Rt Hon Lord Lilley

    Peter Lilley: I want to make two main points. The first is that the Government’s position is much clearer than many Opposition Members are willing to believe and that it narrows the range of outcomes very considerably. The second is that what matters as much as, if not more than, the Government’s position is the position of our partners in Europe, yet no one on the Opposition Benches has mentioned that—there seems to be a sort of arrogance in suggesting that we can say, “We want this and we’ll get it.” Or perhaps it is subservience in saying, “We want this and we’ll any concession in order to obtain it.”


    The Government’s position has ruled out three options. First, we will not be part of the internal market of the European Union. I use the term “internal market” because that is what it is called in European law. There is no such thing in European law as the single market. To be a member of the internal market, we would have to be a member state subject to all the laws of the European Union, and the Prime Minister and the Secretary of State today have said that we will not be subject to the European Court of Justice.


    Secondly, we will not be members of the European economic area, because all members of the European economic area have to accept free movement, and the Government have ruled that out. On top of that, we cannot negotiate service deals because we do not have control over the laws governing all our service industries. This was described during the referendum campaign by the current Chancellor of the Exchequer as the worst of all possible worlds, and many others on that side of the argument supported him. Now, however, they suddenly want to be part of that worst of all possible worlds.


    Thirdly, we cannot be subject to the common external tariff of the EU because we are champions of free trade, according to the Prime Minister. We set up a Department for International Trade that has to be able to negotiate tariffs. We also want to cut the tariffs on products that we do not produce—including food and clothing products on which the EU imposes very high tariffs—because those tariffs are damaging to the just-about-managing people in this country. So those three options are ruled out, which leaves two realistic options.


    Iain Duncan Smith: May I give my right hon. Friend one good example of this? It relates to the import of oranges. Very recently, the customs union has slapped on a tariff increase from 3% to 16%, solely to protect some producers in Spain. That raises the cost of buying the products here in the United Kingdom, so food is now more expensive as a direct result of interventions in the customs union that Opposition Members want to be part of.


    Peter Lilley: My right hon. Friend makes a good point, and I would add that we do not easily manufacture oranges at scale in this country.


    There are two realistic options. The first is that we continue with roughly the status quo: tariff-free trade and no new barriers to service trade. The EU already has free trade agreements that do not require free movement with 50 countries. The second is that we trade with them on WTO terms and they might try to make trade in our service and financial services industries a bit more difficult. The important thing is that both options are actually very simple to negotiate. Going from zero tariffs to zero tariffs is much easier than negotiating a trade agreement between Canada and the European Union, where each side has 5,000 or 10,000 different tariff lines and must trade them off against each other. We also have exactly the same rules on products and so on as our partners in Europe. The status quo would therefore be simple to negotiate. The WTO option does not even require negotiation; it is what happens if the negotiations have no successful outcome. Both are simple and could be done quickly.


    I also believe that both options are acceptable to the UK. In the view of most, retaining the status quo would obviously be the superior option if we could get it immediately, but if we go to trading on WTO terms, the average tariff would be about 4%—much less than that on average on manufactured products, but the 4% includes agricultural products. We have just experienced a 15% devaluation against the euro, so our exporters will, on balance, be much better off even with those tariffs, whereas exporters to us will have to face a 15% hurdle plus that 4% average tariff, so they will be much worse off.


    It is important that we emphasise to our negotiating partners that although we might prefer to continue with the status quo, if they do not want it, we are willing to walk away and trade on WTO terms. Quite a few Opposition Members have been trade unionists and are used to negotiating, but not many people in this House are. We cannot successfully negotiate unless we are prepared to walk away with no deal. Ultimately, however, it will be our partners in Europe—the EU 27—that will choose between whether we continue with roughly the status quo or whether we move to WTO terms and some obstacles.


    George Kerevan: Will the right hon. Gentleman give way?


    Peter Lilley: I am sorry, but I will not.


    Our EU partners will choose. If their primary concern is the economic wellbeing of their people, they will choose to continue with free trade. If their overriding primary concern is political and if they want to punish us and be seen to punish us, they will go with WTO terms. In practice, they will punish themselves far more, and we should make that clear. We cannot negotiate our way into making them choose one option over the other. We can perhaps try to persuade them, their industries and their electorates that they will be much better off if they continue to trade with us on roughly the current basis than if they move to WTO terms, under which they will be the principal losers. We are their single biggest market. A fifth of all German cars come here, much French wine comes here, and so on. Let us go to them and say, “It is a simple choice, make that choice—