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Explainer

UK Internal Market Act

After the end of the transition period, the UK government and the devolved administrations will no longer be collectively bound by EU law.

Boris Johnson presents the UK Internal Market Bill

What is the UK Internal Market Act?

After the end of the transition period, the UK government and the devolved administrations will no longer be collectively bound by EU law. As powers over key policy areas return to the UK government and the devolved administrations, there is a possibility that different parts of the UK may in future make different rules. This could create barriers to trade between constituent parts of the UK.

The UK Internal Market (UKIM) Act puts the ‘market access principles’  of mutual recognition and non-discrimination in law to ensure there are no new barriers for businesses trading across the UK.

The UK government has argued that the Act will be necessary to underpin the functioning of the UK internal market after the end of the transition period – but the Scottish and Welsh governments are opposed to the approach taken. Instead, they would prefer to manage any possible new barriers to trade through mutually-agreed common frameworks in specific policy areas.

How was the bill amended in its passage through parliament?

The bill as introduced, would have given ministers powers to implement aspects of the Northern Ireland protocol – already agreed as part of the Withdrawal Agreement – if it couldn’t reach key decisions with the EU. Following agreement on the outstanding issues on the protocol in the Joint Committee, the UK government agreed to remove the clauses.

The House of Lords also made a number of amendments to the devolution-related aspects of the bill. While some fell after rejection in the House of Commons, the government made a number of concessions. Key amendments include changes to require the UK governments to seek consent of the devolved administrations before using certain regulation-making powers, and to make clear that certain regulations could be excluded from the ‘market access’ principles if agreement is reached through the common frameworks process.

Subject

Section

What does it say?

What does it mean?

Market access for goods

Part 1

Sections 1–16

Schedule 1

These sections include mutual recognition provisions to ensure that any goods which are legally sold in one part of the UK can also be sold the other parts of the UK.

This means that any requirements which one part of the UK requires a product to meet before it can be sold will not apply to products moving from other parts of the UK, unless the requirement is excluded.  

The requirement will be excluded if it is already in force before the Act is enacted or is covered by an exception set out in Schedule 1 (for example, measures to protect food safety). There are certain conditions applied to these exceptions, also set out in Schedule 1.

Non-discrimination ensures that regulation made by any part of the UK does not discriminate against goods from another part of the UK. Regulation that does discriminate ‘is of no effect’.

Regulation is discriminatory if it makes it ‘in any way more difficult, or less attractive, to sell or buy the goods or do anything in connection with their sale’. The principle covers both direct discrimination (explicitly targeting goods brought from another part of the UK) and indirect discrimination (regulation that does not explicitly target imported goods but puts them at a disadvantage compared with local products).

These provisions aim to stop any part of the UK from introducing regulations that would block the flow of goods from any other part of the UK. So, for example, a Welsh business that sold goods in Scotland that were banned there but were legal in Wales could use the mutual recognition principle as a defence if the Scottish authorities prosecuted it.

Similarly, if a regulation discriminates against goods coming from another part of the UK a business could refuse to comply with it and then use the non-discrimination principle as a defence if it was taken to court.

Market access for services

Part 2

Sections 17–23

Schedule 2

These sections include mutual recognition provisions to ensure that service providers that are authorised to provide services in one part of the UK can provide services in the other parts of the UK too – unless they provide a service that is specifically excluded (for example, legal and financial services and healthcare).

The non-discrimination provisions mean that regulations that discriminate against service providers because they are connected to a different part of the UK (so-called direct discrimination) are of no effect and will not be enforced in the courts.

Other regulations which do not directly discriminate against service providers from another part of the UK but put them at a disadvantage relative to local service providers will also be of no effect, unless they can be justified on various limited grounds (such as the protection of public safety or security).

Some services – including broadcasting, financial services and postal services – are excluded from the non-discrimination provisions.

These provisions allow providers of regulated services to work across the UK without needing to be reauthorised in each separate part (unless there is good reason to require them to – for example, lawyers will still need to be qualified in Scots law to practise in Scotland).

Recognition of professional qualifications 

Part 3

Sections 24–29

These sections would mean that any professional qualification in one part of the UK is automatically recognised in the rest of the UK and are treated in the same way.

There are some exceptions where the principle will not apply, including:

  • to any professional qualifications in place when the Act is passed, or certain legal professions

  • to any ongoing professional requirements, such as development or training

  • if a process allows a UK resident to apply to have their existing UK professional qualifications or experience recognised by a regulatory body in another part of the UK. Those practicing their profession before such a process is available will not need to apply to have their qualifications recognised and will be able to rely on the automatic recognition principle.

These provisions are aimed at ensuring individuals are able to work freely across the UK, without having to re-qualify (although there will be exceptions and some may need to take steps to have their qualifications recognised).

The Office for the Internal Market

Part 4

Monitoring

Sections 30–40

These sections set out new monitoring responsibilities of the internal market for the Competition and Markets Authority (CMA), which will be exercised through an Office for the Internal Market (OIM).

The CMA will have powers to monitor and report on the effectiveness of the internal market, under its own initiative or at the request of the UK or devolved governments. Although its remit will be limited to regulations which fall within the scope of the earlier parts of the Act (and will exclude anything giving effect to the Northern Ireland protocol).

The CMA will need to report on the functioning of the internal market every 12 months, and the effectiveness of the Act’s provisions on mutual recognition and non-discrimination every five years, beginning on 31 March 2023. These reports will be laid before the UK parliament and devolved legislatures.

Any of the governments will be able to request (separately or jointly) advice or a report from the CMA on the economic impact on the internal market of:

  1. new regulatory proposals that fall within their powers

  2. regulations within their powers that have already been made

  3. provisions – including those made by other governments – that they consider to have a “detrimental impact” on the internal market.

The CMA may decline to provide reports but must give reasons for doing so.  

These reports must be shared with all the governments in the UK and the CMA must lay any reports on the detrimental impact before all the UK legislatures. The relevant ministers or government which requested the report should respond to their respective legislature.

The Act establishes a new independent body – the Office for the Internal Market with a role in overseeing the functioning on the UK internal market.

The OIM will have an advisory function, gathering relevant data and information about how the internal market functions – although it may choose not to provide advice in some cases.

However, it will have no enforcement powers and there is no obligation on any of the governments to act on the reports.

Although one administration can require reports on regulations passed by another – if it has a ‘detrimental impact’ on the UK internal market – they cannot force the other administration to respond.

Reports of the OIM are expected to feed into other governance or enforcement arrangements, including intergovernmental mechanisms. However, there remain clear gaps in the how governance of the internal market will function at the political level, it is not clear how disputes around the functioning of the internal market will be managed.

Information-gathering powers

Clauses 38–40

The CMA can request specific documents from any individual, business or public body to support its functions. It will be able to impose certain financial penalties – although it will not be able to request any information business, individual or public authority would not be compelled to reveal in court.

The decision to apply a financial penalty will reflect the current process within the CMA’s other functions – these can be fixed, a daily rate, or both. The secretary of state will decide the maximum amount for these penalties in consultation with the CMA and anyone else considered appropriate, but a daily amount cannot exceed £15,000 and a fixed amount cannot exceed £30,000.

The CMA will not be able to issue a financial penalty against the UK or devolved governments.

This is in line with the functions the CMA currently carries out with regards to mergers and anti-trust investigations.

Northern Ireland protocol

Part 5

Unfettered access

Sections 46 and 47

Section 46 places an obligation on the UK government and devolved administrations to consider Northern Ireland’s place in the UK internal market when implementing the protocol.

Section 47 prevents any government from introducing new checks or processes on goods moving NI–GB unless they are required to facilitate market access for NI businesses or are required to ensure compliance with the UK’s international obligations, or other specified reasons.

These clauses put the UK government’s commitment to ‘unfettered access’ for Northern Ireland businesses to the UK internal market into UK law.

State aid

Sections 48 and 49

Section 48 requires UK ministers to publish guidance on the practical application of article 10 of the Northern Ireland protocol, which applies EU state aid law in Northern Ireland. This should take into account relevant decisions of the UK–EU Joint Committee.

Section 49 states that only UK ministers may notify the European Commission of state aid requiring approval under the protocol.

Under the Northern Ireland protocol, EU state aid law will apply to any UK act affecting trade between NI and the EU, the UK government was concerned that this may have implications for state aid in other parts of the UK.

On 17 December, the UK-EU Joint Committee, the body responsible for overseeing the Withdrawal Agreement, agreed that article 10 would only apply to trade with a ‘genuine and direct link’ to Northern Ireland.

Financial assistance

Part 6

Sections 50 and 51

The UK government will be able to make payments (including grants, loans and guarantees) to any person in the United Kingdom for the purposes of:

  • promoting economic development in the UK

  • providing infrastructure in the UK

  • supporting cultural and sporting activities, projects and events

  • supporting international and domestic educational and training activities and exchanges.

This will allow UK government ministers to spend money directly in devolved areas.

This will allow the UK government to implement the UK Shared Prosperity Fund – its replacement for EU structural funds.

Subsidy control

Part 7

Sections 52 and 53

These sections amend the devolution statutes to clarify that subsidy control or state aid powers are reserved and are a matter exclusively for the UK government.

Before publishing its consultation on future UK subsidy control, the UK government must share it with the devolved administrations and consider any issues raised by them.

The Scottish and Welsh governments have argued that under the current devolution arrangements, state aid is devolved. The UK government had argued that it is a reserved matter. This section would put that beyond legal doubt and give the UK government the power to design a GB-wide state aid regime.

Constitutional status

Section 44

This section amends the devolution statutes to makes the UK Internal Market Act a protected enactment This means that it cannot be amended by primary or secondary legislation by the devolved legislatures (in areas of devolved competence) or by the UK government by secondary legislation.

This section is intended to prevent the devolved legislatures passing a law that undermines the UKIM principles.

It would also prevent the UK from passing secondary legislation for England. However, the principle of parliamentary sovereignty means a similar constraint cannot be placed on primary legislation passed by the UK parliament.

 

How did the devolved administrations responded to the UK Internal Market Bill?

The Scottish government have called the UK Internal Market Bill an “assault on devolution”[1] and the Scottish parliament has voted against consent, under the Sewel convention. Wales’ counsel general Jeremy Miles has labelled the bill a “power grab”.

The Sewel convention means that the UK parliament does not usually pass legislation that impacts devolved competencies without the consent of the devolved legislatures. However, this is only a political convention and not legally binding. Earlier this year the government passed the EU Withdrawal Agreement Act 2020 even though the Scottish parliament, Welsh Senedd and Northern Ireland assembly had all voted against giving consent to the legislation. 

The Scottish and Welsh parliaments both refused to give consent to the UK Internal Market Bill.


  1. Scottish government, UK Internal Market Bill: Scottish Government consent impossible, 8 September 2020, www.gov.scot/news/uk-internal-market-bill

Listen to our IfG LIVE podcast on the UK Internal Market Bill

Publisher
Institute for Government

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