Centre for Public Policy

This blog was originally published by the UK in a Changing Europe and is available on its website.

Blog by Nicola McEwen, Thomas Horsley, Coree Brown Swan and Lisa Claire Whitten

After years of stresses and strains between the UK and devolved governments, the Labour Party entered office in July with a commitment to reset relations.

And relationships have warmed since the election. UK departments and ministers have reached out more to the devolved governments, generating better communication and a willingness to cooperate that seems mutual. But warm gestures only go so far.

A meaningful reset of intergovernmental relationships must recognise and confront the problem of the United Kingdom Internal Market Act (UKIMA). An Act of the UK (Westminster) Parliament, the UKIMA became law in December 2020 in preparation for the UK’s exit from the European Union.

In our new report, supported by UK in a Changing Europe, we examine the context, content and operational impact of the UKIMA on devolution, and offer pragmatic policy ideas that could chart a new, more consensual, way forward.

But first, what is the UKIMA and why was it introduced?

Leaving the EU meant the rules of the EU internal market would no longer apply in the UK, except in Northern Ireland, where maintaining an open border with Ireland meant continuing to apply EU rules in relation to goods. To ensure businesses could trade freely across the UK going forward, the UKIMA introduced two new ‘market access principles’.

The most significant is the principle of ‘mutual recognition’, which guarantees that goods and services that originate in, or are imported into, one part of the UK can be traded or provided anywhere in the UK, by default. It means that goods and services do not have to comply with different rules and regulations that might be in place in different parts of the UK, as a result of the four governments making distinctive choices.

That might reassure business, but it generates serious challenges for devolution.

The UKIMA does not prevent the devolved governments from setting ambitious standards in areas that are devolved, for example, in environmental, animal welfare or public health policy, and requiring local businesses to meet these standards. But the Act’s market access principles do prevent the devolved governments forcing these same standards on goods and services entering their respective markets from other parts of the UK.

The effect is a practical one: a decision to introduce different standards, especially where these are tougher or potentially more costly, risks placing local businesses at a competitive disadvantage. The dominance of the English market in trade terms also leaves the devolved governments regulating in the shadow of the UK government’s choices for England, further eroding their ability to pursue their own policies.

In our report, we examine the impact the UKIMA has had on devolution so far. We find clear evidence that it has limited policy ambition and the ability of devolution to act as a laboratory of policy innovation and experimentation, especially in Scotland and Wales. By limiting the exercise of devolved powers, it has eroded the authority of the devolved institutions.

Our detailed analysis of the Act’s operational impact reveals precisely why the Act has been so deeply opposed by the devolved governments, and why the Scottish Parliament and the Senedd Cymru withheld consent for the UKIMA when it was sought during the Bill’s passage.

The devolved governments can seek exclusions from the market access principles on a case-by-case basis. But, as we highlight, that process has given the UK government significant powers to frustrate, delay and diminish policy and law-making by devolved governments and parliaments. This kind of supervisory role for the UK government was not part of the design or spirit of devolution.

The Scottish government’s experiences with the UKIMA exclusion process in relation to single-use plastics and, in particular, its Deposit Return Scheme exposed weaknesses and a lack of shared understanding of how that process should operate. It has led to considerable uncertainty and wasted resources for governments, parliaments and key stakeholders.

But it doesn’t have to be like this.

There are options for reform that could help to alleviate some of the detrimental consequences that the UKIMA has had for devolution and intergovernmental relations, and the ability of the devolved legislatures to scrutinise when and how UKIMA affects bills going through the process of legislation.

These include changes to the legislation itself, including introducing principles of proportionality and subsidiarity. Proportionality would help to rebalance the desirability of free trade with the legitimate role for individual governments to make their own policy choices. It would mean that regulations that may have market distorting effects could be defended on public interest grounds, when backed by evidence that these public interest goals could not be achieved by other means.

Subsidiarity would restore the authority to each of the legislatures to determine the rules and regulations for businesses operating within their territories, by default. It would place the onus on those seeking to limit regulatory divergence to demonstrate that intra-UK trade would be adversely affected without such limits.

These principles are familiar features of EU internal market law. Other legislative reforms may include expanding the list of policy areas that are excluded from the reach of the market access principles.

Aside from legislative reforms, procedures could be changed to encourage better intergovernmental communication and cooperation at an earlier stage of the law-making process. And a more robust, evidence-based and transparent exclusion process could also be a positive step, especially if it removed the UK government’s veto power.

As it stands, the UKIMA represents a roadblock to the new government’s reset of UK intergovernmental relations. But reforming the legislation should not be for the UK government and Parliament alone to determine. The UKIMA faced considerable opposition from devolved governments and most opposition parties in the devolved legislatures when it was passed by the Westminster Parliament in 2020. Collaborative working across the four administrations – with the engagement and oversight of the four parliaments – is key to securing consent for the way ahead.

Read the report: Westminster Rules? The United Kingdom Internal Market Act and Devolution

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Authors

Professor Nicola McEwen, Director of the Centre for Public Policy, University of Glasgow

Professor Thomas Horsley, Professor of Law, University of Liverpool

Dr Coree Brown Swan, Lecturer in British Politics, University of Stirling

Dr Lisa Claire Whitten, Research Fellow, Queen’s University Belfast

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^{Image by Heidi Fin on Unsplash}

First published: 22 October 2024