Brexit Transition Countdown: The UK is leaving the Single Market…and so will have to legislate for its own Internal Market

The UK needs a functioning Internal Market after Brexit

EU membership has made us forget that the UK has had its own 'Internal Market' since the Acts of Union in the early eighteenth century. Since 1707, goods and services have been able to move freely between the constituent parts of the Union without restriction – and the UK was one of the first European entities to achieve this complete internal market.

But the return of powers from Brussels poses a problem to the functioning of the UK's Internal Market.

What's the problem?

When the UK joined the EU, the ability to make law and regulations across many areas of economic activity was transferred to EU bodies.

And so, whilst the UK was an EU member, and continuing on into the current transition period, many powers, particularly regulatory powers, have sat with Brussels rather than with the UK or with the UK constituent nations.

At the end of the Brexit transition period, on 1 January 2021, all those powers will come back to the UK.

But, in many cases, the powers will actually come back to the devolved administrations in Scotland, Wales and (with some exceptions given its special status under the EU-UK Ireland/Northern Protocol in the Withdrawal Agreement) Northern Ireland.

It would then be open to the devolved administrations to make regulations in those areas which are different from regulations in other parts of the UK.

Regulatory barriers where there were none

That would introduce regulatory barriers to trade where there were none whilst the UK was in the EU, or whilst the post-1707 Internal Market existed.

Which would disrupt the UK's Internal Market. For example, if the regulations on food packaging were different between England and Scotland, that would make cross-border trade more difficult: manufacturers would have to produce two different packagings and probably, as a result, two different production runs.

Similarly, different construction regulations would make it more difficult for building firms to plan projects across the UK.

Or if different qualifications were required for professionals in, say, advanced tech, between England and Wales, that could deter people from qualifying in the smaller jurisdiction.

Those are only three examples. The UK government estimates that there are 160 policy areas in which EU powers will transfer to the UK at the end of the transition period and which intersect with the competences of the devolved administrations.

What is the UK government proposing to do about this?

On 16 July 2020 the government published a White Paper, 'UK Internal Market', setting out 'options to protect the flow of goods and services in the UK’s internal market', and opened a consultation which runs until 13 August 2020.

The White Paper, which is here, will lead to draft legislation this autumn. That legislation will need to be in force by 1 January 2021.

What are the government's main proposals? A 'Market Access Commitment' to 'mutual recognition' and 'non-discrimination'

In the White Paper's words:

'To secure the Internal Market for the future, the Government now proposes a Market Access Commitment, which will enshrine in law two fundamental principles to protect the flow of goods and services in our home market: the principle of mutual recognition, and the principle of non-discrimination. This will guarantee the continued right of all UK companies to trade unhindered in every part of the UK.'

That 'Market Access Commitment' will be set out in the coming legislation.

'Mutual recognition' means that the rules governing the production and sale of goods and services in one part of the UK are recognised as being as good as the rules in any other part of the UK. It will remain open to the devolved administrations to make different or more demanding rules for goods produced in their 'home areas' – but they will not be able to refuse access to goods made under the regulations of a different part of the UK.

'Non-discrimination' means that it will not be possible for one devolved administration to introduce rules discriminating against goods or services from another part of the UK.

Although 'Common Frameworks' already exist for sectoral cooperation between the constituent parts of the UK, the government's view is that those on their own do not 'guarantee the integrity of the Internal Market', as they tend to be sector-specific and do not 'address the totality of economic regulation or the cumulative effects of divergence…[and] do not fully address the question of how best to substitute the [effect the] wider EU ecosystem of institutions had on the UK Internal Market'.

Scope of the Market Access Commitment

The Market Access Commitment will cover the UK economy across goods and services. 'Reserved matters', i.e. reserved for Whitehall, such as fiscal and monetary policy and intellectual property regulation, will be out of scope, as will matters covered by fiscal frameworks, such as taxation and spending.

There will some adjustments to this Internal Market system to recognise the different position of Northern Ireland under the EU-UK Ireland/Northern Protocol in the Withdrawal Agreement, and those are discussed in a general way in the White Paper.

Subsidy control

The Internal Market legislation which will arise from the White Paper will also expressly provide that subsidy control is a reserved matter, so that 'a single, UK-wide regime will provide certainty for businesses and protect them from unfair competition'.

Comment

The irony of the UK having to (re-)create an Internal Market because it is leaving the EU Single Market has not been lost on many observers.

Nor have the devolved administrations expressed unfettered delight at the White Paper's contents (see, for example, this report in the Financial Times), with the prospect that businesses in Scotland and Wales will have little choice other than to follow English regulations.

Possibly to put that into perspective, the White Paper is at pains to emphasise that the UK Internal Market pre-dates the UK's EU membership by more than 250 years.

For most businesses, dealing as they are with the prospect of more complex regulatory compliance in EU-UK after the end of the transition period, the government's proposals for clear UK Internal Market rules will be welcome. The White Paper is a little light on detail – for example, on how the Internal Market would interact with international trade deals – and so we now await the legislation coming in the autumn.