The Office for the Internal Market’s new analysis must help shape decisions

At the end of March, the Office for the Internal Market (OIM) – the new body set up in September 2021 within the Competition and Markets Authority to monitor the arrangements governing trade within the UK – published its first report Overview of the UK Internal Market.^[1] What sounds like a dry and technical topic has been the source of an ongoing, almighty row between the UK government and the devolved governments.

The disagreement centres on how to balance free-flowing trade and regulatory autonomy in each of the UK’s four parts. The Scottish and Welsh governments argued that the UK government’s answer – the UK Internal Market (UKIM) Act – prioritised the former at the expense of the latter by preventing them from imposing local standards on goods produced elsewhere in the UK.

But one key feature has been missing from the debate so far – evidence. Data on intra-UK trade is poor, and discussions of regulatory divergence have been inevitably hypothetical. The OIM’s first report starts to address this gap. Now its attention must turn to where it can influence decision making.

The economic analysis in the report is valuable but it shows the data is not up to scratch

The OIM’s report compiles and presents the best available data on trade between the four constituent parts of the UK. This is a valuable exercise, and one the OIM is well placed to undertake. However, the report quickly runs into the same problems that others, including the IfG, have faced: the data on intra-UK trade is patchy, infrequent and inconsistent. The data published by Scotland, Wales and Northern Ireland are not comparable, no data is published for England, and the only datasets covering the whole of the UK concern trade in 2010 and 2015.

While the report’s data provides a good, high-level indication of the level of inter-connection between the UK’s economies, it will not allow the OIM – or anyone else – to monitor changes in trading patterns in close to real-time.

As part of its drive to level up, the government is focused on improving local data. Better data on trade between the nations should be a part of this effort too if the OIM and others are to understand how regulatory divergence is affecting trade flows.   

The OIM will need to persuade the devolved governments of its usefulness

The OIM’s report also provides a useful mapping exercise of areas of possible regulatory divergence between the different parts of the UK. It provides a comprehensive analysis of policy announcements and papers to identify key areas – the environment, energy, agriculture, animal welfare, food drink and health and safety-related matters – where the four governments might take different approaches.

One of the OIM’s most important functions is to advise each government on the internal market implications of proposed regulatory changes – but in most cases, it will have to wait to be asked to give its advice. The devolved government’s objections to the UKIM Act may make them sceptical of the OIM, so it will need to add value to the policymaking process it will need to consider their potential policy objectives, like improving public health, and limiting environmental harm, as well as limiting trade friction and economic barriers.

The UK government’s legislation-first approach to UKIM has made the OIM’s job harder

The OIM could help shape the UK’s approach to the internal market and help the different governments of the UK reach a compromise. But it faces an uphill struggle, with the UK government’s decision to legislate – passing the UK Internal Market - before gathering evidence already upsetting the devolved governments.

The Office for the Internal Market will need to think strategically about when and how it intervenes to make sure it can inform decisions at key points, and provide a basis for intergovernmental discussions on the functioning of the UKIM Act. While the UK government has the power to exclude certain policies or policy areas from the scope of the Act, including through agreement of the governments through the common framework process, the OIM should think about how it can best inform these discussions. It should also continue to build a broad and robust evidence-base for its statutory report on the functioning of the Act due next year. Just as important, the UK government should listen to what the OIM says. Doing so will help it ensure any restrictions on regulatory autonomy are proportionate and supported by evidence, meaning the internal market functions well for people in all parts of the UK.

This comment was co-authored with Thomas Pope.

1. Office for the Internal Market, Overview of the UK Internal Market, 22 March 2022, www.gov.uk/government/publications/overview-of-the-uk-internal-market-report