How to manage the UK’s internal market has been a hot topic since the UK left the European Union.
The UK Internal Market Act 2020 established a new internal market regime for goods, services and professional qualifications, in place of the rules governing the EU’s single market, but it was passed without the consent of the Senedd or Scottish Parliament.
After just over two years of the regime being in operation, the Office for the Internal Market has published its first annual and periodic reports on how the UK’s internal market is operating.
This article picks out eight things you need to know from the reports.
What is the Office for the Internal Market?
The Office for the Internal Market (OIM) is part of the Competition and Markets Authority. It provides independent advice, monitoring and reporting to the four governments of the UK about the operation of the UK’s internal market.
The UK Internal Market Act 2020 established a new internal market regime for goods, services and professional qualifications in the UK. Parts 1-3 of the Act established ‘Market Access Principles’ (MAPs) of mutual recognition and non-discrimination for goods and services, and automatic recognition for qualifications. More information about the UK Internal Market Act can be found in this research briefing.
The OIM is required to publish two regular reports:
- An annual report on the operation of the UK’s internal market.
- A periodic report every five years on the effectiveness of the Market Access Principles and how they interact with Common Frameworks.
The OIM published its first annual and periodic reports on 22 March 2023.
What do the reports tell us?
There is a general lack of awareness among businesses about the UK Internal Market Act and Common Frameworks
The OIM’s engagement with businesses and trade associations found that there is a lack of understanding about the Market Access Principles and how the Common Frameworks process operates. Even those that are aware of Common Frameworks are not clear about what topics are being discussed and how to contribute towards these discussions.
Only 15% of UK businesses trade with customers in other UK nations but most of those who do don’t experience any challenges
Around 15% of businesses trade with customers in other UK nations, compared to 10% who have exported internationally in the last 12 months. Larger businesses and those in the manufacturing and wholesale and retail trade industry are the most likely to sell to customers in other UK nations. More than half of businesses who sell to customers in other parts of the UK do not face any challenges when doing so. Most businesses said they would not cease trading in another part of the UK if there was a change in regulations but would seek to change their product or find new suppliers.
There is a lack of available data to show the impact that the UK Internal Market Act is having on trade between parts of the UK
Only three of the four UK nations (Scotland, Wales and Northern Ireland) publish dedicated statistics on trade that includes imports and exports to other parts of the UK. Data from Wales and Scotland was most recently published in 2019, before the internal market regime started operating. Northern Ireland has published data for 2020 and 2021, which suggests that trade with the rest of the UK remained broadly unchanged during 2020 but grew in 2021.
The OIM has published a Data Strategy Roadmap to improve the availability of data about the UK’s internal market.
There is uncertainty about the impact of the UK Internal Market Act because of an absence of case law and a reluctance to pursue legal routes
The OIM’s engagement with legal professionals found uncertainty about the impact of the MAPs due to the absence of case law that has developed so far. Any legal action would likely be taken by large businesses or trade associations as small businesses may consider litigation too costly or risky.
There are differing views between the four governments in the UK about how the Act is operating in practice
The UK Government says that it has no concerns about how the MAPs are operating but both the Welsh and Scottish governments raised issues about how the MAPs could impact on devolved policy areas. The Welsh Government has raised concerns about how legislation passed in other parts of the UK, such as the UK Parliament’s Genetic Technology (Precision Breeding) Bill, could impact Welsh law as a result of the UK Internal Market Act.
Both the Welsh and Scottish governments raised concerns about the process for agreeing exclusions from the MAPs and the power that UK Ministers have in that process.
There is limited evidence that Common Frameworks are playing a significant role in managing the impacts of divergence
Common Frameworks were established by the UK and devolved governments to manage divergence in some of the policy areas previously coordinated at EU level. The Frameworks set out how the four governments will work together and decide when to follow the same rules and when to take different approaches.
There have been some examples of Common Frameworks being used in this way, for example the Scottish Government sought an exclusion from the MAPs for single-use plastics through the Resources and Waste Common Framework. However, the OIM has seen limited evidence of Common Frameworks playing a role in managing the impacts of divergence in other policy areas covered by the MAPs.
Intergovernmental engagement at an early stage is important if Common Frameworks are to work effectively
The Welsh and Scottish governments are positive about the potential of Common Frameworks to effectively manage divergence in the UK’s internal market. The Scottish Government highlighted the importance of intergovernmental engagement at an early stage of policy development if Commons Frameworks are to work effectively.
There is potential for significant further divergence between the UK nations across the next 12 months
The OIM’s annual report identifies a number of areas for 2023-24 where there is potential for divergence across the UK. In particular, the UK Parliament’s Retained EU Law (Revocation and Reform) Bill could lead to divergence if governments take different approaches to how they deal with laws derived from the EU in devolved areas.
So how is the UK internal market operating?
It is still relatively early days for the UK’s internal market regime, which has only been functional since 31 December 2020. The OIM says that as there have only been a small number of regulatory differences between UK nations in that time, this periodic report is intended to establish a baseline. Improvements in the collection of data and further divergence in the future should help build a better understanding of how the UK’s internal market is operating.
Article by Josh Hayman, Senedd Research, Welsh Parliament
