Internal Market Act 2020: position paper

The Act and devolution

1. The IMA is perhaps the single most significant threat to the devolution settlements established over a quarter of a century ago.

• It was passed without the consent of the Scottish Parliament, or of any devolved legislature.
• It introduces radical new uncertainty as to the effect of devolved laws, effectively introducing a far-reaching and unpredictable new constraint on the powers of the Scottish Parliament.
• It provides UK Ministers with an open-ended power effectively to nullify laws passed by a democratically elected – and accountable – legislature.
• It enables UK Ministers to alter unilaterally the effect of the Act and consequently its impact on the Scottish Parliament and the Scottish Ministers by adjusting the Act’s schedules to allow currently excluded matters to be covered by the Market Access Principles.
• This means Scottish health services and other areas of devolved responsibility could be brought under the scope of the Act without the consent of the Scottish Parliament.
• The entire Act was placed into Schedule 4 of the Scotland Act (list of protected enactments). This effectively places an additional new constraint on devolved competence, as laws passed by the Scottish Parliament cannot in any way modify the Act’s operation.

2. In 1997, the people of Scotland voted, by a decisive majority, for the establishment of a new devolved parliament, based on the detailed prospectus set out in the UK Government’s 1997 White Paper^[1]. These proposals went significantly beyond those set out for a Scottish Assembly in the Scotland Act 1978.

3. It is instructive to reflect on what the then Secretary of State ‘for Scotland, Donald Dewar, set out as the key differences with the 1978 Act:

“A … crucial difference from 1978 … is that we have moved to define the reserved rather than the devolved powers, to ensure maximum clarity and stability. Anyone looking at the 1978 Act would see a somewhat grudging document, which would have required frequent updating. There would have been a greater danger - I put it no higher than that - of arguments over vires. We wished to minimise the difficulties of interpretation and to allow for maximum flexibility in future. We have done so.

“… [T]he Secretary of State for Scotland will not have what is sometimes called the governor-general role, which was at the heart of the 1978 Act and was put upon the shoulders of the Secretary of State. The Scottish Parliament and Scottish Executive will have their own direct relationships with the Crown, rather than using the Secretary of State as an intermediary.

“Legislation passed by the Scottish Parliament will not need to go to the Secretary of State for consideration and approval before it is passed to the Queen for Royal Assent. It is important that we do not have such overriding decisions. It would have sullied the atmosphere and made for great difficulties. I am glad about that particular extension.”^[2]

4. The IMA has ushered in precisely the scenario that Donald Dewar worked to avoid: radical and far-reaching uncertainty as to the effect of devolved law; an open-ended power for UK ministers to second-guess the decisions and overrule the powers of a democratically accountable legislature; and a system of intergovernmental relations beset with unnecessary difficulty.

5. The devolution settlement endorsed by the people of Scotland in the 1997 Referendum is a reserved powers model. It establishes that a power is devolved unless expressly reserved, thereby reducing significantly the scope for disputes over competence. The 1998 Scotland Act makes clear there is no hierarchy of governments in the UK,^[3] and UK Ministers have no oversight role in the decisions of the democratically elected and accountable Scottish Parliament and Government in devolved areas (with very limited exceptions).

6. The IMA is fundamentally incompatible with the principles and practice of devolution in the UK’s constitutional arrangements since 1997. The Market Access Principles of mutual recognition and non-discrimination cut across the clear reserved powers model to introduce wide ranging constraints on devolved competence. It does this in ways that are unpredictable and have led to regulatory uncertainty and increased legal disputes. The mutual recognition provisions, in particular, undermine the ability of the Scottish Parliament to use its powers to pursue devolved social and economic objectives in Scotland for which it is accountable.

7. The Act’s effect is far reaching but subtle. The Scottish Parliament can still pass laws in areas of devolved competence, but the market access provisions can undermine or effectively nullify the intended legal effect. In other words, while the Scottish Parliament can continue to legislate that a product made in Scotland must meet a particular standard, it can do nothing about goods entering Scotland produced to different or lower standards.

8. By default, the mutual recognition provisions apply automatically in nearly all cases (in respect of goods); to an unusual degree, discretion on any change to the application of the market access provisions lies with UK ministers and UK ministers alone.

9. The Act’s effect is asymmetrical in two ways. First, it encourages deregulation or the lowering of standards, given that goods or services meeting the lowest requirements set in any part of the UK must be accepted across the UK as a whole, whatever the views of each administration or legislature on matters within their competence. The incentive is then to adjust all standards to this new lower threshold, or to disadvantage producers or service providers in each domestic market.

10. There is no equivalent mechanism to impose, or even encourage, higher standards across the UK. Indeed, any attempt by any administration to increase standards potentially disadvantages their own producers. Any higher standards introduced in Scotland can effectively be ignored by those introducing goods and services from other parts of the UK. This is particularly significant for key sectors of the Scottish economy, such as food and drink, where success is built upon the quality guarantee that comes with the Scottish brand.

11. In theory this is true for each part of the UK, so, for example the Scottish Parliament, Senedd Cymru or Northern Ireland Assembly could effectively adjust standards in England by deregulating for their domestic markets.

12. However, this illustrates the second fundamental asymmetry in the Act. Unlike devolved legislatures, the UK Parliament retains the authority to use primary legislation to exclude the Market Access Principles for any sector if it does not support the consequences of deregulation in Scotland, Wales or Northern Ireland for producers in England.

13. As part of the review, the Scottish Government has sought clarity from the UK Government on its assessment of the Act’s impact on devolution, and how it intends to address this. The Act’s explanatory notes acknowledge that ‘the Act’s provisions create a new limit on the effect of legislation made in exercise of devolved legislative or executive competence’ (paragraph 75).^[4] How we address this novel, far-reaching constraint is key to resolving the challenges the Act poses. That must start with an acknowledgement of the Act’s constitutional effect.

14. It has been suggested to the Scottish Government that the Act is necessary due to the provisions in Part 5 which relate to the operation of the Windsor Framework. This is not a convincing argument. It is entirely possible, indeed relatively straightforward, to preserve that provision while addressing the rest of the Act.

Recommendation 1: Acknowledging the Act’s far-reaching and damaging impact on the devolution settlements is a precondition for delivering meaningful change.

Recommendation 2: The argument that the Act is necessary due to the provision at Part 5 relating the Windsor Framework is unfounded. The UK Government should confirm that there is no impediment to preserving this provision, which sits largely separate from the rest of the legislation, while addressing the wider defects in the Act.