Government’s response to Treasury Committee’s Withdrawal Agreement report “sheds no more light” on issues, warns Nicky Morgan

The Treasury Committee published its report on the Withdrawal Agreement and Political Declaration on 11 December 2018. Its conclusions included:

• White Paper scenario in Government analysis cannot be used to inform meaningful vote
• Parliament could draw from range of scenarios in Government analysis
• Committee “disappointed” that Government has produced no short-term analysis of its deal
• Government should have modelled the Backstop
• Bank of England confident that financial services sector can withstand No Deal Brexit

The Committee has today published the Government’s response to the report. Commenting on the response, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said:

“The Treasury Committee’s report expressed disappointment that the Government modelled its White Paper, which represents the most optimistic reading of the Political Declaration, rather than a more realistic scenario.

“The report also expressed the Committee’s disappointment that the Government did not analyse the backstop and failed to include short-term analysis of any of the modelled Brexit scenarios.

“The Chancellor’s response to our report has shed no more light on these issues. When MPs do eventually come to vote on the Withdrawal Agreement next week, we will be doing so without all the facts.

“This is not a position which MPs, as representatives of constituents across the UK, should be put in by any Government.”

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Notes to Editors

• The Treasury Committee’s Withdrawal Agreement and Political Declaration report is here, and summarised below:

• The Government provided economic analysis of the UK leaving the EU under five different scenarios. The White Paper scenario, which is akin to the Chequers proposal, represents the most optimistic and generous reading of the Political Declaration, insofar as it is consistent with it at all. It does not represent the central or most likely outcome under the Political Declaration. Therefore, it cannot be used to inform Parliament’s meaningful vote on the Withdrawal Agreement. Parliament may wish to draw from the range of scenarios in the Government analysis in order to assess the economic impact of the Withdrawal Agreement.

• As requested over the summer, the Chancellor agreed to provide the Committee with economic analyses of the choices facing Parliament, ahead of the meaningful vote on the final deal. Yet the information provided includes no analysis of the Backstop, and there is no short-term analysis of any of the scenarios, including on public finances and on regional and sectoral job losses and gains. The Government has only provided long-term analysis, which does not show how the economy will transition to a new trading relationship, or the path taken by inflation and unemployment. Although the Bank provided the Committee with short-term analysis, the Committee is disappointed that the Treasury did not provide all the evidence that the Committee requested as there is no Government short-term analysis of the deal upon which Parliament will vote.

• As an example of a scenario omitted from the Government’s analysis, the Committee observed that the Backstop position, agreed to in the Withdrawal Statement, was not included. The Backstop establishes a single UK-EU customs territory if a future agreement to supersede the Protocol cannot be completed by December 2020 and the Government has not extended the implementation period. The Governor of the Bank of England told the Committee that “on average for a trade deal from start to finish, it is something in the order of four years.” Trade negotiations can take four years to agree, and previous EU negotiations, have taken longer; the EU-Canada Comprehensive Economic and Trade Agreement (CETA) took over eight years. It is feasible, therefore, that the UK could enter the Backstop. Despite it being neither the UK’s nor the EU’s preferred position, the Government should have modelled the Backstop.

• In each of the modelled scenarios, the financial services sector will contribute less Gross Value Added to the UK economy. Under the White Paper scenario, the UK’s financial services sector would lose its ability to sell services via the European Economic Area’s financial services passporting arrangements, and the Government would seek to extend the existing equivalence framework. During an implementation period, the UK would have no vote in the European Supervisory Authorities, but would have to implement its actions; the UK could be considered a ‘rule taker’. The Financial Conduct Authority expressed concern about being a ‘rule taker’ with no influence. Assessing the financial service sector’s ability to withstand a No Deal scenario, the Governor provided reassurance that the Bank of England “are already sleeping soundly at night, because the core of the financial sector is in the position that it needs to be in for the tough scenario.”

• Commenting at the time of publication, Mrs Morgan said:

“Despite differing views on Brexit between members of the Treasury Committee, our report on the economic analysis of the Withdrawal Agreement and Political Declaration has been agreed unanimously.

“The aim of this report is not to recommend how MPs should vote, but to ensure that MPs are as informed as possible when it comes to choosing a division lobby.

“Yet the Government has made this difficult to achieve. The Committee is disappointed that the Government has modelled its White Paper, which represents the most optimistic reading of the Political Declaration, rather than a more realistic scenario.

“The Committee is also disappointed that the Treasury has not analysed the backstop and fails to include short-term analysis of any of the scenarios, including impacts on public finances and on regional and sectoral job losses or gains.

“Despite this, the Committee hopes that all MPs will read our report to draw from the range of scenarios modelled in order to assess the economic impact of the Withdrawal Agreement and Political Declaration.”