to keep calm and negotiate.
Of course our lead negotiators should not disclose all the hands in their deck but they also need to give enough explanation to shine a light on the pathway for those on the other side of the negotiating table - and they will only be able to do that if we all across Britain stop bickering and start giving pragmatic suggestions and practical support.
We need a deal that is global in its significance and global in its scope. So let us get to work to build a new kind of relationship, a global strategic partnership between the United Kingdom and the European Union, which will help us meet the challenges of the twenty-first century together. Thank you for your attention.
My Political Priorities
Economic Stability must come first. Without a strong economy we can not deliver a strong society. I work with businesses and consumers to keep Britain open for business, cutting red tape, boosting trade opportunities and helping to deliver jobs and growth for all.
I support Science and Research which is key to delivering better medical care and improved lifestyles for all our families.
Strong security is vital in today's uncertain world, which requires robust policing and defence and deep international relationships that we can depend on. I work with others to achieve this.
I care about the Countryside and the Environment and making sure that rural and urban communities flourish.