The UK government should be prepared to compromise on the UK internal market

The UK Internal Market (UKIM) Bill made headlines for the controversial provision that would allow ministers to disregards parts of the Northern Ireland protocol. This has overshadowed the bill’s significant implications for devolution, but the stage is now set for a major stand-off between the UK government and devolved administrations.

The main purpose of the bill, according to the UK government, is to guard against the emergence of barriers to trade between different parts of the UK once the EU framework falls away. All four governments agree on the need ensure frictionless intra-UK trade post-Brexit, but the Scottish and Welsh government argue that the establishment of new ‘common frameworks’ – which cover policy areas where EU law has previously provided a common legal framework – will be sufficient.

But the bill proposes to go further, as it would enshrine two principles – mutual recognition and non-discrimination – in law. These would mean that anything that is acceptable for sale in one part of the UK would be automatically acceptable in the other (although there is some exception in the case of Northern Ireland) and that governments cannot prioritise businesses in their part of the UK at the expense of business in others.

While the UK government argues that it is simply replacing similar guarantees that exist in EU law, the Scottish and Welsh governments say these principles would place an unacceptable constraint on their ability to exercise devolved powers. Under the Sewel Convention – the topic of an upcoming Institute for Government paper – the devolved legislatures will be given the opportunity to vote on whether to consent to all the clauses of the bill. As it stands, both the Scottish and Welsh Parliaments look set to refuse.

The UK government could press ahead regardless – as it did when all three devolved legislatures withheld consent over the EU (Withdrawal Agreement) Act– but this would risk further inflaming constitutional tensions in the run up to Scottish and Welsh elections in May 2021. A second independence referendum will be a key issue in Scotland – putting further strain on the Union.

It will take a great deal of persuasion, and some compromise, to bring the devolved administrations round – and the inclusion of the provisions on the Northern Ireland protocol and new finance powers for the UK government will make this job even more difficult. But the UK government must attempt to address some of the concerns raised by the devolved administrations if it wants to avoid this bill causing serious damage to its relations with them. There are a number of options available to make progress, all of which involve some degree of compromise on all sides.

The UKIM Bill should allow more exceptions for devolved governments to pursue their own legitimate policy aims

A key difference between principles of mutual recognition as it exists in EU law and that proposed in the UKIM Bill are the exclusions to the principle. While the EU allows for laws that prohibit or restrict the sale of goods on a number of grounds such as public policy, public security and even public morality, the UKIM bill allows for only a few – taxation, threats to animal and human health, and chemical regulation. Michael Russell, the Scottish constitution minister, claimed that UK government had given assurances that there would be further exclusions, but these did not appear in the final draft.

The devolved administrations argue that the bill would prevent them from being able to implement the types of successful public health and environmental policies that they have been able to introduce under EU law, for example minimum alcohol pricing or a ban on some single-use plastics. The UK government contests these claims, but the UKIM Bill inevitably will place greater limits on devolved competence than present arrangements. This could also impede key benefits of devolution ‘as a policy lab’, allowing new policies to be tried in one jurisdiction before being adopted elsewhere.

The need for frictionless trade should be balanced against the ability for democratically elected governments to pursue their legitimate policy aims. The UK government and devolved administrations should work together to agree a list of exemptions and exclusions to ensure the principles in the UKIM Bill are no more restrictive than the EU principles they replace.

The UK government should make a firm commitment to agree common frameworks on standards

The Scottish and Welsh governments are concerned that the bill could drive a ‘race to the bottom’ on standards. As it stands, the bill could do exactly that if lower standards in one part of the UK – particularly in England, given its size – lead to a competitive commercial advantage and force other governments to follow suit.

The EU has avoided this risk through large scale harmonisation – thousands of regulations and directives that set common rules or minimum standards in key single market areas like product requirements and food standards. While the UKIM Bill itself does not replicate this approach, the four government are currently in the process of agreeing common frameworks to agree minimum or maximum limits in specific policy areas. However, this work has been repeatedly delayed and only a few full frameworks will be in place by the end of the year.

The UK government has repeatedly denied suggestions that it intends to lower standards after Brexit, but it needs to offer more than verbal assurances. To reassure the Scottish and Welsh governments, the UK could make a firm commitment – either in legislation or through an intergovernmental agreement – to stick with current standards (non-regression) in common framework areas until final frameworks have been agreed.

Work on the Intergovernmental Relations review should be accelerated before the bill has effect

The devolved administrations also have concerns over how the UK internal market principles will be enforced. When passed, the bill will become a ‘protected enactment’. This means that the devolved legislatures could be blocked from passing any legislation that could conflict with the bill’s provisions. Whilst secondary legislation made by the UK government for England could also be struck down on the same basis, the principle of parliamentary sovereignty – that no parliament can bind its successor – means that the UK parliament could, in future, override the bill through new primary legislation.

The UK government’s willingness to disapply the law where inconvenient has, not surprisingly, concerned the devolved administrations – they fear that the bill is being used as a vehicle to constrain their policy making powers while leaving this or a future UK government able to rewrite the law if it becomes an impediment to its own policy choices. In order to allay these fears, clear mechanisms for the devolved administrations to challenge UK actions under the UKIM principles, or to challenge judgements about their actions, are needed.

A new independent Office for the Internal Market will be set up within the existing Competition and Markets Authority to give its views on potential breaches of the two principles, but the UK government expects any disputes to be resolved through existing mechanisms for intergovernmental working such as the Joint Ministerial Committee. However, the weakness of that existing machinery for intergovernmental working has been repeatedly identified as a problem, including by the UK government's own post-independence referendum review of devolution that called for ‘urgent reform’ back in 2014.

The four governments have been working on an Intergovernmenal Relations review since March 2018, with the hopes of agreeing new arrangements including new mechanisms for dispute resolution and avoidance – but no agreement has been reached. While the UK government has treated this work as separate from the UKIM Bill, it is integral to how the UKIM will be governed, and therefore how acceptable the devolved administrations may find the bill. The four governments must fasttrack this programme of work, and the UK government would be wise not to proceed with the bill until this is concluded.

The UK government must weigh up the benefits of the UKIM Bill against the damage it could cause to the Union

There are clearly ways to make this bill more palatable to the devolved administrations, while leaving the main purpose of the bill intact. However, the UK government has shown no sign of being willing to amend its proposals, and public proclamations from Scotland and Wales do not suggest a willingness to work with Westminster.

The Scottish government has said that consent was "impossible", and the Welsh government’s counsel general said there was “no prospect” of approval from the Welsh parliament. As for the Northern Ireland executive, it is doubtful it will be able to reach an agreed position.

The UK government has set a tight timetable to pass the bill, which suggests that it does not intend to agree to major concessions and will instead attempt push the bill through. This would be a short-sighted and potentially dangerous approach. The risk of different parts of the UK diverging the day after the end of the transition period is remote, with regulatory changes usually taking years to come into force. Ongoing work on common frameworks will also guard against new barriers, so long as the four government continue to participate in their development in good faith. Ultimately, the UK government must balance the perceived benefits of the UKIM Bill against the risk it does irreparable damage to the Union.