CCC Co-Director, Nicola McEwen discusses the proposals set out in the UK Government's recent white paper on the Internal Market, and explains how these could have a profound impact on devolution in the UK.
When Theresa May first set out her Brexit objectives at Lancaster House, one of her top priorities was ‘to strengthen the precious union’, by ensuring that ‘as we leave the European Union – no new barriers to living and doing business within our own Union are created’.
The recent publication of a UK government white paper gives the clearest indication yet of how her successor plans to uphold ‘the UK internal market’.
Although the details are unusually sketchy for a white paper, the proposals could have a profound effect on devolution.
They could place considerable constraints on the capacity of the devolved institutions to pursue some of the distinctive policy goals they have been able to take up hitherto, including those that were permissible within EU internal market regulations.
Once the transition period ends, the UK and devolved governments will no longer be obliged to conform to EU regulations.
Each will be free to develop new regulations within their areas of competence, subject to any level playing field commitments made in a UK-EU deal.
That opens up the possibility of greater policy divergence that, in principle, might disrupt trade across the UK’s internal borders.
To guard against this possibility, the white paper proposes a Market Access Commitment. This will introduce in primary legislation both a principle of mutual recognition and a principle of non-discrimination to ‘guarantee the continued right of all UK companies to trade unhindered in every part of the UK.’
Mutual recognition ensures that goods or services that satisfy regulatory standards in one part of the UK are eligible to enter the market anywhere in the UK.
Non-discrimination prevents UK businesses or individuals trading across the UK’s internal borders from being treated differently from local traders, either directly on the grounds of residence or geographical origin.
So, if the Scottish Parliament decided to pass a law to limit the sugar content of goods produced in Scotland to tackle the problem of obesity, it could not impose those standards on goods coming into Scotland from other parts of the UK, nor could it prevent those goods from entering the Scottish market, provided these satisfy regulations set anywhere in the UK.
Such a law may also be challenged by Scottish producers as an unnecessary barrier to their ability to trade freely across the UK.
There are many uncertainties in the proposals. The devolved governments had been concerned that an independent regulatory body, potentially with little understanding of devolution, could be tasked with enforcing UK internal market rules.
The white paper seems to rule this out. That leaves open the issue as to how the Market Access Commitment will be enforced.
The implication is that businesses and consumers will be empowered to challenge any law or action that is perceived to impede their ability to engage in ‘frictionless trade’ in any part of the UK.
The legislation could go even further, amending the devolution settlements, either to introduce a constraint that prevents laws from being passed that are incompatible with UK internal market law, or that empower the Secretary of State to prevent actions by the devolved institutions on grounds of incompatibility with the internal market.
Any of these enforcement mechanisms could represent a significant new constraint on devolved competence and would be met with considerable resistance.
In theory, the internal market principles would affect all four administrations. In practice, they will inevitably have an asymmetrical effect.
The paper acknowledges that traders in Northern Ireland, and goods entering that market, will have to comply with EU rules, as required by the Northern Ireland protocol.
Moreover, the principle of parliamentary sovereignty means that the Westminster Parliament cannot bind itself, and so its autonomy to make laws will not face the constraints that may be placed on the devolved institutions.
The sheer size of the English economy and population relative to the others is also likely to give English businesses and consumers, and the UK government making policies for England, considerably greater influence in determining regulatory standards across the UK.
No government in any part of the UK would seek to impose unnecessary barriers to trade and mobility. But who gets to determine the necessity, or otherwise, of distinctive regulations?
When the Scottish Parliament passed legislation to introduce minimum unit pricing for alcohol, the disruption to trade in alcohol resulting from the policy was defended as a legitimate and proportionate means of tackling adverse health and social effects of alcohol abuse.
After lengthy legal challenges led by the Scotch Whisky Association, the Supreme Court sided with the Scottish government.
But it is not at all clear that public health, environmental or any other policy goals will be justifiable exemptions from UK internal market principles. The white paper seems to place the objective of frictionless trade above all other policy ambitions.
New governance arrangements are envisaged, building on existing intergovernmental relations (IGR), ‘ensuring a strong basis for political decision-making, oversight, and dialogue in relation to the Internal Market.’ There is no detail at all about what these intergovernmental processes would entail.
The Joint Review of IGR, initiated by the four administrations in March 2018, has struggled to produce any recommendations to address the evident weaknesses in intergovernmental machinery or agree mechanisms for resolving dispute.
It is difficult to foresee agreement on shared governance arrangements for an internal market if its principles are designed and imposed by the UK government.
UK internal market legislation will affect devolved competences, and so under the Sewel convention, the consent of the devolved legislatures will be sought. That consent is unlikely to be secured. Will that matter? Recent experience suggests not.
In other Brexit-related legislation, the UK government has demonstrated its willingness to press ahead despite devolved institutions withholding consent. Setting aside the Sewel convention again would further undermine one of the core principles of UK devolution.
Without cooperation, consent and co-decision built into the development and governance of a UK internal market, further tensions between the UK and devolved institutions are inevitable. And for what?
The research in the annex to the white paper makes clear that, in comparison to trade between EU member states, between the Nordic states and within European federal states such as Germany, the UK is already highly integrated and the costs associated with cross-border trade are very low.
This suggests that EU regulations have not been the only factor supporting UK market integration. By using a legislative sledgehammer to crack a hypothetical nut, these measures are unlikely restore the trust between the UK and devolved governments that the Brexit process has eroded.