Uncertainty over new UK internal market rules

Out-Law Analysis | 09 Dec 2020 | 11:25 am | 2 min. read

It remains unclear which rules will govern trade between the UK nations from 1 January 2021, following the government's recent heavy defeats in parliament on its UK Internal Market Bill. Businesses should plan for the assumption that the government's proposals will not – in their initial form, at least – be in force on 1 January.

The Bill is intended to prevent new barriers to trade arising as a result of regulatory divergence in different parts of the UK, once the EU's internal market rules cease to apply at the end of the Brexit transition period.

The original proposals would have also allowed requirements in the Northern Ireland Protocol of the Brexit Withdrawal Agreement that it signed up to last year, relating to customs declarations and EU state aid rules, to be disapplied. These provisions were removed by the House of Lords in November, before being reinstated by the government when the Bill returned to the House of Commons. The government then stated on 8 December that it would withdraw or modify these clauses in light of an agreement reached with the EU on arrangements, not yet published, under the Northern Ireland Protocol.

In contrast, the government still faces challenges in seeking to overturn the House of Lords amendments relating to the devolution arrangements for Scotland, Wales or Northern Ireland, which go to the heart of its ambitions for limiting regulatory divergence in different parts of the UK.


David Thorneloe

David Thorneloe

Legal Director

If the House of Lords does not back down, then this legislation will not be passed in time for the end of the Brexit transition period

The Lords made multiple amendments watering down the fundamental principle that the Bill overrides new devolved legislation in Scotland, Wales or Northern Ireland if it creates new regulatory barriers to trade from 1 January. The amendments exempt regulatory barriers that are made for a number of legitimate public interest reasons, or are created by devolved legislation that has been agreed by, or is subject to discussions in, the political process involving the UK government and devolved administrations known as 'common frameworks'.

It is clear that the 'common frameworks' amendments are intended to signal a return to a consensual approach to resolving divergent approaches to regulation in the different parts of the UK. However, if enacted, the amendments are a recipe for confusion for businesses trading across the UK, as there is no official process or authoritative record of which legislation has or has not been agreed in these purely political discussions.

The Lords have also amended the Bill in other respects, requiring the UK government to seek the consent of the devolved administrations before exercising powers to amend the Bill's principles, and ensuring representation for the Scottish, Welsh and Northern Ireland administrations on the board of the Competition and Markets Authority (CMA).

The Bill is currently in its 'ping-pong' stages of back and forth between the two Houses of Parliament until they can agree. Usually, we would expect some form of compromise to be brokered, to allow the Bill to pass. In this case, however, the government and its opponents appear equally entrenched in their positions of high principle concerning the fundamental purpose of the Bill – free trade on the one hand, versus devolution of powers on the other.

If the House of Lords does not back down, then this legislation will not be passed in time for the end of the Brexit transition period. Some have suggested that the government might pursue the rarely-invoked Parliament Acts procedures, to override the objections of peers. However, this can only be done after a delay of at least a year in the parliamentary process.

In the meantime, the CMA has announced its plans for fulfilling its Office for the Internal Market (OIM) functions under the Bill, which will include appointing an OIM chair and a panel of experts, supported by a staff of 30 public servants.

Against the backdrop of developments in parliament, it is looking increasingly likely that the government's proposals will not – in their initial form, at least – be in force on 1 January.

As regards regulatory divergence in different parts of the UK, we are unlikely to see any post-Brexit day one impact from the Bill being delayed. The longer the Bill is delayed, however, the greater the risk of new barriers to trade within the UK being created, as new legislation is passed in different parts of the UK. Businesses should continue to monitor regulatory developments in all parts of the UK that they operate