Appendix 1

Economy Committee – 6 July 2016

Transcript of Item 3 – Brexit and the London Economy

Fiona Twycross AM (Chair): That brings us to today’s main item on Brexit and the London economy. A big welcome to our panel of guests, whom I will introduce shortly. For the start of the meeting, we are joined for ten minutes or so by the newly-appointed Deputy Mayor for Business, Rajesh Agrawal.

Rajesh, you have been in post for just two and a half days now and so we particularly welcome you clearing your diary to come along to join us for the very first part of the meeting. We have a slight change to the initial schedule, which will be for Rajesh to make some introductory comments with very brief contributions from the Committee in response. We do look forward to a more in-depth discussion with you at a future date, but we appreciate you making the time to come today.

If you would like to start, we will move on to the Committee questions later.

Rajesh Agrawal (Deputy Mayor for Business): Yes. Thank you very much and good afternoon to everybody. I have had two and a half days in this building and I am quite excited. It could not have come at a more extraordinary time. These are very extraordinary times that we are in.

I will spend just one minute giving my background for the people who do not know. I am an entrepreneur, basically, and until last week I was running a business that I created and founded about 11 years ago in ’fintech’ or financial technology and so the background is technology and financial services. I am an immigrant and so some of the things that we will talk about and the kinds of challenges that we are going to face going forward are very similar to the challenges that I have had to face myself.

The next few days I am spending talking to business leaders and industry associations, because what we are finding generally is that there is a sense of uncertainty - naturally - after Brexit. Businesses are generally quite nervous. They do not like uncertainty of any kind and so the job is to reassure them, to tell them that we are on their side and to try to understand their concerns. That is what I have done in the last two days and that is what I will continue to do. A lot of this is about confidence. If businesses have confidence, then things work. If there is a lack of confidence, then sometimes it can be a self-fulfilling prophecy.

Markets and businesses work in that way. Markets-wise, it has been quite difficult. We have seen sterling drop to extraordinary levels, a 31-year low and so on, which creates its own challenges in a certain way, but it also creates opportunities. Being an entrepreneur, I am an optimist. We have to talk about the opportunities that Brexit brings along with the challenges that it poses.

I am meeting with people. I wrote an op-ed [opinion piece] in City A.M. yesterday, which was very well received. I am speaking to the tech community through speaking at the annual dinner of techUK this evening. I am looking forward to meeting with businesses more and more. The priority at this stage is really to reassure businesses and to make sure that whenever we start renegotiating with Europe, London has a strong voice and has a seat at the table, which is what the Mayor has been talking about. It is absolutely important that we have that and that we are taken seriously on some of these points.

Having worked in the City, I know how important it is. ’Financial passporting’ basically means that the financial institutions of the United Kingdom (UK), without much extra licensing, are able to operate in other European Union (EU) Member States. As a result of Brexit, that is under threat and so that is very important. We want financial services to keep the health of the City in place.

Access to the single market is another very important thing to add. Now we are able to do trade with other Member States without many tariffs and barriers. That is under threat as a result of Brexit and so it is important that we try to renegotiate on that.

All in all, the message is very clear: London is open for business. We have talked a lot about the threats and the challenges, but we must start having a positive tone so that the rest of the world feels that we are open for business both internally and abroad because a lot of it is all about confidence. London has survived some other big challenges in the past historically and this is another challenge. I have full confidence in the spirit of London entrepreneurs and businesses and that we will be able to handle some of these challenges going forward.

This was only for the first time. I am quite pressed for time, but I am here and I will come back here as and when you ask me to at a later opportunity and I look forward to working with all of you going forward. Coming from an entrepreneurial background, I am all about transparency and open communication and so please feel free to reach out to me at any point. I am here for you.

Fiona Twycross AM (Chair): Thank you.

Shaun Bailey AM: Thank you very much for attending and congratulations on your post. It is going to be a massive whirlwind for you, I imagine. Good luck with that.

My major question to you: you said that you are an optimist and I welcome that because I worry that we are in the process of talking ourselves into a recession. Do you think that there is something the Mayor can do particularly to stem that flow of negative vibes?

Rajesh Agrawal (Deputy Mayor for Business): Again, it is about reassuring the business community. It is all about confidence and that is why we must talk to businesses, we must listen to them and we must engage with them. Nobody is denying the challenges that we are facing after Brexit. Those challenges exist and we cannot turn our back on that. However, what you have to do is to tackle them as opposed to trying to turn your back on them. We must talk positively. We must send the message out that London is open for business. That is extremely important.

Shaun Bailey AM: Thank you.

Fiona Twycross AM (Chair): We will leave it there, Rajesh, but we will welcome you back at an early opportunity once you have managed to get your feet under the table. No doubt you will get more of a grilling, probably, next time. Congratulations on your role and thank you again for changing your diary around to join us this afternoon. Thank you.

Rajesh Agrawal (Deputy Mayor for Business): Thank you. I look forward to seeing you all again.

Fiona Twycross AM (Chair): I would like to now welcome our panel for the rest of the meeting.

We have with us Mark Littlewood, who is Director General of the Institute of Economic Affairs; Megan Dobney, who is Regional Secretary of Southern and Eastern Region, Trades Union Congress (TUC); Dr David Lutton, who is Executive Director of Policy at London First; Professor Albert Weale, who is Professor of Political Theory and Public Policy at University College London’s (UCL) European Institute; and Matthew Jaffa, Senior Development Manager of the Federation of Small Businesses (FSB). Our final guest will be joining us shortly. Professor Tony Travers is coming along and he is Director of LSE London. Again, we really appreciate people moving around their diaries to join us today.

[Brexit] is one of the issues that is probably going to dominate the discussions of the Committee and the country over the coming weeks and months. I have a starting question for London First and the FSB in the first instance, which is really about the reaction of businesses and workers to the result of the EU referendum. What do you feel the reaction has been from both businesses and workers in London?

Dr David Lutton (Executive Director of Policy, London First): Obviously, the initial reaction is one of shock and coming to terms with what has happened and so they appreciate a moment of pause to take account of the magnitude and the way that the country has decided to vote and understand what that might mean for their businesses. That has come across.

Now we are starting to see a bit more of, “Well, we still have to show that London is open for business, life goes on and things continue”, but we are seeing a lot of concern about uncertainty and what that is going to mean in terms of investment decisions going forward. Certainly the businesses that we represent that are transactions-based and in property are saying that future order books are flat and there is definitely going to be an impact on what happens next. We will have to wait and see there.

There is also some real concern about what this means for domestic policy. Is crucial investment in infrastructure going to go ahead as required? Will other decisions like a third runway [for Heathrow airport] be kicked into the long grass as well?

Then the other overriding one we hear a lot is about talent and continued access to talent. What happens to all of the European workers who are already employed here? What is their status? What is it going to be going forward? Then how do we recruit and retain talent going forward? I would say that they are the common themes that we are hearing.

Matthew Jaffa (Senior Development Manager, Federation of Small Businesses): From our members’ side, the main issue is just the uncertainty amongst small businesses. Over the weekend I spoke to about 25 or 30 of our members in various sectors that we represent across the UK. It was throwing up more questions, on the whole, “What happens about my staff? What happens about looking to export?” It was a whole range of questions and us not having the answers. For them, it was a case of, “We just don’t know”. In the short term, there is that concern, particularly when they are seeing the pound dropping against the dollar, the FTSE (Financial Times Stock Exchange index) dropping? What is happening next?”

However, long term, there is that stoic approach that small businesses have and that idea in the long term that, “OK, it is a short-term shock. We will have to work around it. There are opportunities down the line”. Although, yes, there is the side of the spectrum that says, “We still want the access to the single market”, which is critical for small businesses, they want the access to talent as well. Those are critical things for small businesses. There is that approach, “Although things are a bit concerning in the short term, in the long term we will muddle through, we will work through it and we will make this work to our advantage”. That is what I was hearing a lot of from small firms across the weekend.

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): As the question was about workers as well, I will comment, too. Both sides for or against were shocked and surprised.

Then, of course, there is enormous disconcertion about what appeared to be quite a lot of lies told and there is a feeling of people having been conned. I am not saying that they are necessarily changing their opinion or would have changed their vote, but there is concern about that.

Thirdly, in brief, there is concern about the future of employment law that rests on European legislation such as, for instance, the entitlement to a paid holiday, just as one example.

Mark Littlewood (Director General, Institute of Economic Affairs): We are in for a period of uncertainty and it is going to be rocky for 12 months or so and it is also unavoidable, actually. It is helpful for political leaders to reassure people that London is open for business, but that is a soundbite, not a blueprint for what London might look like from the outside.

Given that presently we do not know who the next Prime Minister will be and that we do not know what deals she - or she! - will be seeking from the EU, we should be honest about the fact that probably for the next 12 months there is going to be genuine business uncertainty and it is not going to be possible to provide clear answers to exactly what employment law will look like or exactly what future immigration policy will look like. We are going to have a year in some considerable degree of limbo.

The key thing is to use that year to make sure that in 12 months’ time there is a satisfactory blueprint that puts London and the UK in the strongest possible position. However, there is going to be unavoidable doubt and uncertainty for 12 months at least.

Dr David Lutton (Executive Director of Policy, London First): I would say that 12 months is being quite optimistic.

Mark Littlewood (Director General, Institute of Economic Affairs): Yes, I probably am being optimistic.

Dr David Lutton (Executive Director of Policy, London First): It probably is not going to be 12 months. It could be years.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): Just to come in on that point, it is important to remember that ’Leave’ was never one option. It was actually a set of mutually incompatible options and all of us are going to have to go through a process of learning about which of those options is going to emerge as the realistic one.

I share the view that 12 months is enormously optimistic. A point that I will probably keep banging on about this afternoon is that it is very important to remember that we are not talking about one set of negotiations but two sets of negotiations; that is to say negotiations to withdraw. Those are relatively easy matters. The alternative: remember that what the article says is that it will “take into account the framework for future relations”. That means that whatever relationship that is - and it could be one of four or five, at least, different sorts of relations - it is going to be a much more difficult set of negotiations to conduct.

We know that the British Government actually does not have the personnel to be able to conduct those negotiations at present. There is an interesting question as to whether the Government could trigger an Article 50 notification, say, by early next year because it has to put itself into a position where it can seriously

think about what its strategy is. However, given the timescale that it has normally taken to negotiate trade agreements - the average is between four and seven years - there really is a dilemma here about the sequencing as well as the timing. We have to think very hard about the sequencing of the negotiations as well as about the timing of the negotiations.

Kemi Badenoch AM (Deputy Chair): Everyone has agreed that there is going to be uncertainty. I am just trying to get a little bit more specific on what we can do to manage that. I do agree that simply saying, “London is open for business”, is not going to do that much, but does anyone have any tangible suggestions like, “If we do this specifically in the short term, this will calm down the markets?”

Dr David Lutton (Executive Director of Policy, London First): One of the hits that people are worried about in London is a hit to its attractiveness and reputation as an international city and an international hub for doing business. Yes, it is a great brand to say, “We are open for business”, but we also have London & Partners and the Mayor has control over the budget for promoting London in terms of foreign direct investment and tourism. That is one way that London’s government can make sure to continue to fly the flag for London and put the message out that we are open to visitors and we are open for investment.

Mark Littlewood (Director General, Institute of Economic Affairs): Let me stand by my extreme optimism that it might be only 12 months of uncertainty because I am not in any way suggesting that in 12 months’ time the full and final package - whether we are in the European Economic Area (EEA) or in the European Free Trade Association (EFTA) or falling back on World Trade Organisation (WTO) rules - will be clear. Essentially, we are going to be building together a mosaic and, once bits of that come into place, uncertainty begins to dissipate. I would have thought that what we require from our political leadership is the ability to put some of the obvious planks of the deal in place.

To give you an example, concerns about EU nationals being expelled from the UK or vice versa is unnecessary and likely to cause panic. I would have thought that that is one of the things that you could nail down. It might not be that the ink is dry on a treaty, but if both the European Council and the now three candidates for the office of British Prime Minister made it plain in a statement that there was no question of Brits being expelled from the EU or EU nationals domiciled here being expelled out of Britain, OK, you would not have a full trade deal in place and that might take several years, but you would have at least brought some certainty to what is going to happen. You can move in a stage-by-stage process. It is not as if you require the final picture before you deal with some uncertainty. You can begin to establish some of the core principles that you will be abiding by. It has been unhelpful that there has been a suggestion that EU nationals might not be able to stay in the UK.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): Can I just come in on that? My understanding - but I am subject to correction on this - is that what the three candidates have said is that provided EU Member States agree to UK citizens having rights of residence and vested interest rights, then EU nationals in the UK will. However, I cannot see that a UK Government is in a position to be able to say to somebody living in Spain or France that France will continue to guarantee them rights of residence. That is the difficulty.

Mark Littlewood (Director General, Institute of Economic Affairs): We could say, potentially, unilaterally that we will defend EU nationals’ rights to remain here. If the Spanish decided in their wisdom to expel British nationals from Spain, it would be horrific and most regrettable and not in our power, but we could guarantee immediately the right of EU nationals to remain.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): We would have to be clear that it was a unilateral commitment. Matthew Jaffa (Senior Development Manager, Federation of Small Businesses): I would just say that I agree wholeheartedly with what David [Lutton] said regarding inward investment and the need to ramp up the London & Partners side.

There are two other areas that we could do but we need the drivers. UK Trade & Investment (UKTI) has a presence. We have that in London and we need to show that we are promoting London and the UK to the rest of the world. UKTI has a job to do and we need to ramp up that area. Also, with our embassies across the world, we need to showcase those and get our ambassadors across those embassies to showcase London and the UK as well. We did a great job after the Olympics of showing what London has to offer. Those ambassadors in the embassies will have a challenging job to do now of really promoting London and the rest of the UK.

Kemi Badenoch AM (Deputy Chair): Thank you. I would like to move the questions on towards the outlook for growth in the London economy specifically over the next two years because we do not exactly know when Article 50 will be triggered and we may even have an extension.

It is important that a new settlement is reached, but what sorts of things do you think we could have now before the negotiations? What sorts of benefits could we get even before anything is finalised? Is there anything in the current state of limbo that we are in? It feels like on the one hand there is absolutely nothing we can do and we all know that ‘Armageddon’ is coming, but I feel like that is not quite the situation and there must be some things that we can do now to help London specifically and also the rest of the country.

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): The TUC has produced an action plan. It is a national plan and it contains a number of bits and I can hand it to you if you would like to see it. What we could do is to use that same approach but for London’s voice.

A plank of the plan is that it is not merely whoever is Prime Minister and the two other leading parties or whatever, but that it needs to be from the start a coalition - not political - of interested parties, which would include business interests, academic interests, trade unions and politicians, but in our context it would clearly be at the London level. My Executive Committee discussed this this morning - my Executive Committee covers the East of England and the South East as well and we will be drawing up a regional plan that includes some of the same principles.

Something that says, “London is working together” - it does not matter what we say at this moment; that is a separate question - and something that is clear that London is working together to ensure that London is protected would be a helpful start.

Dr David Lutton (Executive Director of Policy, London First): Obviously, there are winners and losers in all situations. With a weaker pound, our exports are cheaper and so that is good for our manufacturers. It is not great for London because we do not have a huge manufacturing base in London and so that is the sort of thing that we will have to look at. To be fair, in the context of London, some of the big deals around real estate suddenly look a bit cheaper to international investors and so there are some opportunities in that respect.

Mark [Littlewood] might echo this and pick it up more, but there is a business rates revaluation coming next year. That is going to hit London quite hard relative to the rest of the country. It is very important that

transitional agreements are put in place to smooth out the increased costs of doing business in London. Maybe London could be lobbying for that to be delayed or to be rethought in the context of the situation that we find ourselves in.

Anything that we can do to encourage growth and to not add to the costs of doing business would be a good thing at this time.

Kemi Badenoch AM (Deputy Chair): You mentioned foreign real estate investment. Given that people voted “Leave” for all sorts of different reasons, do you think that it might be controversial if a weaker pound suddenly encouraged more foreign investment in real estate in particular? A lot of the conversations that have been had in this building have been about foreign people purchasing properties in London and so on. Are you suggesting that that might actually be a good thing?

Dr David Lutton (Executive Director of Policy, London First): For all of the big schemes and all of the big property developments going on in London, foreign investment is an important part. In fact, to make sure that you get the proportional level of affordable homes as part of a scheme, you require the money in the first place to get the stuff off the ground. I am not talking specifically about individuals coming and buying London residential property. I am talking about large institutional investment in large-scale developments that deliver large-scale housing for London and what it needs. Some of these big budgets might suddenly look a bit more attractive in the short term with the weak pound.

However, the other thing I would say is that the pound is weak at the moment, but uncertainty usually brings volatility and so there is no reason why the pound will not fluctuate. Big international companies have to hedge that risk, which increases the transaction costs and, again, could put them off completing on the work.

Kemi Badenoch AM (Deputy Chair): Thank you.

Mark Littlewood (Director General, Institute of Economic Affairs): The weak pound should be very good for London tourism. This is the cheapest time in the last three decades for an American to come on holiday to London. I agree with what David [Lutton] said. It is swings and roundabouts. There are winners and losers whether the exchange rate goes up or goes down.

To my mind, I have looked into this a bit and I do not claim to have the answer, but I would encourage your Committee and others to look into this. In terms of beginning to bring together some certainty or at least a plan, an awful lot needs to be looked at around passporting for financial services and, crucially, equivalence. Some argue - and I am not necessarily saying that they are right - that passporting is less crucial for British financial services because equivalence rules will come in under the Markets in Financial Instruments Directive (MiFID) in January 2018. Substantial research needs to be done on whether the equivalence regime will be sufficient for British financial services and the City of London outside of the EU or whether part of the negotiation will require us to trade things off to secure passporting. Can we put a number on how important or damaging those options are and be clear about what the desired outcome is for London outside of the EU?

Kemi Badenoch AM (Deputy Chair): Just speaking on MiFID specifically, it has been a long time - well, not that long - since I have worked in banking, but how much of it would still be applicable whether we were in or out? Is it just something that is planned on a global basis or is it specifically an EU law that is applied only to EU-based companies?

Mark Littlewood (Director General, Institute of Economic Affairs): It would apply to us unless we choose to repeal it and so, again, it is a blank sheet of paper. If we want, however, to meet equivalence standards, it would to some degree bind us into whatever the EU considered to be satisfactory financial standards; hence it is called “equivalence”. At least from my early readings, the theory would be that were we able and willing to retain that, we could retain almost identical access to the European single market, even from the outside. These equivalence rules potentially apply to the United States of America, which has never been an EU member.

I do not claim to have the answer here, but this is the most important part to look at with regard to London and financial services in London and whether this equivalence deal would stick and would be acceptable in Brexit Britain or whether we need to send our Prime Minister to the negotiating table with passporting of financial services being one of the key demands.

Kemi Badenoch AM (Deputy Chair): I know that passporting affects quite a lot of financial services, but do you know of any areas where it does not apply? I think there are, but I cannot remember off the top of my head.

Mark Littlewood (Director General, Institute of Economic Affairs): I do not, no, but that would be going even for a super-deal at the moment. Insofar as passporting is advantageous to us - and I would query whether that would still be the case from 1 January 2018 or whether it would still be as strongly the case - to what extent are you happy to see that rescinded? I am raising the question and I have not come down firmly on one side or the other, but there has been a paucity of research about this to guide either the [London] Assembly here or the Houses of Parliament just down the road.

Kemi Badenoch AM (Deputy Chair): Thank you.

Matthew Jaffa (Senior Development Manager, Federation of Small Businesses): Kemi, the FSB released its London Small Business Index earlier this week, which measures confidence. It shows that for the first time since 2012 the index has dropped into negative territory in terms of that confidence. This was carried out before the referendum took place. It was the fear of uncertainty afterwards that was measuring the confidence levels, but also the cost of doing business.

As David [Lutton] mentioned, the issue of business rates is the one that is highest on the FSB London agenda when we asked, “What is the most concerning issue facing your business?” The revaluation comes next year and it is going to impact on London considerably. We feel that it is now the time for Rajesh [Agrawal] and Sadiq [Khan, Mayor of London] as well to really focus on the issue of business rates. With the reform coming and the Chancellor [of the Exchequer, Rt Hon George Osborne MP] announcing £6.7 billion worth of tax cuts in terms of business rates, it is not likely to impact on London businesses as well and so we are, again, likely to feel the impact of that. When the Chancellor is saying that he is looking to reduce corporation tax, it is all very well and looks good, but is it the right area to be focusing on? For small businesses, it is more an issue of looking at the area of business rates. That is their number one concern.

Kemi Badenoch AM (Deputy Chair): That is definitely more crucial than corporation tax for small businesses in London?

Matthew Jaffa (Senior Development Manager, Federation of Small Businesses): Business rates is the critical issue for them, yes.

Shaun Bailey AM: Which sectors are most exposed to downside risk in the short term? Who may benefit? Which sectors will benefit over the long term? Or is it the same scenario for whichever part? You said you would suffer now in this shock environment, but you would be successful after that point outside of Europe?

Dr David Lutton (Executive Director of Policy, London First): That is a very good question. As I said in my opening remarks, in any business that is a transaction-based business - supporting real estate transactions, for example, and all the advisory services and professional services that go along with that - we are seeing delays in decision-making. We are also seeing delays in people expanding and that will go out to taking on more staff, taking on new premises, etc. The people who might see it first - and we are seeing in the big real estate funds - have suspended withdrawals. That is not necessarily because the market is seeing that demand for commercial real estate in London is in decline or that that is the view of it. It is more to do with these being illiquid assets and people are moving their positions to make sure that they are protected from uncertainty. Commercial real estate is potentially going to see it first, but any large corporations that are looking to expand, looking to invest or looking to build new premises or hire new staff will all be taking a pause at the moment to understand what happens next.

Mark Littlewood (Director General, Institute of Economic Affairs): I agree with that about transactions and financial services in particular. Effectively, the greater uncertainty in any area at the moment is because of the vast numbers of permutations and combinations about where that sector might be in five or ten years’ time.

Although I am an optimist about this, it will depend entirely on the UK Government getting it right. I do not know how the UK Government will regulate financial services in ten years’ time. It may do it fantastically well; it may do it fantastically stupidly. However, the future of the financial services industry will hinge on that. The reason that there is so much uncertainty around financial services and anything involving substantial transactions is that that is a blank sheet of paper. We pretty much know what the tourism industry is going to look like in ten years’ time. I am not saying that the exchange rate is neither here nor there, but that is less uncertain. It is in the areas of uncertainty that the outrun over five or ten years is the most open to question and is the most dependent upon Brexit Britain getting its regulatory framework right. It is not obvious that uncertainty now necessarily means long-term benefit. That depends upon the correct public policy prescriptions.

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): I would add that, in spite of my agreement that manufacturing is not key and is not one of the larger industries or sectors in London, it is an important sector albeit small. It tends to be a high-quality niche rather than millions of rivets or widgets or whatever. Quite clearly, manufacturing that is exporting - and half of British manufacturing is exported, although I do not have the statistic for London - will suffer because of the fluctuating value of the pound. There are problems there.

Shaun Bailey AM: We are saying that we have seen record lows in the pound for 31 years or so. Surely those industries --

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): Surely it should be the other way around?

Shaun Bailey AM: Yes.

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): You are absolutely right. If they are buying, it will be harder. I just do not want manufacturing to be forgotten in the great scheme of financial services and tourism.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): Part of the complication is that it is true that the net advantage should be with a currency devaluation but, to the extent to which companies are buying inputs from abroad, they become more expensive. Of course on the revenue side, unless they get the increase in quantity, they do not get the increase in revenue because they are getting less by way of dollars for every pound’s worth of goods they buy.

It is quite a complicated equation. I was talking to an economist colleague of mine today about this at lunchtime. He thinks about the J-curve effect, where the balance will go down in the short term before coming up as the volume increases in the medium term. It is a very complicated situation.

Shaun Bailey AM: It is not just as simple as a cheaper pound?

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): It is not just as simple as a cheaper pound because we are talking about an economy that has been integrated across borders and inputs are coming from all sorts of different places.

Kemi Badenoch AM (Deputy Chair): I have a supplementary question to what Shaun has asked about downsides and upsides. I am assuming that everyone around the table is pro free movement of labour. Is there anyone who is not? I am particularly interested in hearing if there are some benefits from that angle. I have never heard those arguments.

Fiona Twycross AM (Chair): We are talking about free movement later on as well.

Kemi Badenoch AM (Deputy Chair): This is just in terms of the downside risks for sectors should there be a change there. Is there an upside or a downside risk?

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): This is pure speculation on my part but, if the overall political project is to reduce total numbers, we have to remember that the labour coming in from Europe in particular, leaving aside non-EU citizens for a minute, is from two main groups. There are the high-quality workers going into financial services or my colleagues in university departments. You also have the low-skilled workers who are picking asparagus or strawberries. Something like 90% of strawberries in this country are picked by European workers coming in. The interesting thing in terms of sectors is, if you put an overall cap on numbers and at a lower rate, which is the sector that is going to have to concede? That seems to me to be the interesting problem that is further down the line.

Caroline Russell AM: I have a specific follow-up to Shaun’s question, which was about which sectors are most exposed to the upsides and downsides. I wanted to specifically ask about the low-carbon economy. There was a 2013 report that said that the low-carbon environmental goods and services sector in London is worth about £25.4 billion a year and that it had had very solid growth through the economic downturn period. Do you have any views about the possible downturn/upturn impact of the current Brexit situation for the low- carbon economy?

Mark Littlewood (Director General, Institute of Economic Affairs): Almost to repeat my previous answer, it depends what the UK Government’s approach to low carbon is going to be and so, to some degree, the areas with the greatest uncertainty have been those areas in which the EU regulatory framework or targets have had the most influence. If you are looking at an area in which the EU does not much involve itself, then there is clearly less uncertainty because we are exiting something that has not had a great deal of influencing.

It seems to me possible that the British Government’s approach to the low-carbon sector will be very different to the EU’s approach to the low-carbon sector. That is speculation. I have no inside track on it. That would suggest that that sector of the economy is at risk of declining if we expect the British Government to adopt a less positive approach to the low-carbon sector compared to the EU.

Matthew Jaffa (Senior Development Manager, Federation of Small Businesses): From our members’ perspective, Caroline, small firms are more dependent on EU funding, whether it be the European Social Fund (ESF) or the European Regional Development Fund (ERDF). In terms of the environmental sphere, the businesses that are in those sectors are likely to be inclined to need that element of funding. For us, it is more the case that that funding that has already been honoured should be honoured down the line. The FSB viewpoint is that an impact assessment of the future of EU funding schemes should be taking place now and we have a fair inclination that the environmental businesses will be most affected by that.

Caroline Russell AM: Do you think that there are a lot of businesses in London that are dependent on EU funding?

Matthew Jaffa (Senior Development Manager, Federation of Small Businesses): From our research, we found that small firms are more dependent on EU funding than medium and larger businesses.

Fiona Twycross AM (Chair): Professor Weale, you went into a little bit of detail about some of the points that will need to be reached between now and Brexit, but I wondered if you could briefly set out the process for our exit from the EU and the extent to which we can influence the outcome of the negotiations.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): That is a very substantial undertaking! We are all trying to see through this crystal ball and hope that the clouds move away. Can we just deal with the formalities first of all because that then does lead on to much more complex political calculations?

Fiona Twycross AM (Chair): Yes, that would be helpful. Thank you.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): The formality is that this is all done under Article 50 and Oliver Letwin [Chancellor of the Duchy of Lancaster] made the point yesterday that at least the advice from the British Government is that Article 50 is a matter of royal prerogative and can be triggered by the Prime Minister without reference to Parliament. That is not to say that the Prime Minister would not consult Parliament, but it is not required.

Article 50 is very vaguely written - partly because nobody expected that it would ever be invoked - but, as far as one can tell, it is entirely at the discretion of the British Government. It requires that Article 50 be invoked in accordance with the constitutional requirements of the Member State. The legal advice that has been received from the European Council is that just noting that there has been a referendum decision is not sufficient to trigger that article. I am sure that Members will be aware that in its statement of 29 June 2016 the European Council said two things, really, both of which are important. One was that it hoped it would be

done quickly and the other was that it wanted an orderly process. To some extent, those two things are in conflict with one another.

However, notice what is very important in Article 50. It says:

“A Member State which decides to withdraw shall notify the European Council of its intention ... [and] shall negotiate and conclude an agreement ... setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.”

That goes back to what I was saying earlier. We really have to be thinking about two sets of negotiations. One set of negotiations, the withdrawal negotiations, concern such things as the timing of UK contributions made to the EU budget, the withdrawal of civil servants from the Commission and other bodies, whether EU agencies like the European Banking Authority get relocated and so on. Those are relatively straightforward in the sense that you can see how those are transitional arrangements and are matters of, if you like, housekeeping rather than negotiation or bargaining. If you want an orderly process, those have to be done well.

The difficulty is in this phrase “the framework for its future relationship with the Union”. As far as I can tell, there are two schools of thought about this and it is very difficult to see what is likely to happen. Either of these hypotheses is possible.

One hypothesis is that the British Government negotiates a framework for a future relationship that is very loose and undetermined, the withdrawal process goes through and then the serious negotiations about the framework, trade negotiations and so forth continue after that withdrawal process. If the European Council does not allow an extension of the two years, then the implication is that the UK has to go into WTO arrangements and then renegotiate an entrance back in. That seemed to be what Commissioner Malmström [Cecilia Malmström, European Commissioner for Trade] had in mind the other day when she said that we are going to have the trade negotiations after the withdrawal negotiations.

The alternative view is that it is in everybody’s interests to be able to try to wrap these two things up together so that before withdrawal takes place we know what the future framework is going to be, what that is going mean for free movement of labour, what type of access arrangements there are going to be for UK goods and services and so on. In that case, it may well take longer than two years and it is a question of the Council permitting that.

Now, any one Council member could potentially veto an extension of those two years but - and I have been trying to study EU processes for 30 years now - at Council level the EU prefers to work by consensus. If one or two awkward members were holding out - let us say a hypothetical Eastern European state was saying, “Look, if we are not getting free movement of labour to our satisfaction, we are not going to allow these negotiations to continue”, they would come under very considerable peer group pressure within the Council to allow a continuation.

Which of those hypotheses is going to take place? I do not know. The complication is in where the balance of interest lies between the two sides of the negotiation. Again, you have two potential extreme ways of thinking about this - and there are many more - but let us suppose the following happens: rather than triggering more euro-sceptic movements in other member states what Brexit does is serve as an awful warning of the dangers of Brexit. I can remember in the 1970s, when the pound was being battered by the currency markets, at that stage and I was camping in a Bavarian farmer’s farm and as I left he said, “Der Pfund ist kaputt!” - “The pound is completely shot.” He had obviously taken that view that the UK economy is a basket case. If that is the

message that the European electorates and the European political parties internalise then it may well be in everybody’s interest to say, “Let’s take this slow. This is not creating political pressure in other member states for exit. Let’s take it slowly and negotiate a package that’s sensible for everybody.” It is clear, particularly with the German government, but to some extent with the Dutch government as well - they want Britain to have as cordial a relationship with the EU as possible. There is very strong interest. On the other hand, if it looks as though it is disruptive, then I can well see that they would say ”if ‘twere done, t’were best done quickly”. That two-year guillotine does shift the logic of bargaining advantage quite considerably and of course the shadow of that gets longer the closer you get into those negotiations.

Andrew Dismore AM: The counterintuitive question I wanted to put to you about that, supposing it does drag on and supposing we have another election - which we will have eventually, say, in 2020 - and an enormous majority of pro-EU Members of Parliament (MPs) are elected and the country effectively has a different view, is it possible to undo Article 50 or not?

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): If the withdrawal is not complete, Article 50 is written in such a way - and again, this is the legal advice that has been given to the French government recently - you could call it off at any time. It is like getting the decree nisi without getting the decree absolute, if I can put it that way. We would all look very silly if that were to happen. On the other hand, this would not be the first time that the European Union has faced a situation in which a member state population has decided one thing at one time in a referendum and has then scratched its head a few months or a few years later and said, “Well, actually, no, we think we’ll go back on that”. It is not unprecedented. One point that I might make just generally about European politicians is it is very important to remember that quite a high proportion of these politicians have their formation in coalition systems where they are used to trying to come to mutually accommodating bargains. It is not an accident, as they say, that the person who has been put in charge of the [European] Council committee to oversee the Commission’s negotiations with the UK is a Flemish Belgian. If you are thinking about mutual negotiations to advantage in complex situation you do not get more complicated that being somebody who is a Flemish Belgian negotiator. My view would be that once all the dust has settled - the European Parliament obviously had that sort of marital dispute moment when they said, “Just pack your bags and get out of the house”, but once they have overcome that there will be a serious attempt to try to negotiate something to mutual advantage.

Andrew Dismore AM: The single market is important to London’s economy; how important is it and what would be the consequences to London’s economy if we were not part of the single market?

Dr David Lutton (Executive Director of Policy, London First): It is a central question for us. A key objective at the moment is to maintain access to the single market. Prior to the referendum we were very strong on London as a great international city, it is absolutely at the top of its game. It has many fundamentals that occur here, not all of them are based on being a member of the European Union, but the UK economy is one sixth of the size of the European economy. Unlike New York or, say, Hong Kong it does not have a massive domestic market on its doorstep and Europe effectively functions as that. London has become not only a global hub but the business hub of Europe and being in the single market you cannot deny has been an incredibly important part of that and it has also helped our financial services lead the financial services centre of Europe. Therefore, the answer to that is yes.

Andrew Dismore AM: The following question is: if we were to leave the single market what then? What will the consequences be? Will there be job losses, what industries, what particular sectors would be affected?

Dr David Lutton (Executive Director of Policy, London First): There is an ultimate confusion between trade and single market, what that means, because people keep saying things like, “Well we have to continue to trade” and of course pure simple economics tells us you trade with your closest partners. Geography matters when it comes to trade. We will always trade with Europe. The question is what are the transaction costs of that trade. It is not immediate dramatic effects of leaving the single market, it is just slowly over time the increased costs of doing business in London as opposed to a key headquarters for managing European operations. London at the moment attracts more international European headquarters than any other city in the world. Would that be the case in the future when we do not have access to the single market? There is a question mark over that definitely. We do not know. It is a case of death by a thousand cuts as opposed to anything really dramatic. Certainly the financial services sector if they lost passporting rights that would be a big issue for them as well. There will be real consequences I would imagine around that. It is a matter of negotiation. However, our top line at the moment has been to continue to have favourable access to the single market.

Andrew Dismore AM: When you talk about trade you are talking about both goods and services?

Dr David Lutton (Executive Director of Policy, London First): Goods and services. Services are incredibly important for London.

Andrew Dismore AM: On the services side, the single market matter is not entirely complete, am I right?

Dr David Lutton (Executive Director of Policy, London First): Correct.

Andrew Dismore AM: Right. Is one of the risks that the single market services may be completed without us and not to our advantage?

Dr David Lutton (Executive Director of Policy, London First): Yes. I was at a meeting this morning with [Rt Hon] Sajid Javid MP [Secretary of State for Business, Innovation and Skills], who was doing a roundtable on financial services and it was about the importance of passporting and he reminded everyone that the single market is not just for financial services and there is the opportunity of a single market in digital services which is incredibly important to London’s growing tech sector as well. There are potential opportunity costs in the future of not having good relations and good access to that market.

Andrew Dismore AM: What will the impact on jobs be if we were not in the single market, do you think? Where will the jobs go?

Dr David Lutton (Executive Director of Policy, London First): There are too many variables to put on at the moment, we just do not really know. The organisation I work for has a mission to make London the best place in the world in which to do business and maintaining access is how we get there. I would not like to see anything that jeopardised that.

Andrew Dismore AM: Putting the other point of view, are there any benefits to London of not being in the single market?

Dr David Lutton (Executive Director of Policy, London First): There are a number of narratives developing around Britain outside of the EU. It is kind of a ‘Singapore super’ narrative of this international global free trade and that is a vision for the UK. It is possible that more fleet-footed UK regulator, a fleet-

footed UK ability to do deals with fast growing countries all over the world, there could be an uplift in there, but there is a question mark there as well.

Andrew Dismore AM: Is one option on that basis that London becomes some sort of special economic zone of the UK like Singapore or Hong Kong where it has its own trading relationships with the EU and elsewhere and even perhaps its own immigration policy with the EU and elsewhere.

Dr David Lutton (Executive Director of Policy, London First): That is a question of politics, isn’t it? Certainly the case is there are a lot of areas in policy where London’s economy is very different from the UK economy so it needs different solutions. I know the Mayor [of London] in particular has picked up on the need for more fiscal devolution for London to be able to deal with some of these issues that may be thrown up from being outside of the single market.

Andrew Dismore AM: Does it go beyond fiscal devolution to other things like immigration?

Matthew Jaffa (Senior Development Manager, Federation of Small Businesses): The tariff-free trading for our members is critical and access to 26 million business-to-business operations is so imperative. A third of our London members export. That has reduced somewhat, they have gone to about a quarter now in the last index. The majority do the trade with our EU counterparts. Also for smaller microbusinesses the concern is that you do not have the ability to take three or four days out of your business to go and fly to Australia or Singapore. Small microbusinesses only have the capacity to trade with those who are their close partners. They would be trading with the Republic of Ireland or other parts of Western Europe, it is near enough for them so they can do it in a day or two days. It is all those regulations and extra costs of doing business again that could be impacted. Again, as David [Lutton] said, the variables are too huge to know what the impact will be on jobs at this stage.

Andrew Dismore AM: Not good?

Matthew Jaffa (Senior Development Manager, Federation of Small Businesses): No. Well, it is just too early [to say].

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): I just want to say there is no chance that London or any region of the UK could form a separate treaty with the --

Andrew Dismore AM: What about Scotland?

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): -- well, only consequent upon the UK breaking up, because the treaties are treaties between states. It is a lovely vision actually, I like it, but politically it will be very difficult because - just to take one obvious example - the Spanish Government would say, “Hang on a minute. We have to think about Barcelona and Catalonia and we’re not allowing this”. Membership does depend on agreement of all member states. It is a lovely vision, but short of a remarkable transformation, I think it would not happen.

Andrew Dismore AM: If we do not have that what alternative trading arrangements could we have? Talking about Switzerland or Norway or Canada, what do you think would be the good and bad about such models? Which way do you think it would be likely to go?

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): I think my colleagues are more adept at this, but let me have a go. One extreme is we just look like Norway. That is to say we are members of the EEA, we accept all the four freedoms, freedom of movement of labour, we pay into the budget contribution. We are out of fisheries and agriculture and obviously Schengen and some of those other agreements, but basically that is Brexit about as light as you could get. At the other extreme --

Mark Littlewood (Director General, Institute of Economic Affairs): WTO.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): Or even further than that, someone like Patrick Minford [Professor of Applied Economics at Cardiff Business School] said we do not even have to apply tariffs. If we are in WTO then we would almost certainly be applying the tariffs because we would be outside the common external tariff of the EU so we would almost certainly be applying the same tariffs. Unless we went for ‘unilateral tariff disarmament’. There is a text book economic argument that says that countries which impose tariffs always damage themselves because they make it more expensive. My difficulty with that has always been that that assumes that countries are single actors. I personally find it impossible to believe that French farmers are not jumping for joy at the prospect of a 35% tariff on dairy goods being exported from the UK. Broadly speaking those are the models. Singapore, WTO, Norway and then anything that gets negotiated in between.

Dr David Lutton (Executive Director of Policy, London First): There is probably something in the middle around a kind of bespoke Switzerland type deal. Although the Commission has made it quite clear they do not like that idea, but there is something around that.

Andrew Dismore AM: If we were to end up like the Norway model, where effectively we are led to believe that one of the big issues that people voted on was immigration and all that sort of thing, well they do not get what they wanted if that was the case.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): I am only quoting from the Council statement of 29 June 2016 which said, “In the future we hope to have the UK as a close partner in the EU. Access to the single market requires acceptance of all four freedoms.” That was the Council statement. In my experience of the EU those are very strong commitments. You do not make a make a commitment like that unless you are willing to uphold it.

Andrew Dismore AM: That is not a particularly attractive reflection of the Brexit vote because we end up having to accept all those without having a say on them.

Mark Littlewood (Director General, Institute of Economic Affairs): Yes. It is really important to get the terminology right here. I am not trying to be pedantic, I think it is important. There might be a few lunatics who believe in a siege economy, but I do not think anyone is suggesting that we do not want access to the single market. Access to the single market we are going to get. Virtually every country in the world, apart from North Korea, has access to the single market. The balancing issue, the thing at stake in the negotiations goes to what Professor Weale has just said, is to what extent do you want to encompass the regulatory framework of the single market. Do you want a free trade deal with the single market? Obviously everything we sell in to the single market would have to be compliant with EU regulations, just as everything we sell in to the United States (US) market has to be compliant with US regulations. To what extent, from the Patrick Minford [model of] unilateral free trade and massive deregulation to EEA membership, are you willing to - if you like - take the burden, or some might say the benefits, of the single market regulatory structure? I

wish the single market would actually be called the single regulatory zone. That is what it actually is. It is the single regulatory zone, to which we are certain to have access in any remotely plausible -- the question is to what extent do you want to continue to have the potential competitive benefits of having uniform regulation across the board or to what extent you believe that the United Kingdom Government could make a better fist of regulation or a worse fist of regulation than that of the European Union single market. Your view of the benign nature of the regulations or the malign nature of the regulations and your confidence or the lack of it in the British Government to do the right thing will probably determine where you are on that spectrum from wanting immediate unilateral free trade now or to wanting Brexit-lite and going back into EEA.

Andrew Dismore AM: Coming back to Professor Weale on that, is that going to be our choice?

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): What the council statement says is access to the single market requires acceptance of all four freedoms, and what access means in that context - I think the phrase is very good - is actually part of the single regulatory zone. The council statement means that if we are going to be part of that single regulatory zone then we have to accept all four freedoms. If we are prepared to be outside the common external tariff, but nonetheless make our standards of goods and products and services comply with those of Europe so that we could sell into Europe that is fine. That is just like any other third party county. If we are to see ourselves as part of the single market in the sense in which that is understood by the European Council, and so on then, then the four freedoms come with that inevitably. Unless there is some deal to be done. Alain Juppé [former Prime Minister of France] has just said the other day, “Maybe we could do something with the Brits” but I think that is very unlikely, saving a change of government. There is one other consequence of the EEA which does not affect London directly but may have indirect effects, which is we would be outside the common agricultural and fisheries policies. It is inconceivable that agriculture and fisheries could remain a competence of the UK Government. The devolved administrations in Scotland and Wales and Northern Ireland will surely want control of agriculture and fisheries, which means if you are then going to continue to fund something like a Common Agricultural Policy (CAP) that has fiscal implications.

Andrew Dismore AM: Or you go like New Zealand did and withdraw subsidies to the farmers. It is not really a matter for London because we do not have many farms in London. One or two around the edges, yes. We’ve got two in Barnet.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): It is just the knock-on fiscal consequences of funding something. CAP is about 40% of the budget at present. It is potentially quite a large volume of resources that would have to be found inside the UK. Unless you do what New Zealand did.

Andrew Dismore AM: We have probably covered all the things I was going to ask you. Just going back slightly to what you are saying, there are reports in the media that the Mayor [of London] is trying to suggest to Number 10 that London could remain in the single market, but what you are effectively saying is you do not that think that is a runner, London on its own.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): Given the European Council statement, it is going to be difficult enough to put up the migration controls on the border between the Republic of Ireland and Northern Ireland. I hate to think what is going to happen. Passport to Pimlico [1940s film] then becomes a reality, does it not?

Andrew Dismore AM: We can all become Burgundians!

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): Exactly. You can see Margaret Rutherford [actress] there checking the passports.

Andrew Dismore AM: Last question. Just these points about common standards, you can understand consumer standards saying, “OK, you export electrical goods, make sure they don’t blow up” but does that also include, for example, labour standards in terms of terms and conditions of workers and protection for workers as part of that or is that seen as somehow separate?

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): No, that would be separate. The standards that are required are product and process standards. They are things like emissions from cars or emissions from factories producing goods, but there is not a requirement, for example, that a factory importing meets labour standards.

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): Two very brief points. One relating to Ireland, which of course is not in London, but the additional complication there is it is related to the Good Friday Agreement which has got nothing whatsoever to do with the European Union but is an important part of proper life.

The only point I was going to make, having listened to the possible flexibilities of the timescale is that I find the whole scenario quite concerning as we wander slowly towards a general election and the political imperative of people who promised whatever not being able to deliver. For instance, the TUC supports, insofar as one has to have a position, the Norwegian model. However, with that comes the four freedoms. If a government is to be talking about that just before a general election you can see why people might be making all sorts of U-turns at different moments. It is not very helpful, I know.

Mark Littlewood (Director General, Institute of Economic Affairs): Could I just come on this interesting concept that Mr Dismore has raised about having asymmetrical immigration rules. I agree that this is probably not within the realm of what is going to be consented to by the British Government, whatever form it takes, but it is not a technical impossibility. If the UK was minded to go for very substantial devolution across the board you could imagine a world, for example, in which an immigrant qualifies for a national insurance number with, I do not know, an “L” at the end of it which means that you can legally work within the area represented by the London Assembly, but would not give you an entitlement to work in Scotland, Wales, Devon, Somerset or anywhere else. You obviously would not police the M25 to stop people moving, but in terms of labour there is not necessarily a reason other than political reality. I do not think there is a technical reason why you could not have different visa arrangements for different areas.

Kemi Badenoch AM (Deputy Chair): Just a short point on what you raised about French dairy farmers being really happy about being able to slam a 35% tariff [on British dairy exports]. To what extent do you think there could be tit for tat recriminations going on? Because I fully agree that most countries that do impose tariffs end up punishing themselves, but surely if they did that with dairy then you would do it with French wine or something to that extent. To what extent does it then become like an arms race?

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): There is two points here. You are absolutely right. What the world learnt after the 1930s was that it was bad news for people to get into trade wars with one another. It is a ‘beggar my neighbour’ type game. The Patrick Minford thought is actually a much more radical thought which says, “Look even if people put up tariffs against you it is to your advantage not to put up tariffs against them”. That is

unilateral with some of it. In the textbook world that is true. I do not think it is true in the real world. My worry would be precisely that we would then get in to that trade war where we would be outside the common external tariff, we would be imposing the same tariffs on the EU as they would be imposing on us and we would then go through years of negotiation which would reduce those back down to the levels that we already have. That is my worry.

Kemi Badenoch AM (Deputy Chair): You think it is possible? It is not out of the realms of possibility that things would descend to that level?

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): If we are outside the common external tariff it would be very difficult to resist some of the political pressures for Britain to impose the same tariffs on everybody else.

Kemi Badenoch AM (Deputy Chair): Thank you.

Dr David Lutton (Executive Director of Policy, London First): Looking at trade and international trade tariffs, as you say, from the 1930s has been established that they have been declining but there are behind- the-border ways of countries still protecting their producers and that is through regulation and less clear methods. Being part of the single market and being at the negotiation table in creating those rules and regulations, to step outside of that could mean that you just have to adopt those without having any decision making over them.

Andrew Dismore AM: We have anti-dumping rules anyway, don’t we? There was not so long ago a bit of a trade war between the EU and America, how did that ultimately resolve itself?

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): That is a very good question. I do not know off the top of my head to be honest. You are absolutely right. We were getting into anti-dumping.

Fiona Twycross AM (Chair): OK. It is a valid point, but one that could take us on another whole route of questioning. I would like to welcome Professor Tony Travers, thank you very much for coming along today.

Professor Tony Travers (Director, London School of Economics and Political Science): Later even than I said I would be. I apologise.

Fiona Twycross AM (Chair): No, that is fine. We have just got to the point on devolution.

Joanne McCartney AM: Professor Tavers, you led the London Finance Commission work, asking for fiscal devolution and the Mayor has recently - on the back of the Brexit result - stated that not only does he want fiscal devolution but also more devolution in other policy areas such as skills, housing and so forth. Do you think this is the right time to be asking for that? I notice given that the Chancellor has recently announced that he is looking at reducing corporation tax. Is that likely or less likely to happen?

Professor Tony Travers (Director, London School of Economics and Political Science): I obviously cannot speak for the current Chancellor or any imaginary future chancellor, or the same one carrying on, but the logic behind the London Finance Commission was not a logic - as it were - just for 2013. It was part of a wider examination of the very centralised nature of UK democracy or England-within-the-UK democracy. The report made a number of comparisons looking at London compared with not only equivalent cities overseas

but also compared with Scotland and Wales and indeed Northern Ireland which have far more substantive levels of devolution. Indeed, since 2013 the discussions about devolution to Greater Manchester and to other cities have themselves evolved further with potentially a bigger offer of devolved service powers to cities outside London in some spheres at least, to those that that Greater London Authority (GLA) currently has. The debate is an ongoing one.

The questions about why devolution matters in principle are probably - and this is a personal view, this is not me as the Chair of the London Finance Commission which no longer exists of course, other than the lovely memory - but the truth is that the vote that took place on 23 June 2016 told us a number of things. Many things will be read out of that, but one of the things that can clearly be read out of it is that on some issues at least, possibly more than this, London votes differently to the United Kingdom or votes differently to the rest of England and Wales. There are all sorts of reasons why that might be true, but if the response to the Brexit vote is that - or it is inferred from that - that politicians in different parts of the country or politicians at national level actually need to find ways of connecting slightly more closely decisions made, the use of resources in different parts of the country with the people who live in that part of the country. That would be true of the North East or Greater Manchester just as much as London. Then if we can infer that lesson potentially from what has just occurred then it would, in my view, strengthen the argument for devolution not only of some fiscal power but also of services as well. The reason for that would be to allow decisions about the way resources are used in London to reflect the needs of Londoners, not the median voter for the United Kingdom.

The same would be true, as I say, of other parts of the country. It would be responding to a sense - as I say, there are many things that we can read out of the EU referendum vote - but I personally think it would be hard not to read out of it some sense that there was a disconnect between national politicians and the way national politics and government works throughout the United Kingdom or certainly inside England. That is a personal view. Hard to prove at the moment. Let me put it the other way around and then I will keep quiet. If we were to decide, as a result of this vote, to further centralise the government of England, we could not further centralise taxation in England, I can assure you, but you could in principle take more powers to the centre. The question that would then be begged for Westminster and Whitehall, particularly given the new burdens it will face in the next few years, which I am sure you have been discussing is: would that make government more responsive all over England? My personal view, although others might disagree, is that the referendum and the implications that we can draw from it probably strengthen the case for devolution within England.

Joanne McCartney AM: Thank you. Can I also ask then, with regards to London, devolution and Brexit, what do either you or the panel think about which powers the Mayor should be prioritising, asking for from devolution to perhaps protect from the uncertainties of Brexit?

Professor Tony Travers (Director, LSE London): This may have come up already; I am very sorry and I apologise to my colleague witnesses for having missed what they have said. I would imagine - and others here know more about this than I do - that HM Treasury is probably at this moment quite concerned about sustaining the UK tax take. London is a substantial subset of the UK tax take, and the formal administrative London region and the South East - I am possibly not including the East - are a significant, disproportionate share of the UK tax take. You can have an argument on another day about whether that is a good thing or not.

I am guessing the Treasury’s concern will be to protect that because if that were to decline very rapidly - and in some circumstances it might - then to rebalance it with the rest of the UK, their tax take would have to grow very fast indeed. That would require a structural change to the UK economy that many Governments have

seen and have attempted to rebalance but that has thus far proved elusive. The Mayor of London, the London boroughs and the Treasury have common cause, which is to ensure that the London economy and its tax take do not radically diminish as a result of what has happened. Others here will know much more about this than I do but it seems to me that is axiomatic and that therefore London has a role, both the GLA and the boroughs, in helping to sustain the net tax yield to the Treasury.

Joanne McCartney AM: It is in the interests of Government to ensure that London remains competitive and strong.

Professor Tony Travers (Director, LSE London): At the moment, if you go off business rate retention, 93% to 95% of all the taxes paid in London are paid to the Exchequer and used by the Exchequer partly to fund London but partly to fund other parts of the country. There is effectively an automatic transfer of the yield of the taxes to the rest of the UK. In the short term, the Treasury must want to sustain the tax power of London.

Let us take a particular example. The reforms that were made to stamp duty a couple of years ago took a substantially larger amount of money from London than any other part of the country. At the time, that was seen - by some people, anyway - as an appropriate response to what was going on in the housing market. I am not sure that yield will necessarily continue at quite the same level now. Again, others down the table will have a view on that. Certainly if there were any radical adjustment in the property market it would be more difficult to sustain that kind of stamp duty regime in a very different property market to the one that it was introduced to affect within the last couple of years.

Mark Littlewood (Director General, Institute of Economic Affairs): There is potentially an opportunity here for very substantial and radical devolution in the UK, not so much necessarily because of pressure from London but because of the position in Scotland and possibly in Northern Ireland as well, although London obviously, in the wake of the referendum, ticks the box of having voted very substantially in the opposite direction to the totality of the country.

I totally get what Tony Travers says, that centralised governments do not tend by instinct to wish to give away their tax-raising powers. On some margins, the UK is the most fiscally centralised country anywhere in Europe. In fact, more than 90% of all tax taken is at the central level. It is much more like 50/50 in Germany. There is an opportunity to push for much greater devolution across the UK. I have to say I think it is probably the only way that Scotland will remain in the UK, which is becoming less and less likely by the day. There will have to be a further settlement there.

I do not particularly any see any reason, in theory, why the London Assembly should not have the same powers as the Scottish Parliament. One of the problems we have had across the UK - and this will remain a problem - is that devolution has been asymmetrical. Scotland has a parliament, London has an assembly, Wales has an assembly, the South of England has nothing, and Greater Manchester has a particular deal that was cut with George Osborne [Chancellor of the Exchequer]. I do not know how you move towards a more symmetrical approach but there seems to me no reason why the London Assembly should not at least ask for those powers, in a country that is now clearly substantially divided.

I would suggest that the Brexit vote is probably not the only thing on which it is divided. The fact that the country was so divided on Brexit is very likely indicative of underlying different political preferences and priorities in different parts of the country and we do not have the constitutional or institutional frameworks in Britain to satisfactorily reflect those regional or city differences.

Dr David Lutton (Executive Director of Policy, London First): We would take it back to what London needs. A lot of things that London needs are not affected by the vote in the last couple of weeks. The population is growing and that is unlikely to change because that is not purely driven by things like migration. Even if we were to change the dynamics of our migration, London’s population would still be growing. That creates challenges around London’s competitiveness and maintaining a competitive city. Infrastructure investment and demand for transport is only going in one direction. Relying on central Government to provide the funds to meet the need for transport investment is one way of doing it but there are going to be holes in the public finances, I would imagine, if the economy takes a dive. Giving the Mayor more fiscal flexibility to be able to do deals with the private sector to unlock money and make these things happen can only be good for London and London businesses.

Caroline Russell AM: I want to ask a few questions about the labour market and the impact on workers, people who work here in London. That goes from people who may be working in low-skilled or semi-skilled employment areas right up to people who are running our cultural institutions in London. The British Museum and the Victoria and Albert Museum are both run by EU nationals so this insecurity that people are feeling is being felt right across the employment spectrum. The main first question is: what would be the impact on workers in London if the UK was no longer abiding by the EU fundamental freedom of free movement of workers?

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): What workers are feeling is what everyone else is feeling, insecurity. It was very interesting yesterday, during the strike day of the National Union of Teachers, that they made the point that one of their first actions after the referendum was to write to all their members who are European nationals and say, “You are wanted. You are needed. You are our members and we will be standing by you and keeping you”, and to write to all members - there are children in the classrooms with EU parents, who at times have been accused of causing the issue - reminding schools and teachers that in fact it is continuing cuts in education that is the issue. The needs of workers and services are interlinked. It is difficult to pull them apart.

I have only some statistics that I thought quite interesting. 250,000 Londoners went from London to the rest of the UK and 180,000 migrants came to London from the UK, people from Glasgow, for example. There are more people leaving London for the rest of the UK than coming in. That surprised me. You are nodding.

Professor Tony Travers (Director, LSE London): That is true. It is 100,000, yes.

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): Then 100,000 Londoners went abroad and 160,000 international migrants came into London.

As to how sectors will be impacted, I have not done a study of it but if you start at the very entry level, what are classically called unskilled jobs are full of migrants. Hotels would stop functioning tomorrow. The health service would be in deep trouble at lots of different levels, not just at the level of cleaners but right the way through, up to consultants. I am talking about European migrants, not others, because there are many of those as well. There are real issues there for London. How are we going to deal with them?

We then move seamlessly, do we not, into the importance for London of skills and housing, which are the two focal points, but you may be wanting to deal with that later as a separate issue. Does that in any way answer your question?

Caroline Russell AM: That is very useful.

Mark Littlewood (Director General, Institute of Economic Affairs): This is a thorny one, a very difficult one, and in part - Tony [Travers] alluded to this as well - it is trying to read the runes of a binary referendum. There is an assumption that people have voted for some sort of immigration policy, even though the immigration policy was not, of itself, on the ballot paper. Again, to be as pedantic as I was about defining the single market, I also think we need to define exactly what we mean by ‘free movement’. Do we mean free movement of labour or do we mean free movement of people, the former being a subset of the latter?

While - hysterically, sometimes - immigrants’ reliance on public services is hugely overstated - I do not think the problems of the National Health Service (NHS) are entirely because of net immigration; indeed, I think they are barely related to it - nevertheless there is an issue about how you construct your tax and benefits system in the UK. This is, by the way, a UK competence. We could have exercised this differently even within the EU, but we have not decided not to go for a contributory system. Whereas it would be the norm in France or Belgium that you would contribute something towards social health insurance that would then allow you to claim back, here we have general collected provision.

My view - and it is a political judgment because economically, migration has been a net benefit - is that has led to resentment. The impression is you have these lower skilled workers, let us say fruit pickers, who may well be coming here to work but may actually be net beneficiaries from the system if they qualify for Housing Benefit, the NHS, access to state school system and the like.

I would hope that our approach to free movement of labour - I am not enormously attracted to the Australian points system but it at least addresses some of the right questions - would be to ask the question, essentially, for each and every immigrant, “Are they going to be a net contributor to the country?” There would be a range of ways you could potentially measure this. You could just say, “A salary of X and you are in”, or you could have in addition to that some sort of migrant bond system. If you are willing to put down a bond of £100,000, you are welcome in this country as long as you do not have a criminal record. Perhaps you want to retire here rather than work here. I would not want to dissuade rich retirees.

Although there was some hyperbole over the immigration debate, it does seem to me pretty odd that if you were to take the Institute of Economic Affairs as a small business, I employ three Americans, one German and a Spaniard, very talented people. I have to go through no hoops at all for the German and the Spaniard and extensive hoops for the three Americans. That does not strike me as a sensible, symmetrical immigration policy.

The criteria to be applied could be salary of X or a bond that you have put down of Y, or perhaps for the incoming immigrant population there could be some additional supplementary tax to pay towards likely NHS treatment. We do not need to have an equal tax rule, now we are out of the European Union, for all different types of people. You could have a precept for new arrivals or until you have been working here for ten years. These are all ideas - I do not have a costed plan here - but I would think that is the way to tackle it.

Unfortunately - Professor Weale referred to this earlier - public policy is focusing on the total number as if 50,000 immigrants are fine but 50,001 would somehow bankrupt the system. It might be that 50,001st [immigrant] is also a benefit to the system. A lot of the more poisonous debate about total numbers would disperse quite rapidly if, for migrant workers - I am talking about immigrants here, not refugees; that is a different issue - there was an arrangement that effectively guaranteed each and every one of them was a net

contributor to the Exchequer. At that point, it would be extremely difficult for somebody to have a concern that the number of people coming was 100,000 rather than 50,000.

Professor Tony Travers (Director, LSE London): I am just looking up something I read last night. I was intrigued that there was an article written in the Evening Standard by Rohan Silva last night, who was an advisor in Downing Street to David Cameron [Prime Minister], suggesting that London should have its own visa system in this new world. Now, at first sight that sounds a bit surprising but if you look into particularly Canada, it does have place-specific visas. I am not an expert on immigration, I can tell you, but it is intriguing to see that voices are coming forward now to suggest place-sensitive immigration systems.

This is a very complicated world to stretch into but what Mark [Littlewood] has just said means that these questions will be begged and discussed, because now everything is on the table. One of the intriguing consequences of the vote is that things are on the table to discuss that have never been considered before. The needs of the London economy may well be different to those of other parts of the UK. Other countries manage to deal with that. We can now discuss new things.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): Can I just go back to something that David [Lutton] said? By the way, I agree very much with Mark [Littlewood] about the asymmetry there has been in the EU between the contributory continental systems and the UK system. That has been important.

David was stressing earlier that a lot of the single market programmes are about reducing transaction costs. It seems to me that the big advantage of the free movement principle is it reduces the transaction costs on the hiring of labour if workers have the free right of movement. I know from my own department that the tiered visa system in the UK is a tremendous headache for employers to operate. If you then say that to get symmetry we need to generalise that to all non-UK nationals, you are potentially imposing a very considerable burden. This, again, probably does not affect London so much because the large hotels would probably be able to manage that but for employers outside of London, that could be very serious.

I would be slightly sceptical about a place-specific arrangement, just for practical reasons because companies could be located in very different locations. To say you can work in London but you cannot work in Milton Keynes would have all sort of practical possibilities.

The other point to make about this does, again, reflect the geographical pattern of voting. I was intrigued to see the very high turnouts in some of those northern constituencies. A lot of what was going on was not so much a response to pure numbers but to what people saw as the transformation of the character of the community in which they lived. Now, I take the view that in Hull it is much better to have Polish shops operating than to have boarded-up shops, but I can well understand someone who grew up in that community and saw the transformation of that community being puzzled by that. That is a concern about identity. It is a much more difficult concern to raise. I do not think it concerns London so much because we all know London is the great place of diversity and that is why people come here, but if one is thinking about the political balance across the country, it looks very difficult if you are in Hull, Hartlepool or Lincolnshire than it does if you are in London.

Matthew Jaffa (Senior Development Manager, Federation of Small Businesses): The London visa idea is definitely one to consider. The difficulty is that we have had problems in terms of the visa system of getting people from outside the EU to come into Britain. That has been made difficult by the current Home Secretary [Rt Hon Theresa May MP], who may very well become Prime Minister in a few days’ time. The access to talent

issue is still a critical concern. Our index we put out earlier this week shows 30% still very much concerned by the issue of talent. Who is to know? A leave vote might push the agenda up around upskilling our own work force. Again, it comes back to the issue that now that devolution of skills is on the agenda, that has to surely be something that needs to be pushed if we are to make sure that by leaving the EU we do not have this brain drain, finding it harder to get our talent from not just outside the EU but currently inside the EU as well.

Caroline Russell AM: Presumably also in academic areas and things, it is that cross-fertilisation of brains from European universities with British universities and working together that delivers so much benefit.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): Thank you for mentioning that. Just in my own personal experience, I teach a lot of Masters students. We have some of the brightest students coming in from the EU who move to London to do a Masters, partly to explore whether there are career opportunities here or not. These are very talented people indeed. Anything that puts up a barrier to the entry of those people becomes a very serious matter for prosperity and the functioning of the economy.

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): I will keep it brief. It is just that I would not be supporting any suggestions that are related to access to migration on the basis of personal wealth, in other words a bond or that kind of thing, and that salary level is equally difficult because frankly nursery nurses are quite valuable but they are very low paid, whereas other people are not.

It is interesting to note, going into a reflection on my region, that in the East of England unemployment is now down to about 3.7%. Of course, there are many thousands of European migrant workers there, not all but many at low-skilled level, or not necessarily low-skilled but low-paid, for example in food processing, agriculture and care homes. In reality, the requirements there probably cannot be filled by people from the East of England. Whereas in London, for instance, one of the issues is that in construction, we have some severe problems. I echo my colleague from the FSB [Matthew Jaffa] here. What we have to do is start offering our own people some opportunities for skills by putting some serious weight on employers to do so.

Shaun Bailey AM: You have partially answered this, Megan; we always talk about the fact that the NHS would not survive if we cut off migrant workers and so on but I was born in London and I grew up in a community where unemployment is the thing. What is confusing to me is: where are all the Londoners to do these jobs? People who are here, no matter what race, creed or colour, whatever it is. It seems to me that people are saying that without this influx of migrant workers from the continent, we do not have the physical numbers of people to do this work. That is what it feels like people are saying to me. Is that correct?

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): It is, but it is perhaps for different reasons. The numbers of doctors and nurses being trained has been cut so there are problems there. Nursing is going to go downhill rapidly. In fact, my daughter-in-law is doing her second year of a nursing degree, which is great, but she is the last cohort that will have a bursary and her fees paid. They cannot get jobs because they are working half of their university course. Much of it has been the cuts in the NHS and the cuts in job numbers, which has left hospital trusts thrashing around filling posts for emergencies, which they are entitled to, whereas they cannot put on staff. There is a bizarreness there that makes no sense whatsoever. This is about a common sense approach towards running public service. It is rather like what one of our colleagues mentioned earlier on, the fact that we do not have enough negotiators in the civil service to deal with this issue because the jobs have been cut. There are wider political matters, I think.

Mark Littlewood (Director General, Institute of Economic Affairs): This is an interesting point. I do not doubt Megan’s answer there but Shaun [Bailey AM] has a point. The failure here, if you want to call it a failure, is on recruitment and training at UK level.

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): I agree.

Mark Littlewood (Director General, Institute of Economic Affairs): There is no prima facie reason why the indigenous population of the UK cannot provide healthcare to the rest of the indigenous population. There is no magic bullet that is suddenly provided by an influx of Bulgarians or Romanians. For whatever reason, we do not have the correct financial incentives or training opportunities. That is a failure of domestic policy. If, in the UK, we fail to equip the indigenous workforce for the tasks that we want carried out, then immigration is one way of filling that gap. You might raise that that begs the question as to why on earth we have not managed to train our own indigenous workforce for the sorts of tasks and productive needs that we apparently want. It seems to me that immigration is a cure, but possibly a cure to a problem that we have brought upon ourselves to some degree.

Professor Tony Travers (Director, LSE London): It is just a small point and again, others here will know more about this. If you look at the level of unemployment in London, the unemployment rate compared with the UK rate over a longer period, I think I am right in saying that in the period since the big uptick in net international immigration in the mid-1990s, the London rate, if anything, has declined toward the UK average. There is no evidence that the arrival of large numbers of immigrants in London has - I know you will not quite say it - contributed to any net difference between, say, London and a region where there is very low immigration. The figures show that. That begs questions that some of my colleagues are much better qualified to talk about than me as to whether migrants generate economic activity that then generates more jobs, which is a more complicated argument.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): The standard argument is that there is no simple lump of labour. There is no fixed number of jobs in the economy. If people are being productive, then exactly, they are also generating work. They have to eat, they have to maintain themselves and so on.

Kemi Badenoch AM (Deputy Chair): My question is still on the freedom of movement of labour. Mark, you mentioned that you were not a big fan of the Australian points system. I was very curious to know why, but I have a larger question around whether devolution would help the freedom of movement of labour. We have all talked about the fact it would be nice if London could have its own special visa system but one thing that does exist is that disconnect between London and the rest of the country. We are the only region, certainly in England, that voted as a majority for remain. There is an issue around competition for jobs, the Bostons and so on. What can we do to square this, assuming that we cannot devolve the problems away? What can we do so that London is not the exception? It is not helpful for London to be the exception because everybody is angry with us. What can we do within a non-devolved framework to fix that problem?

Very quickly on the Australian points system and then what we can do to make things perhaps a little bit fairer between London as a region and the rest of the country.

Mark Littlewood (Director General, Institute of Economic Affairs): On the Australian points system, my scepticism is that I do not think that central planners are particularly good at knowing the workforce that is needed in the economy. I am sceptical about a committee of bureaucrats that has decided to award, I do not

know, five points for an engineering degree from Singapore, 6.2 points for an engineering degree from Tokyo, three points for someone who has done some daycare training in Japan or whatever.

Kemi Badenoch AM (Deputy Chair): Does it not work in Australia then?

Mark Littlewood (Director General, Institute of Economic Affairs): It does not work optimally, is the point. Why would we assume that a committee of bureaucrats has some algorithm that somehow informs them of the needs of businesses across the country to find particular workers? Information on the economy is too dispersed for a central committee at the immigration department to know exactly how many points to ascribe to someone who has two years’ experience picking strawberries. We already have the nonsense that non-EU footballers need to get a visa by videotapes of them being shown to immigration department officials about whether or not this person is sufficiently good to play left wing for Manchester City. It is absolute nonsense.

I much prefer, rather a points system, a pounds system. I am going to make this point. It might be that the public sector wants to buy into that and recruit 1,000 nurses if the NHS needs an extra 1,000 nurses, but for issues such as football, let us say - I know that is an extremely high-end earning sport - rather than the idea that we are going to ascribe points to people depending on how many goals they scored last season of how promising a FIFA (Fédération Internationale de Football Association) coach says they are, it should be entirely up to Tottenham Hotspur who they sign, in my view. As long as they are willing to pay the bond or as long as the salary is clearly X million pounds a year, the immigration department should have nothing to do with it. I am sceptical about central planning and much prefer the market mechanism of the salary or a migrant bond being paid rather than some complex algorithm.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): Can I make two quick points? One is to take us back to the question of the passport in financial services and access to the single market. The importance of freedom of movement is that is the condition that is being demanded by our European partners as a condition of getting the economic benefit. It is absolutely at the core of what the international negotiation is going to be, let alone guaranteeing the residency rights of UK nationals in Europe and vice versa.

Secondly, because I grew up in Brighton and have lived in York, Norwich and Cambridge, I just wanted to point out that it is not quite London versus the rest. When I looked at the cities, it was a case of the usual suspects --

Kemi Badenoch AM (Deputy Chair): Regions, not cities.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): Bristol, Brighton, York, Norwich [voted to remain]--

Kemi Badenoch AM (Deputy Chair): Oxford too, I think.

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): Just on Boston, it is my hometown so I know it well and I think that, being generous, the influx of people to Boston has been an enormous benefit to the gene pool! It is not about competition in one sense. What it is about is, first of all, very low wages. Agriculture has become more industrialised. When I was a kid it was smaller fields, smaller products and families doing all the heavy work, which I did as a child. It has become more industrialised, wages are lower and the whole terms and conditions have changed so much it is very suitable for single people but it is very difficult to earn a living if you have other responsibilities like, say, children that you

need to get to school or older family. There are a number of changes. It is not just that employers are able to employ Lithuanians, Latvians or whatever at a cheaper rate, for instance. It is a much more complicated picture, which we have seen also in the East of England.

Kemi Badenoch AM (Deputy Chair): Thank you.

Andrew Dismore AM: Just a quick one on this idea of a London visa, a London National Insurance number or whatever. We have talked about that in the context of how we deal with EU migration but presumably if we had a London immigration arrangement we could do that for the rest of the world as well so you would not have the same problem for your Americans.

Mark Littlewood (Director General, Institute of Economic Affairs): Absolutely. I do not see why not. Notwithstanding the complex negotiations, I would apply the same visa rules, be that on a London basis or a UK basis, to every other being on planet Earth who is not a British citizen irrespective of whether they are American, Chinese, German or whatever.

Dr David Lutton (Executive Director of Policy, London First): I think we are losing sight of the point that free movement of people, as it is defined in the Four Freedoms, has benefited the economy enormously. What we are talking about is creating a new visa system. It may be a perfect, fantastic system --

Mark Littlewood (Director General, Institute of Economic Affairs): It may be a more liberalised visa system than we have at the moment.

Dr David Lutton (Executive Director of Policy, London First): It may be a visa system that works or it may not be but you are going to be creating new costs that are not there already. Think about not just the people who are resident here but the amount of travel that goes on between Britain and Europe for business and short-term. You need some kind of visa waiver system to allow people in and out and how you are going to manage, police and control that, all of this has to be thought through in a part that we do not have to think about in London.

Andrew Dismore AM: I am not arguing with you. Obviously what we are trying to do is to do the what-ifs. If, for example, the Government were to not agree to free movement of people and free movement of labour, how can we protect London’s position within that context?

Professor Tony Travers (Director, LSE London): You are then into considering what I quoted from the Rohan Silver article. It is complicated. It would not be easy to have a locational-based visa system where you could live in one place, probably travel to the rest of the country but not then work in subsidiaries. On the other hand, Britain has the ultimate flexible constitutional arrangements and legal arrangements, which can allow anything. Other countries do have, I think - it would need to be checked - arrangements of this broad kind.

Fiona Twycross AM (Chair): The Prime Minister has obviously said that he is going to consult with all regional centres of power. He has said explicitly that the voice of London would be heard. I just wanted to get an understanding of what you felt are the key things we should be asking for to ensure the best opportunities for London and Londoners to trade and thrive. We have had quite a lot of points raised but what the key things we should be asking for?

Matthew Jaffa (Senior Development Manager, Federation of Small Businesses): We have mentioned this term ‘open for business’. For us and our members, that is the critical one. The confidence issue has to be there. The ducking of the question, particularly on aviation last week again, does not instil a huge amount of confidence that we are there, open for business. What it needs is clarity. We have, as I say, Sadiq [Khan, Mayor of London] now. We have clear London government. We are still waiting on that political leadership at the national level. Decisions to say, “We are going to go ahead with this airport. We are going to go ahead with Crossrail 2 regardless. It has the go-ahead”. Having that element of sign-off would start to instil that level of confidence that we are open for business across the UK, but also London as well.

Professor Albert Weale (Professor of Political Theory and Public Policy, University College London European Institute): To the extent to which there is a case of London versus the rest, it is clear that London has benefited enormously from its openness. The question arises: can London see its way to somehow making a contribution to offsetting some of the difficulties in other regions? Is there a renegotiated package that could come out that would preserve as much as possible of the benefit of the single market, including the access of free movement of labour, to London’s advantage, without that causing friction elsewhere? That is the big political contract that Britain needs to be renegotiating.

Dr David Lutton (Executive Director of Policy, London First): I would say our top line is retaining full access to the single market - by access I mean unfettered access, not just being able to trade in to Europe - and British citizens continuing to be able to work in Europe and to continue to be able to bring in the talent from Europe that is required to grow London’s economy.

Mark Littlewood (Director General, Institute of Economic Affairs): I would say two things. First, the best possible deal for financial services, even if you are of the view that it might be a suboptimal deal, get the best suboptimal deal that you can. That is the backbone of the [London] economy and clearly of the British economy. I completely agree with what Matthew [Jaffa] said just before leaving, that one cannot seriously have a political leadership that says, “We are open for business” but takes 40 years and still cannot decide whether or not to lay down a piece of tarmac at Heathrow or Gatwick in order to expand our aviation capacity. That absence of policy decision-making is in stark contrast to actual, real signals rather than soundbites that we are open for business.

Megan Dobney (Regional Secretary, Southern and Eastern Region, Trades Union Congress): I would emphasise obviously the infrastructure projects like the airport and Crossrail 2. Unfortunately, they were subject to political games. It is not about the view, it is, “We do not want to say it now because it will impact on something else”.

There is one other issue that I would raise. It is not to do with the EU but it is to do with the future ability of London to thrive, and that is the issue of the changing formula for schools. The schools funding formula is going to dramatically damage London’s schools with some boroughs losing up to 19% or 20%. This is a national issue but London is the area that is going to suffer by 2020. This is so serious for our future.

Professor Tony Travers (Director, LSE London): Trying not to repeat what my colleagues have said, all of which I kind of agree with, I do think that given how much the UK is a trading nation going back a very long time, and sees itself in that way, there is a slight risk that the debate about immigration risks sending out a signal that we do not want inward investment either. That would be unfortunate, to put it generously. The two are probably linked. I do not know if there is academic evidence about that but we are very heavily dependent on inward investment and will continue to be so. We need to bear that in mind.

Second, whatever the tax regime is, it needs to be predictable over time because then businesses can make investment decisions. At the moment - this is my third point - the national political class, those who run our major political parties, definitely need to get a grip and to provide some sense of where Government is going. This strange period at the moment when it is not clear who, other than Mark Carney [Governor of the Bank of England], is really in charge, will be looked back on as perhaps not UK Government’s finest moment. I mean the whole of it. I do not just mean the party in Government, I mean the whole political system. The thing that Britain has going for it over time is political and governmental security, the rule of law and so on, all of the things we know are very attractive to inward investment. These things need to be put back. The country needs to look well-governed. That does need to be done sooner rather than later.

Fiona Twycross AM (Chair): Thank you. That is a very clear point to end on and one with which I think most people would concur, although obviously I cannot speak for everybody in the room. I would like to thank all our guests for your contributions today. Thank you again for coming at very short notice and thank you to all our Committee staff for putting the whole meeting together at such short notice. I do not think any of us expected to be where we are today. We have lots of food for thought from things that this Committee and other panels and Committees in the Assembly will come back to.