Internal Market Act 2020: position paper

The IMA and Common Frameworks

29. The Scottish Government welcomes and shares the UK Government’s ambition that Common Frameworks are the key mechanism for managing policy divergence and ensuring regulatory co-operation. That, after all, was the role for which they were designed, a role made much more challenging by the imposition of the Internal Market Act.

30. The Act, as matters stand, is incompatible with the operation of Common Frameworks and the principles that inform them.^[12] During the Act’s parliamentary passage, this argument was made by former UK Supreme Court Justice Lord Hope^[13] – it is helpful to consider these points here (emphases added):

“… when you consider the effect of the market principles on [common frameworks], to say that they complement each other seems a complete misuse of language.

“… [prior to Brexit] The devolved nations had been able, within the limits of EU law, to fulfil their responsibilities as devolved Governments to formulate and apply policies that best suited their local circumstances.

“So, it was agreed that they and the United Kingdom Government would work together through common frameworks in order to enable the functioning of the UK internal market, while — this was a crucial part of the agreement — acknowledging policy divergence.

“Not only does the Bill ignore the common frameworks process but it destroys one of the key elements in that process that brought the devolved Administrations into it in the first place: it destroys policy divergence. It destroys those Administrations’ ability through that process to serve the interests of their own people, and to innovate.

“The common frameworks operate by working out solutions by agreement between the four nations… … The Market Access Principles system, on the contrary, does not operate by agreement; it is hard edged. It is a set of strict statutory rules which, apart from the few limited exceptions, do not allow for any divergence at all.”

31. This has echoes in the earlier consideration of Donald Dewar’s characterisation of the reserved powers model’s clarity and effectiveness. The devolution settlement endorsed by the people of Scotland in 1997 was, and is, expressly designed to allow for policy divergence in areas of devolved responsibility. The Act’s effect is to nullify this foundational principle of devolution. Frameworks are left with little or no divergence to manage, as the Act removes the possibility of meaningful divergence.

32. Lord Hope’s analysis remains true. The UK Government must set out how it proposes meeting its ambition of having Common Frameworks as the key mechanisms for managing market and regulatory discussions between the governments of the UK. Given the Market Access Principles currently apply automatically in almost every circumstance, this must amount to more than simply a restated commitment to using Common Frameworks: it must set out how the Act’s legal effect on the operation of Common Frameworks will be removed.

33. This is not simply a matter of potentially being able to secure post hoc disapplication of the Act’s market access provisions to divergent policy agreed through Common Frameworks. The starting point must be an acknowledgement that the automatic application of these provisions (in almost all circumstances in the case of goods) conditions and undermines the operation of Common Frameworks.

34. What should be a process, whereby proposed divergent policy is tested against the Common Frameworks Principles, risks becoming a binary consideration of whether UK ministers will permit laws, passed in wholly devolved areas by a democratically accountable legislature, to have their intended legal effect. This is not a sustainable approach.

35. The Common Frameworks Statement of Principles remains key. These require, for laws passed in relevant areas of devolved competence, that there is “at least equivalent flexibility” to tailor policy as was afforded under EU law.^[14] The IMA does not provide for this, for the reasons Lord Hope has set out: it stifles and nullifies the effect of divergent policy, instead of managing divergence based on co-operation and agreement.

36. It also acts as a disincentive to reach agreement on policy divergence when the Act nullifies the effect of divergent policy.^[15] As part of the review the Scottish Government needs to understand how the UK Government proposes to ensure that Common Frameworks allow governments of the UK, in areas of exclusive devolved competence, to enjoy at least equivalent flexibility to design policy as was afforded when we were in the EU.

Recommendation 4: The UK Government must set out in detail how it proposes to remove the Act’s effect from the operation of Common Frameworks. The Scottish Government welcomes, and shares, the UK Government’s ambition that Common Frameworks act as the key mechanism for managing policy divergence and ensuring regulatory co-operation. However, the IMA does not allow for the proper functioning of Common Frameworks.

Recommendation 5: The UK Government must adhere to the Common Frameworks Statement of Principles. These principles offer a coherent conceptual model for the operation of an internal market regime that ensures a functioning market while respecting devolution. If the consultation document’s stated ambition for Common Frameworks is to be met, these principles must be upheld, including ensuring the democratic accountability of the devolved legislatures. There must also be at least equivalent flexibility to tailor devolved policy as was afforded under EU rules. The IMA does not allow for either of these principles to be upheld.