The Brexit Decision

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The Brexit Decision: What Happens Next? Featuring The Right Honourable Lord William Hague of Richmond Moderated Q&A Session with John Stackhouse, Senior Vice President, Office of the CEO, RBC July 6, 2016

[00:00:00;00] [start] [00:00:19;15] Let's start with a couple of questions, looking back on the referendum. David Cameron, I assume is a friend of yours, someone you've worked with. Was he foolish to have called a referendum? [00:00:30;24] Um, no because... Is that working? Can you hear me? Oh, you can hear me now. There we go, I was sitting on the wire, there. There was going to be a referendum, one way or another in the UK. And the choice he had to make, was between having one in a planned way. And believe it or not, this was the planned form, that we've just had. Or having it in an unplanned way. There was no way of... For instance, it wouldn't have been possible to win a Conservative majority in the election last year, without the commitment to a referendum. We would certainly have, in my view, as someone who campaigned in the key seats in that election, the UK Independence Party would've held the balance of power in parliament. And their price for supporting any government would've been having a referendum. So, you cannot, in a country as democratic as the UK, you cannot resist forever, the demand for a referendum. If we'd had a referendum on the Lisbon Treaty in 2008, 2009, we wouldn't have been having this one. But, people were denied a referendum for a long time, and it wouldn't have been possible to lead a majority government without having a referendum. So, he made a choice that was rather inevitable. [00:01:55;29] Was it also inevitable, that Britain would exit the EU? The marriage has been soured for so long, that this outcome, one way or another was inevitable? [00:02:04;19] No, I think it could have gone either way. Clearly something that is 52 to 48%, could per fairly well have gone either way. But I think the... I said in my remarks how the decisive issue was the increased power of the migration issue since David Cameron originally proposed the referendum, three years ago. It could still have been won, but people really did not believe most of the warnings that were given. And it is important for everyone to take note of that. The mistrust of elites and authority, is sufficiently great. That if the Treasury produces a report, saying you know, you will be this and that worse off if you leave the EU, most people say "Well, they would say that, wouldn't they?" And carry on, voting to leave. So... that is the political environment we're in. In the USA, in the election that is coming up and in the French elections that are coming up in April and May next year. And it can produce some surprising outcomes. [00:03:13;20] This was driven primarily by migration, from what you're saying. Is that correct? [00:03:18;16] Well, on top of anything else. [00:03:19;29] Therefore, any solution needs to address, fundamentally, the migration concern? [00:03:24;17] Yes, and in the UK just to add a word of explanation about this, in the UK, this is a bit different than the rest of Europe, because the UK is forecast to have a strongly growing population. That is not the cast for most of the EU. Most EU countries are forecast to have a shrinking population, unless they have a lot of immigration. The UK, has forecast by the UN, to become the most populous nation of Europe, within the next 30 years, overtaking Germany. As a result, not only of immigration, but of natural population growth as well. And there is a concern in southern England, in particular, about over population. The UKIP leader said in the campaign, we will have to build a house every four minutes, for thirty years, to accommodate the population increase. Now, we could've pointed out, actually the figure is every seven minutes, we need to build a house. But that isn't very reassuring to people. So, people are not being stupid, or... nationalistic, necessarily. They are concerned about something. In this case, big population increases. And I think any British government is going to have to be able to explain the answer to that. That we have control over immigration. Because having at least control over it, is what people thought they were voting for.

When they voted to leave the EU. [00:05:00;03] Let's turn to the leadership contest. Theresa May clearly the front runner. Any chance that this will be resolved before the party membership vote? Or does this have to go the September...? [00:05:11;26] There is a chance the final ballot among the members of parliament is tomorrow. When they narrow down from three to two, the number of candidates. It is possible of course, that whoever is left, well, I'm so far behind will just make it by acclimation. The front runner is declared elected. However, the leading candidates, including the front runner, Theresa May, want the election to go out to the party members in the country. For reasons of legitimacy, and also possibly to give time in the Conservative Party for some of these new ideas I was talking about to coalesce. There is the potential to create quite a strong, new common agenda in the conservative party, after this bruising... Well, more than bruising. People have got more than bruised, they got knifed in the back, quite seriously in some cases. After moving on from that, there is some process needed to create the common agenda. And a leadership election, with the party members voting is part of the process of that. [00:06:28;05] Tell us a bit about Theresa May. She came into parliament the year you became leader. You groomed her, brought her to the front benches. [00:06:36;18] I did give her her first job on the front bench. I've always been an admirer of her talents, and worked closely with her, during her long service now, as home secretary, the longest serving home secretary in modern British history. And that job is normally the end, it's normally curtains when you get that job. Because you are blamed for anything that happens within the borders of the United Kingdom. Whether or not it was your fault. But she has surmounted that. She is very tough and determined. She has been determined to deport particular preachers and agitators from the UK and had such long battles with human rights laws, sometimes with the European Court of Human Rights, with British judges, and she usually gets her way in the end, as with the deportation of the well-known Abu Hamza. So, she is known as tough and determined. She is one of those politicians, that once she has settled on a position, really sticks to it. And that of course, will have its advantages, in a situation like this, if she is elected. Because the UK will need to stick to positions over time, that really give credibility to an economic plan, and once we take up a position in negotiations with the EU, we have to have the toughness to stick it out and get a large part of what we want. [00:08:14;15] Is she another Iron Lady? [00:08:15;29] Well, only time will tell. That is a rare title in world history, to be an iron lady. So, only time will show of what mettle she is made. [00:08:29;22] But, you know her fairly well. Is it fair to compare her with Lady Thatcher? [00:08:35;02] Well, again, you know... Until Margaret Thatcher was prime minister, most people wouldn't have said Margaret Thatcher would be like Margaret Thatcher. It was only when she actually took power. Very often, the true nature, personality, character, power of a leader is only revealed when they have the top job. And that was certainly true of Margaret Thatcher, who's determination to stick to her agenda was greatly underestimated, when she first came to office. So, it is too early to say. But you can see from the result yesterday, that most conservative members of parliament hold her in very high esteem. [00:09:20;07] Let's turn to the negotiations. If you were involved, what would be your chief priorities going into a Brexit negotiation? [00:09:29;18] For withdrawal, or for the new? There are really two negotiations.

[00:09:33;29] Let's start with withdraw, and then get to the new arrangement. [00:09:37;26] Well, it's got to be an early priority to clarify what happens to all the EU, all the citizens of other EU countries working in the UK. Who are an important part of the economy. And there's quite a bit of political debate about this now in the UK. With some people saying, "Just make clear now. They're all welcome to stay, and their rights remain." And other are saying. "Well, that will depend on the position of British Nationals in the rest of the European Union." And I think it should be our goal, that all of those people can continue and work. However, we do require the reciprocal commitment from the EU. There are a couple of British nationals living or working or retired or whatever they may be in the rest of Europe. At any one time, there are about a million British people in Spain. And half of those are retired in Spain. So it will have to be reciprocal, but that is a very early [unclear]. The other early thing to do, is actually to set a date. Because, I don't think it's in the interest of the economy for this to be an open ended matter, that could go on for many years. So those would be top priorities, I think, in the actual withdraw negotiations. [00:11:00;03] You mentioned in your remarks, the possibility of a January one, 2019 deadline. Is that what you think is the likely deadline? [00:11:09;06] I'm just saying, that's what a lot of people on the leave side have always had in their minds. And a new cabinet will be made up of people from both sides of this argument, but who accept that this is now happening, in line with what I said earlier. And who won't want the negotiations to go one forever, in line with what I just said. So, it wouldn't be a bad starting guess. But it is only a guess. [00:11:33;02] Can it be done in two years? [00:11:36;11] Well... Here you come to, what you might think are contradictory aspects of what I'm telling you that it's vastly complicated, it's this hugely messy divorce. But on the other hand, it needs doing in two years. This is the way the European treaties are set up. They only provide for two years, without unanimous agreement of what will now be the 27 to extend it. But would any British government want to be at the mercy of that decision and have things unresolved? Probably not, so I think there will be... There will have to be an immense negotiating effort across many issues simultaneously at that time. And there will be discussion of if it is not resolved at that time what action could the UK take to remove itself from European obligations since ultimately, the British parliament is sovereign, and it would be open to it, if negotiations just went on for a long, long time to say "Now we have redefined the law in the UK, which includes the fact that we've left." So I think there has to be a great effort to compress that into two years, and it certainly wouldn't be prudent to plan on the basis that that is the timescale. [00:12:53;05] And how will that coincide with conversations, debates, about what the new model should be? Can you run parallel tracks? [00:13:00;14] Well, certainly my view-- and I think it would be a common view in Britain-- that there should be parallel tracks. There is-- Again, I refer to my remarks earlier to-- European Commissioners have said you can't do them in parallel. The EU can only negotiate then with a, you know, with an outside... So you have to go out before you can negotiate a new arrangement. Now, when you think about it, that is not very constructive, from the point of view of many European businesses or individuals from the rest of the EU, let alone from the UK. So I don't know if that will change. But I think if it doesn't change, that will be taken in Britain-- That will not mean there is some change of mind, or weakening of resolve in the British government. It will actually only goad people into being more determined to make a success of being out of the European Union. So, um, I'm not sure what this attitude will achieve.

[00:14:03;02] You mentioned in your remarks the Norway model and also what we might call the Canada model. Do you see either of those, or another sort of third option emerging as a likelihood in the next short while? [00:14:14;16] I think more likely a mixture. And there are countries that have a... their own bespoke arrangements with the EU. Although Switzerland does that, I'm not saying we go for the Swiss model. But, just as an illustration of what-- of how messy, but how, um, bespoke these things can be. The Swiss voters, in their referendum, recently rejected freedom of movement into Switzerland from the rest-- from the European Union. However, they do have a single market. They are part of the single market, in some respects. Now, this is a shifting and rather unsatisfactory relationship between Switzerland and the EU. That's why I'm not saying we go for the Swiss model. But clearly there can be, um, some particularly tailored negotiation. And I think that's more likely to happen with the UK than it is with some of the smaller countries around the edge of the EU. [00:15:17;13] How quickly do you think that model can be resolved in the British political environment? [00:15:25;04] Well, I think there we be... I think... it can be quite quick to resolve what the UK is aiming for. But then the process of negotiating it can be a very long one-- much longer than the withdrawal negotiations. And the climate across the world, including in Europe, for negotiating trade arrangements is not good. Um, so... And that's why I think that will partly drive UK policy-makers in the directions of the more-- the slightly more radical approach. I was just talking-- I'm talking-- This is my own bias, you know. I revealing... If I were still involved in government, which thankfully I'm not, that would be... I would be pushing things in that direction, you know. On every subject you're thinking about, think a bit more radically about how you can design tax and regulation to make the UK an outstanding attraction in new ways to international business. But I think the fact that it will take so long to negotiation some trade agreements-- There might be some quick wins in trade deals with the rest of the world where the UK can negotiate without all the constraints of being in the EU, of course. The UK won't have to worry about some of the protectionist instincts that the French government sometimes have in future trade negotiations. So, um... So they might have some quick wins, but the cost-- A lot of it will take a long time. The pressure will be there, and the incentive will be there to create Britain's own attractive arrangements-- to declare zero tariffs on a wide range of products, and to just have a particularly open economy. [00:17:16;27] What's your read on the-- on the environment on the continent right now, particularly in France and Germany, towards Britain? [00:17:25;11] Well, it's a bit different. There is, of course, a... All around Europe, there are people looking at what EU agencies are based in the UK and seeing if they can pick them up for their own countries. There is some thinking, I think, in... particularly in Paris about how to attract aspects of financial services out of the UK. Um... There is a-- since it's the position of the French government, but not really of the French people-- that there should be a more integrated Europe, it's, you know-- There's got to be-- It can't be made easy for those who leave. Germany does seem to, um... Perhaps because of its particular leadership and Angela Merkel, but also because of its huge exports to the UK, to have more of an approach of, "Well, we'll take our time about this. Everybody calm down and we'll negotiate something fair," with the UK. And the good news on that is that, um, Europe used to be run by a Franco-German axis, and now it's run by a German-German axis. Uh, so... It's more likely-- [00:18:38;11] Are the French aware of that?

[00:18:40;20] [Laugh] I think they're aware of that under the current administration in France. Again, something I couldn't say when I was Foreign Secretary, so... It's such fun being liberated from those constraints. But, um... The German-- I don't know. The German approach is more likely to sway, 'cause it's in everybody's interests to approach it in that way. [00:19:03;17] Let's turn to financial services. How on earth can London maintain its preeminent place in the world in financial services while exiting Europe? [00:19:15;14] Well, this is a difficult issue. And this is, again, one of the reasons that those of us who argued on the "remain" side did so, um, because we do have the famous passporting access and so on applies, um, in the UK. However, now, since we all have to make the mental leap I've been talking about, we have to put our new hat on as leavers from the European Union. Well, London has immense advantages of skills, of law, of, uh-- of the critical mass of people, and institutions. And many of those leading institutions have already made clear that they're not leaving London. Um, so, now we have to find new ways to accentuate those advantages. And there will be options. One option will be to say, "Well, we will just mirror the regulations of the EU," although the disadvantage of that is we mirror them without any influence over them any more. They might be progressively drawn in a way which disadvantages London. So it may be more attractive to take a different approach and to say that we will aim for a regulatory system in the UK, which can be deemed equivalent-- and which has equivalence in a way that jurisdictions around the world do-- for working with institutions in the European Union. But we can adopt our own regulatory model, you know. We will look at what happens in Singapore, or Hong Kong, or Dubai, or wherever it may, and we will draw the best of them together. And we will make sure that Britain has the best possible regulatory environment, for both stability and, um, maintaining that critical mass of skills and business in the UK. And again, if I know Oliver Letwin, who is the minister now in charge of the new EU unit that is drawing together options for all the options for the Prime Minister, he will want to look at those-- at the radical options, as well as the option of just, you know, taking as read the EU regulatory system. So, um, this is an important time for those with a stake in the UK. And there will be many here today to influence that argument, and to make clear to the British government what it is that would actually continue to make the city a great success. [00:21:49;18] In the meantime, Britain has the largest current account deficit, I believe, in the OECD. It seems to be heading towards recession. How quickly and urgently does the government need to move? Or has it already been moving apace under the announcement that Osborne and Carney have made in recent days? [00:22:06;25] Well, the Bank of England is making an announ-- Those are-- That is actual action that is going on to encourage liquidity in the economy. But, of course, the government now waits on the election of a new Prime Minister and a Cabinet. So there can be indications of where that government will head from those who are expected to lead it. But I think what this leads to is-- Between the ninth of September, when a new Prime Minister is chosen, and the second of October, when the annual Conservative conference begins... That will be the crucial period, um, to make announcements about the direction of policy over the overall economic direction of the government... the sorts of issues we've just been talking about... the goal that the UK will have in negotiations with the EU... That will be the-- That three and a half weeks there will become an absolutely critical period. [00:23:10;00] We have a trade agreement known as CETA with Europe. I'm wondering how you see that evolving while the separation is going on. Is there still hope for CETA to be in play, or should we be looking

at a different trade strategy with respect to the remaining EU and the UK? [00:23:30;28] Well, there would-- I'm sure there will be a ready audience in the UK to, um... in a, um, suddenly- created trade department, which any new Prime Minister will have to bring about and assemble from scratch, um... in talking to countries like Canada about new agreements that can be, um-- that might be more favourable, and that can be ratified much more simply than any agreements with the European Union. I think there will be immense interest in that. But, of course, it will be important to try to persist-- for countries around the world to persist-- in what they've been working on with the EU, as well. Um... It's a complicated process because of, um-- You know, you end up having to have agreements ratified by regional parliaments in Belgium. It goes on for quite a long time. But it's an example of how there might be attractive new opportunities with the UK. And I say that as someone who didn't want to leave-- That I'm trying to give you an example of the mental leap to the new world. [00:24:39;03] I think we should, uh, let lunch be served. But just a final question. You seem somewhat hopeful that this can work out positively for Britain. What do you see as the biggest risks between today and that position of hope? [00:24:53;21] Well, I mean, we've got to be hopeful, haven't we? And I'm not going to go around the rest of the world saying my own country is in a irrecoverable, uh, situation, having spent four years as its… [00:25:05;24] [unclear] ...put the positive side. But I do feel-- I think the... There's no point wallowing in gloom. Um, it's a... It is a difficult and uncertain situation, but it's one we've got to deal with. So let's find the areas of hope and work those up into some real options. That's really my mood. What is the biggest risk? I think the biggest risk is-- and this is a familiar one in Canada, actually-- is to the structural integrity of the UK, because this result gives Scottish nationalists the, uh, best shot they will have, sometime in the next five or six years, at, um, trying to bring about the break-off of Scotland, uh, from the rest of the UK. And I think that-- Again, that was an important reason for me to vote to remain in the EU. But, um, hopefully such efforts can be defeated. But it's going to be quite a, uh... a very difficult situation to manage. [00:26:05;20] Well, it's been a pleasure to, uh, spend time with you-- thank you-- under adverse circumstances as they are. But, uh-- But you're always welcome in Canada. And thank you for your time today. [00:26:16;16] Thank you very much. Thank you. [00:26:18;08] [applause] [00:26:24;07] [end]