What are the implications of the Internal Market Act?
After the Internal Market Act became law in December, the way the home nations collaborate on policy and regulation to boost productivity post-Brexit is more critical than ever. So what are the implications?
For a UK internal market to function properly, a system of mutual recognition, together with non-discrimination safeguards, is required. These principles are well-known in EU law.
Mutual recognition ensures that complying with regulation in one home nation is accepted without question as compliance in the others. If not, it creates more bureaucracy, extra costs and may lead to discrimination between companies or goods.
The law ensures that mutual recognition will cover mandatory requirements relating to lawful sale and, among other things, product requirements and production methods. Non-discrimination will cover:
Associated matters like transport and disposal of goods
Public procurement that members of the Builders Merchants’ Federation (BMF) have been concerned about.
This means direct and indirect discrimination is outlawed. In addition, Whitehall wants to ensure equal treatment of labour, such as the recognition of qualifications and regulation of the professions. Having legislated for these principles at the outset, the Act can be looked at again later to see if they are working as intended. If it is felt an alternative, non-legislative way can give the same result, the UK Government should be magnanimous enough to change the law accordingly.
Scottish, Welsh and Northern Irish companies regard the UK as their most significant market, and smooth cross-border trade and human movement are essential for economic recovery.
For example, Scotland does not make all the materials and products it uses and imports them from England. But the reverse is also true and commuters from England make daily crossings to go to work.
The most important and valuable benefit of an integrated internal market is that businesses, especially SMEs, regard predictable and universal regulation throughout the UK as essential for normal trading. The risk is that because England dominates so much UK economic activity, any barriers may disproportionally affect Scotland.
“Because England dominates so much UK economic activity, any barriers may disproportionally affect Scotland”
The Scottish Construction Leadership Forum (CLF) is a collaboration between Construction Scotland and the Scottish Government. It began in March 2019 to improve how the industry operates and to strengthen existing ties with clients.
Prior to COVID-19, the CLF was considering a wider agenda for change across the industry. The pandemic has forced all parties to work more collaboratively.
In October 2020, the CLF published its COVID-19 Recovery Action Plan that, among other things, looked at the resilience and capability of the supply chain. Among its recommendations is a desire to increase the use of local, sustainable and recycled materials to minimise embodied carbon and promote the indigenous supply chain, especially for timber and recycled materials.
If the proposals become law, requiring greater use of indigenous Scottish materials, especially in public sector projects, would breach the non-discrimination principle. This cannot be the original intention and there is work to be done to iron out inconsistencies and wrongful assumptions.
Marketing departments make big play of brands and the value of promoting the geographic origin of goods. For example, various products are branded as ‘Scottish’ or ‘Made in Wales’ in adverts. Government and business will doubtless look at the salience or accuracy of such claims, and whether they have any demonstrable effect or influence within the UK internal market.
In the post-COVID, post-Brexit economic recovery, it is critical for companies – and a dynamic, integrated economy – to have smart regulation that is common to all home nations. Barriers that hinder the supply of materials and products will be detrimental to customers. Trade associations like SELECT and the BMF want to avoid logistical disruption to our SME members as a result of separate but parallel regulatory burdens.
The BMF is aware of the potential difficulties that could lie ahead. For example, significant differences applying to Building Regulations in either Scotland or England could have marked implications for manufacturers and contractors. Other possible repercussions could be:
If one or more nations decided to set higher or more stringent standards or regulations, would manufacturers either (a) withdraw from a market or (b) produce goods to two or more sets of standards or regulations to maintain sales or market share?
Manufacturers could try to drive the market by making goods to more stringent standards in the hope that other home nations adopt them later.
Care is required with reserved and devolved matters to avoid regulatory difference between London and Edinburgh. Despite the House of Lords’ concessions, the Scottish Parliament has voted to reject the internal market provisions. The Scottish Government has described them as “an act of constitutional sabotage” and, with the Welsh Government, is looking to mount a joint legal challenge.
“In the post-COVID, post-Brexit economic recovery, barriers that hinder the supply of materials and products will be detrimental to customers”
Unmanaged regulatory differences have a knock-on effect along supply chains. Higher prices passed on can either restrict choice or reduce the number of firms offering goods. That is in nobody’s best interest.
In my opinion, the logical approach is to remove un-coordinated, separate and parallel regulatory burdens at different stages of the supply chain.
If not confronted, the cumulative burden will add significant costs that force companies to weigh up if it worth entering or remaining in a market…or not.
By Brett Amphlett
Policy & Public Affairs, The Builders Merchants’ Federation