It is a pleasure to serve on this Committee with you in the chair, Mr Gray. As always, I am grateful to the Minister for his explanation of the statutory instruments.
Once again, the Minister and I are here to discuss statutory instruments that make provision for a regulatory framework after Brexit in the event that we crash out without a deal. On each such occasion, I and my Labour Front-Bench colleagues have spelled out our objections to the Government’s approach to secondary legislation. The volume of EU exit secondary legislation is concerning in terms of accountability and proper scrutiny. The Government have assured the Opposition that no policy decisions are being taken. However, establishing a regulatory framework inevitably involves matters of judgment, and raises questions about resourcing and capacity.
Secondary legislation ought to be used only for technical, non-partisan, non-controversial changes, because it allows for limited accountability. Instead, the Government continue to push through far-reaching financial legislation via this vehicle. As legislators, we have to get things right. These regulations could represent real and substantive changes to the statute book, and they need proper, in-depth scrutiny. In the light of that, the Opposition would like to put on the record our deepest concerns that the process is not as accessible and transparent as it should be.
On 18 February, I asked the Minister why Gibraltar was excluded from some previous SIs. The SIs we are considering today are presumably intended to fill that gap. It is of course essential that they do so appropriately. As colleagues will know—the Minister referred to this—Gibraltar is part of the EU as a so-called special member state territory, but it does not follow all elements of the EU’s policy approach. It is exempt from the common agricultural policy, the common external tariff and the VAT rules. Obviously, recent months have been very worrying for many people living in Gibraltar, given the potential for the Brexit negotiations to open up other constitutional questions and, of course, the fact that 96% of its population voted to stay in the EU.
I understand that, in March last year, at the Joint Ministerial Council with the Government of Gibraltar, the UK Government announced that, in a no-deal scenario, Gibraltar’s authorised financial services firms would continue to be able to access the UK as now until 2020 and, vice versa, that UK firms would continue to be able to access Gibraltar as now. The two SIs set out to enact that. It has taken some time for them to be laid—a point I will return to later. It would be helpful to know whether that rather delayed process has caused any problems for those in Gibraltar or elsewhere. Clearly, we have had many months since last March.
Surely it is more important than ever that we ensure that the arrangements the House makes for Gibraltar take account of its specificities and needs, at the same time as recognising the need for sound and thorough financial regulation. The latter is particularly important given the unique nature of economic activity on the Rock. As Committee members are probably aware, there are two businesses per head of population in Gibraltar. Despite its tiny population, there are more than a dozen registered banks there. The Rock’s self-description suggests that at least some activities on the Rock reflect differences rather than similarities with the UK’s regulatory and tax systems.
For example, the Gibraltarian Government website refers to the fact that those using Gibraltar can conduct
“business in a quality low-tax jurisdiction with a profit oriented capital base at low levels of corporate tax, all in a stable currency with few restrictions in moving capital or repatriating dividends”
and distribute
“competitively priced VAT-free goods and services to the markets of the EU and Africa.”
The Gibraltarian Government also note that there is a
“variety of interesting fiscal products ranging from lucrative”—
their word, not mine—
“funds development and administration to customized financial solutions, ranging from international tax planning strategies to monthly tax-free registered debentures”.
Finally, the Gibraltarian Government inform us that legislation is in place there
“to encourage High Net Worth Individuals…and High Executives Possessing Specialist Skills…to establish tax residency in Gibraltar, affording them the opportunity to have the tax payable on their income restricted to a capped amount.”
All that occurs, of course, at the same time as Gibraltar has EU membership and, again in the words of the Gibraltarian Government, a
“highly-developed business services infrastructure where it is possible to passport an EU licence in financial services such as insurance and re-insurance, EU-wide pensions, banking and funds administration, amongst others”.
I am aware that Gibraltar was taken off the OECD’s tax haven list after making progress in concluding double tax agreements, and I am also aware that its representatives would strongly reject such a characterisation, although all I have done is quote the Gibraltarian Government’s own words. Indeed, I recently met representatives from the Rock, and I am grateful to them for enabling me to discuss their jurisdiction’s situation. I know they would maintain that they have strong procedures in the area of financial regulation, and against money laundering in particular, and they feel their current status enables them to have financial independence from the UK. I am also aware of their genuine concerns about unfair criticism from Spain.
In that regard, I was encouraged to read earlier this week that Gibraltar, with the support of the UK Government—as I understand it, the UK Government have to negotiate these matters for Gibraltar—has just signed a tax treaty with Spain that provides
“for Gibraltar to keep legislation equivalent with EU law on matters related to transparency, administrative cooperation, harmful tax practices and Anti-Money Laundering once EU law ceases to apply in Gibraltar”.
That is a positive commitment, which will also pave the way for the removal of Gibraltar from Spain’s tax haven blacklist and enable it to sign up to the OECD’s base erosion and profit shifting process.
That is the context of these two SIs, both of which are obviously focused on no-deal planning. As the Minister stated, in the longer term, it is envisaged that the UK Government will work closely with the Government of Gibraltar to design a long-term framework for market access beyond 2020, which will be based on these regulations. The approach that is represented here, to use an overused word, appears to be a form of passporting of services between the UK and Gibraltar; instead of the previous context, in which Gibraltar and the UK were viewed by the EU as one jurisdiction, they will have to operate as two jurisdictions outside of the EU.
However, the existing passporting measures for Gibraltar are provided for within a plethora of different bits of legislation. Some are focused on just Gibraltar, including the 2001 Gibraltar order, which the Minister mentioned. Others are much more wide-ranging and cover UK financial services as well. Why was the no-deal SI dealing with some of the regulations that cover both the UK and Gibraltar—specifically, those on payment systems and electronic money—passed back in November, while a different approach has been taken here? That is particularly the case for regulations around insurance, which are directly amended by the amendment SI that we are considering. I beg your pardon, Chair—these are convoluted matters.
The Minister mentioned the need to preserve stability, particularly in the area of insurance, and that it was necessary to empower the PRA to do so. However, that surely applies to other areas of financial services as well. I am rather confused about this. Given that the amendment SI amends a number of no-deal SIs as well, one rather receives the impression that arrangements for Gibraltar have been considered quite late on in the process, rather than as an integrated part of it. [Interruption.] I am pleased to see the Minister shaking his head; I hope he can expand on that in his remarks.
Finally, it would be helpful to understand how the Gibraltarian Government are responding to this—whether they are happy with the approach that has been taken, and whether they feel it is going to be sufficient to remedy any potential gaps or inconsistencies. I urge the Minister to ensure that the door remains open to discussions with them as time goes on, to make sure that any potential glitches or problems can be quickly dealt with.