The UK Internal Market Bill: too strong in theory, too weak in practice?

The UK Internal Market Bill is having its second reading in the House of Lords. Perhaps ironically for an administration so committed to disentangling the UK from the EU’s legal order, the government has drafted a framework for the UK's internal market that bears a striking family resemblance to EU internal market law. However, vital differences make the government’s model far less satisfactory – and have created much room for the House of Lords to attempt improvement. As it stands, the bill’s proposals are a combination of theoretical overreach and practical weakness.

The UK’s version of the mutual recognition principle will have far fewer exceptions

The bill’s section on trade in goods is founded on the twin principles of non-discrimination and mutual recognition. Under the non-discrimination principle, any legislation that discriminates against goods brought from another part of the UK, whether directly or indirectly, “is of no effect”. Under the mutual recognition principle, any rules that would prevent the sale of a good that has been brought in from another part of the UK in which it could legally be sold “do not apply in relation to the sale”. Legal argument has already begun over whether saying a piece of legislation “is of no effect” means something different from saying it “does not apply” – or that it “is not law”, the wording used for comparable provisions in the devolution statutes.

This restrains the autonomy of the devolved administrations to a much greater extent than EU law. Mutual recognition in the EU has been mitigated by allowing a long list of exceptions, and bans can be enforced even against imported goods if it is necessary to ensure “the effectiveness of fiscal supervision, the protection of public health, the fairness of commercial transactions and the defence of the consumer”.^[1] The European Court of Justice (ECJ) has also recognised further exceptions for environmental protection^[2] and the promotion of national culture.^[3]

In contrast, the UK’s mutual recognition principle for goods is to apply with only a handful of exceptions: regulations already in place now are exempted, as are measures adopted to prevent “serious threats” to humans, animals and plants; certain chemicals regulations; and taxes. Only UK ministers can amend that list – and they can do so using secondary legislation made under powers described by the House of Lords Delegated Powers and Regulatory Reform Committee as “extraordinary” and “unprecedented”.^[4] 

The government has failed to explain why its list of exceptions is so much more restrictive than the EU’s. Not surprisingly, the devolved governments are not impressed with a decision that could forestall any attempts to raise standards of, for example, environmental protection above those that apply in England. The UK government’s continued claims that the bill imposes no new constraints on the devolved administrations are not credible.

Applying internal market rules is harder in practice than in theory

Nor is it clear how these rules will work in practice. In the EU, the European Commission – the “guardian of the Treaties” – plays the major role in enforcing internal market rule. The Internal Market Bill does not propose an equivalent enforcement mechanism.

In the EU, if a member state adopts legislation that contravenes the mutual recognition or non-discrimination principles, the Commission can, and does, take action against it in the ECJ. Sometimes the Commission acts on its own impulse; at other times following a complaint from an affected business. If it is successful, the offending legislation can no longer be enforced in the member state’s courts. In addition, the member state concerned must amend its legislation to comply with internal market rules, failing which it will be liable to be fined.

The government’s model sees the bill confer new functions on the Competition and Markets Authority (CMA), but these are limited to monitoring, reporting and advising. The CMA will not have standing in the courts to challenge regulations that contravene the market access principles. It will not even be able to provide advice on such regulations unless one of the UK's four administrations asks it to.

The UK's internal market will have no watchdog other than businesses themselves

Most of the burden of ensuring regulations comply with the principles in the bill will fall on the businesses affected by them. If a piece of regulation contravenes the non-discrimination principle, a business affected by it will be able to seek judicial review (JR). So while business may succeed in having regulations struck down, to do so they must take on the risk of a JR – and the substantial legal costs they could incur if they are unsuccessful.

The position is even more difficult for businesses hoping to take advantage of mutual recognition. In this case, the UK government appears to see the principle operating as a shield, rather than a sword. In effect, businesses would have to sell their goods in violation of local laws, wait to be prosecuted, and then use the mutual recognition principle as a defence.

The EU’s single market developed in part through this type of case.^[5] But the Commission also played a leading role in challenging regulations that distorted the internal market.^[6] In more recent years, the Commission-led SOLVIT network has been available to advise businesses on their EU law rights and to “remind the authorities in question” of their obligations.^[7] Nothing comparable appears in the Internal Market Bill.

Perhaps an appropriate non-judicial means of resolving these regulatory issues will be found through the ongoing review of intergovernmental relations or through the development of ‘common frameworks’ for regulation. Without such mechanisms for enforcement, there is a substantial risk that the distortions in the UK internal market that the bill is intended to prevent will in practice go unchallenged.

The government should look again at the EU model it has copied

The government has clearly chosen to follow the EU model of an internal market. This was not its only choice: it could have opted for the looser regimes found in the US or Canada, where mutual recognition is unknown, or Australia, where individual states can choose whether or not to participate in it (though in practice all do).

But the government's decision to modify the EU model by taking out many of its exceptions and much of its enforcement mechanism has made it significantly worse. It now risks angering the devolved administrations by constraining their autonomy in theory, while at the same time allowing distortions in the UK internal market to go unremedied in practice.

To paraphrase Edmund Burke, it is set to bind the UK internal market with ties as strong as air and as light as links of iron. The integrity of the UK would be better served by wider but more tightly policed limits. The government should now work with the House of Lords to provide them.