Examining the government’s plans for regulating the UK internal market

Examining the government’s plans for regulating the UK internal market

 

On 16 July 2020, the Department for Business, Energy and Industrial Strategy (BEIS) published a White Paper on the UK internal market in line with the government’s manifesto pledge to maintain and strengthen the integrity of the UK internal market after Brexit.

The White Paper sets out the government’s proposed policy options for preserving access and regulatory harmonisation across the UK internal market, to ‘protect the flow of goods and services across the UK after the end of transition period’. Central to this proposal is the introduction of a ‘Market Access Commitment’ across the UK, supported by the principles of mutual recognition and non-discrimination, and enshrined in UK law via a new Internal Market Bill, which would need to be passed by 31 December 2020.

BEIS has launched a consultation, seeking views on the policy options and legislative proposals, but questions have already been raised as to the legal and constitutional impact, as well as the practicalities of applying a UK-wide approach. Though the government promises to respect and uphold the UK devolution settlements, its proposals for centralised UK internal market regulation have been criticised from a devolution perspective.

 

What has been published?

 

The key documents published by the government are as follows:

 

Why is primary legislation being proposed?

 

Once the transition period under the Withdrawal Agreement ends, certain EU laws and regulations facilitating broad regulatory harmonisation within the UK market to date will no longer bind the UK. With the limits of EU regulation lifted, certain powers and devolved competences relevant to UK market regulation will be repatriated. With the UK devolved administrations expecting more control in areas such as agriculture, environment, food standards, planning, procurement, certain areas of tax etc at the end of the transition period, the government is seeking to ensure a centralised UK-wide approach to avoid the introduction of barriers to trade within the UK market.

In 2018, the government attempted to identify key areas of EU law that intersect with UK devolved competences. This exercise was updated in 2019 and the government has continued to work with devolved administrations to explore the development of UK-wide common legislative frameworks in some of these areas. However, priorities have changed since the 2019 general election and recent work on the common frameworks programme has been impacted by coronavirus (COVID-19). For background reading, see: Brexit Bulletin—seventh report on the European Union (Withdrawal) Act and common legislative frameworks, LNB News 20/05/2020 87.

The White Paper says that the common frameworks programme is ‘the mechanism most advanced in its development to address regulatory coherence’, however, even if this work is completed on time, the government considers it will not be sufficient to protect the integrity of the UK internal market, hence proposing further legislation:

‘Common Frameworks aim to protect the UK Internal Market by providing high levels of regulatory coherence in specific policy areas through close collaboration with devolved administrations to manage regulation. They do this by enabling officials to work together to set and maintain high regulatory standards. However, Frameworks on their own cannot guarantee the integrity of the entire Internal Market. As they tend to be sector-specific, they do not address the totality of economic regulation or the cumulative effects of divergence, i.e. the consequences of regulatory difference in one sector that affects other sectors. Finally, they do not fully address the question of how best to substitute the wider EU ecosystem of institutions and treaty rights had on the UK Internal Market.’

The Internal Market Bill is said to complement the UK-wide common frameworks and ensure market coherence by: ‘providing a baseline level of regulatory coherence across a wider range of sectors’ and ‘a low-level regulatory coherence underpinning’ in areas that are beyond the scope of the common frameworks programme.

 

Market Access Commitment

 

The government is seeking to introduce a ‘Market Access Commitment’ across the UK, enshrined in law and in force from 1 January 2021. The underlying policy objectives are:

  1. to continue to secure economic opportunities across the UK
  2. to continue competitiveness and enable citizens across the UK to be in an environment that is the best place in the world to do business, and
  3. to continue to provide for the general welfare, prosperity, and economic security of all our citizens.

As to the scope of the proposals, the White Paper says:

‘The Market Access Commitment will cover the UK economy across goods and services. Reserved areas will be out of scope including, for example, fiscal and monetary policy, and intellectual property regulation. Taxation and spending, captured by the fiscal frameworks, will also not be covered. Certain social policy measures with little Internal Market impacts, and pre-existing differences and policies, will also be excluded. Ongoing monitoring will assess the impact of localised divergences, for example between Combined Authorities in England.’

 

Mutual recognition and non-discrimination

 

The Market Access Commitment will be supported by a domestic system of mutual recognition and non-discrimination, to prevent different parts of the UK from applying less favourable terms or regulation against another territory of the UK. Three key areas of focus are highlighted in the White Paper:

‘a) Goods – mutual recognition of goods means that a good which can be lawfully sold in one territory, can be lawfully sold in other territories without having to comply with that other territory’s requirements (that would otherwise apply). Mutual recognition will cover mandatory requirements relating to lawful sale, i.e. product requirements and their related processes and production methods (for example, requirements on production, composition, quality, packaging or labelling). Other types of requirement not directly related to lawful sale will be excluded e.g. conditions on transport, disposal or the manner of sale of goods. These will instead be covered by the nondiscrimination principle. As noted earlier, goods being placed on the Northern Ireland market will have to comply with the arrangements set out in the Northern Ireland Protocol The mutual recognition principle will also take account of our commitments to ensure that Northern Ireland goods will have  unfettered access to the rest of the UK Internal Market. Northern Ireland’s specific role within a legislative underpinning for goods is addressed in detail below.

b) Professional qualifications – mutual recognition of professional qualifications means that compliance with regulation required to access a profession in one territory can be used to demonstrate compliance towards the access of that profession in another territory. Where access requirements in the other territory differ, a process will be implemented to enable professionals to demonstrate compliance. In addition, other profession-specific regulatory requirements needed to practise the profession will be included as part of this process.

c) Services – the effect of mutual recognition is already in place for most services authorisations within the UK through the Provision of Services Regulations 2009. These regulations have broad application and areas out of scope of this regime (such as financial, healthcare and transport services) are also out of scope of the UK Internal Market proposals. The Provision of Services Regulations 2009 set out that any authorisation scheme provided for by a UK competent authority must be justified and the objective not attainable in a less restrictive manner. The scheme itself must be based on criteria that prevent arbitrary assessment. Additionally, an authorisation issued by an authority with functions covering less than the whole UK generally permits exercise of the relevant activity throughout the whole UK. This system will be explicitly brought within the Internal Market system.

The non-discrimination principle will be a requirement not to discriminate between individuals or businesses based on residence or origin within the UK.’

The government proposes to introduce provisions mitigating direct and non-direct discrimination. This an area of focus in the public consultation (see below).

 

Impact on UK devolution

 

As noted above, the UK devolved administrations expect more regulatory control, not less, at the end of the transition period. Since the EU referendum, the government’s approach, and its impact on the devolution settlements, has been a continuous source of debate and disagreement. The government has faced criticism and numerous challenges from the devolved administrations, particularly where it has sought to legislate on behalf of the whole of the UK in connection with Brexit.

Announcing the White Paper in Parliament, Secretary of State for Business, Energy and Industrial Strategy, Alok Sharma, explained the government’s position:

‘Since 1973, EU law has acted as the cohering force for the UK internal market. In 2016, the British people voted to repeal this legislation, allowing us now to articulate the continued functioning of the internal market…We will legislate for an internal market in UK law, as we leave the transition period and the EU’s single market. Our approach will give businesses the regulatory clarity and certainty they want. It will ensure that the cost of doing business in the UK stays as low as possible.

But let me be clear: preserving the coherence of the UK internal market will be done in a manner that respects and upholds the devolution settlements. On 1 January 2021, hundreds of powers previously held by the EU will rightly flow directly back to devolved administrations in the United Kingdom. For the first time, because of our approach, the devolved administrations will be able to legislate on a whole range of policy areas. Each nation that makes up our United Kingdom will hold an unprecedented level of powers after the transition period.’

Alok Sharma promised that the Internal Market Bill will ‘respect devolution and uphold our internal market’ while the government works with the devolved administrations ‘to agree common approaches to cross-cutting issues such as regulatory standards’. Nevertheless, the announcement was described in Parliament as a ‘power grab’ and an ‘assault’ on devolution and devolved powers, bringing a risk of ‘levelling down’, meaning that ‘the lowest standard chosen by one Parliament must become the minimum standard for all’.

Perhaps anticipating this response, correspondence from the Chancellor of the Duchy of Lancaster, Michael Gove, to the devolved administrations, published on 16 July 2020, confirmed the government’s plans, inviting ‘full and frank’ discussions on the proposals. The correspondence highlights the various differences of approach across the devolved governments and potential challenges ahead in reaching genuine consensus.

With potential for further disagreement, the government has been asked to consider more formal dispute mechanisms, while it considers tasking an independent advisory body to monitor and report to Parliament on the functioning of the UK internal market.

 

What about Northern Ireland?

 

The precise arrangements for Northern Ireland are subject to the outcome of the UK-EU future relationship negotiations and final preparation for implementation of the Northern Ireland Protocol to the Withdrawal Agreement, which sets out the contingencies required for Northern Ireland if the transition period ends without replacement arrangements in place. The government’s proposals for Northern Ireland were set out in a separate Command Paper published in May 2020, promising to implement the necessary arrangements in a way that protects Northern Ireland’s position in the UK union and ensures unfettered flow of trade between Northern Ireland and the rest of the UK.

The Northern Ireland Protocol covers a number of areas of relevance, including trade and customs, VAT and excise, regulation of manufactured goods, the Common Travel Area, the Single Electricity Market and State aid. The government’s Command Paper focusses primarily on trade and customs. In the paper, the government highlights the importance of protecting Northern Ireland’s position in the UK customs territory and securing continued agreement to the Protocol in Northern Ireland. On this basis, the UK says: ‘The only arrangement that is likely to be enduring is one that is flexible and can adapt.’

Though the Northern Ireland Protocol sets out different arrangements specific to Northern Ireland, the government intends to apply the Internal Market Bill on UK-wide basis. Taking into account its promise to legislate for ‘full unfettered access for Northern Ireland goods to the UK’ by the end of 2020, the government has indicated that it aims to incorporate provisions relating to the implementation of UK obligations and commitments under the Northern Ireland Protocol within the Internal Market Bill.

The government plans to ‘build on precedent’ to ensure ‘effective mechanisms’ for unfettered access across the UK and to preserve the integrity of the UK internal market as a whole. A number of international models are outlined in the Annex to the White Paper.

 

Consultation

 

BEIS opened a public consultation on the UK internal market proposals on 16 July 2020, focussing on the following questions:

  1. Do you agree that the government should seek to mitigate against both ‘direct’ and ‘indirect’ discrimination in areas which affect the provision of goods and services?
  2. What areas do you think should be covered by non-discrimination but not mutual recognition?
  3. What would be the most effective way of implementing the two functions outlined above? Should particular aspects be delivered through existing vehicles or through bespoke arrangements?
  4. How should the Government best ensure that these functions are carried out independently, ensure the smooth functioning of the Internal Market and are fully representative of the interests of businesses and consumers across the whole of the UK?

The government is keen to hear from businesses, organisations, academics, consumer groups and trade unions across the UK.

The consultation is open to anyone and is being conducted via an online survey.

 

What happens next?

 

The consultation will close on 13 August 2020. The government has said that it is keen to engage with a wide range of stakeholders, including industry, civil society, think tanks, academics, and the devolved administrations. The government will also consider the interests of the UK Crown Dependencies and Overseas Territories.

Once it has considered the consultation responses, the government will publish its response. In terms of timing for the final proposals, the government does not indicate the precise timeframe. However, the government intends to ensure the passage of the Internal Market Bill before the end of the transition period, so a prompt response would be expected in order for legislation to be introduced at the earliest opportunity once Parliament returns from the summer recess on 1 September 2020.

In the meantime, work on the various transition workstreams continue, including technical discussion on the implementation of the Northern Ireland Protocol. The Ireland/Northern Ireland Specialised Committee held its second meeting on 16 July 2020. Noting the ‘intensification of technical discussions’, the UK has promised to provide further guidance for businesses and stakeholders in Northern Ireland in the coming weeks.

 

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About the author:
Holly joined LexisNexis in July 2014 and works primarily on the PSL Public Law module. Holly read law at university and qualified as a solicitor in private practice. Before starting her legal career, she gained experience working in local government and spent a year studying politics. Prior to joining LexisNexis, Holly worked in the Global Technology and Sourcing team at BP, supporting a variety of global procurement and compliance projects. Upon joining LexisPSL, she worked in the Commercial and LexisAsk teams before assisting with the development and launch of the PSL Public Law module. Holly looks after a number of core public law subject areas, including Brexit.