Internal Market Act 2020: position paper

Areas out of scope of the review

54. Matters reserved by the IMA, and powers which undermine democratic accountability in the allocation of public money, have been unilaterally ruled out of scope of the statutory review.

55. The IMA preceded the Subsidy Control Act 2022 (SCA). Powers over subsidy control were reserved to the UK Government via the IMA. The SCA did not incorporate features which Scotland had argued for. For example, Scottish Ministers had requested equal powers with the UK Secretary of State in regard to 'calling in' potentially challenging subsidies and in designing streamlined subsidy schemes or routes via which subsidies could be granted. The UK Government retains complete ownership of any decision-making around the regime.

56. The financial assistance power in Part 6 of the IMA provides a means for the UK Government to spend directly in devolved areas, including economic development, infrastructure, sport and culture. This enables the UK Government to extend its powers in Scotland beyond those reserved in the Scotland Act 1998 and bypass the role of the Scottish Government and Scottish Parliament in these areas.

57. The previous UK Government used the IMA power to deliver, among other funds, the Shared Prosperity Fund, which replaced EU Structural Funds, and the Levelling Up Fund, which had originally been announced as England-only and was expected to generate Barnett consequentials. This resulted in no role for the Scottish Government in the decision-making or delivery of these funds.

58. The Scottish Government has consistently opposed the use of the Part 6 financial assistance power and called for funding to instead be provided to the devolved governments in the usual way.^[24] As the UK Government looks to the next Spending Review period, it has a choice to make in how future funding is delivered. It is important that the UK Government fully engages with devolved governments on this, and that the policy outcome respects the devolution settlement across all parts of the UK. It is noted that the Labour Party’s 2024 manifesto committed to “restore decision-making over the allocation of structural funds to the representatives of Scotland, Wales, and Northern Ireland”.

59. The Scottish Government remains of the view that the Part 6 financial assistance power should be repealed. However, as the UK Government has excluded Part 6 from the review and intends retaining it in legislation, then it should at least put in place conditions on its use. The UK Government should work with the devolved governments to codify the circumstances in which it may consider using the Part 6 power and agree that this power should only be used with the consent of the devolved government in question.

Recommendation 9: The UK Government should acknowledge the new constraints on devolved competence which have come with the reservation of subsidy control, and with the Subsidy Control Act 2022.

Recommendation 10: The Part 6 spending powers provisions should be repealed, with funding for devolved matters in Scotland provided in the usual way, to ensure proper policy alignment and democratic oversight. At the very least, there should be no use of the powers without the consent of the Scottish Government, and there should be guarantees of no detriment to the Block Grant as a result of the powers being used.