Internal Market Act 2020: position paper

The statutory review and immediate next steps

60. The UK Government was elected in July 2024 on a manifesto commitment to reset relations with the devolved administrations. This was a welcome recognition of the need to address the significant strain placed on intergovernmental relations as a consequence of the actions and behaviours of the previous UK Government. The IMA, both in the manner of its imposition, and its far-reaching effect on the devolution settlement, had contributed significantly to the previous poor state of intergovernmental relations.^[25]

61. The UK Government launched the statutory review of the IMA on 23 January. The review’s scope was set unilaterally by the UK Government, with no reference to the preferred option of the Scottish – and Welsh – Governments – repeal and replacement with a workable alternative built around Common Frameworks.

62. This is difficult to reconcile with a commitment to resetting relations with the devolved governments. Despite the impact the Act has had on the powers and responsibilities of the Scottish Parliament and the Scottish Government, no devolved government had the opportunity to contribute to the scope or terms of reference of the consultation document. Ultimately, the consultation document was shared with the Scottish Government just 24 hours prior to publication.

63. The UK Government’s position is that, because the IMA is UK legislation, the review must be its sole responsibility. This fails to acknowledge the circumstances in which the Act was imposed without consent by the previous UK Government, or of its profound implications for devolution in Scotland and across the UK.

64. This is regrettable; nevertheless the Scottish Government is committed to engaging with the UK Government, the devolved governments and other stakeholders through the review, on the basis that it is a prelude to subsequent joint working and a shared approach to addressing the substantive issues in play. While the review is unlikely on its own terms to deliver the change required, it is hoped that it can act as a catalyst for a move to genuine, respectful engagement and the co-design of a better, indeed a workable, alternative to the IMA.

65. The Scottish Government is clear that the Act should be repealed and replaced with an equitable, workable alternative, built on the foundation provided by Common Frameworks. This is of course also the view of the Scottish Parliament.

66. The UK Government consultation document is right to note the Scottish Government’s particular frustration at the way in which the exclusion process has operated to date. Its operation has been opaque, lengthy, indifferent to evidence and open to misrepresentation. As a result, laws passed by a democratically elected legislature have effectively been nullified in an arbitrary and unaccountable manner.

67. Notwithstanding our position that the Act should be repealed, any consideration of immediate improvements to the process must include the need for objective tests, rigorous and effective consideration of evidence, and proportionality and balance. Rigid de minimis thresholds should not be allowed to impede balanced and proportionate consideration of economic and non-economic factors.^[26]

68. What is an appropriate threshold will vary according to the issue under consideration: a given policy may be designed to have a significant market impact, precisely because the public health or environmental outcome will be a more significant consideration (and the financial cost of remedying problems after the fact much greater).

69. For example, it is easy to envisage a scenario where a policy measure may be proposed with the aim of driving consumers away from a product which contributes to particularly poor health outcomes in one part of the UK. That policy intervention may entail a significant market impact well in excess of an arbitrary threshold of, say, £10 million, but could contribute to much greater savings on future public health expenditure, increased productivity through a reduction in sick days and so on. This is before taking into consideration the non-economic quality of life benefits of a healthier population, and the scope for scaling up policies tested in one part of the UK.^[27]

70. In the Scottish Government’s view, the only course of action that will satisfactorily address the issues set out in this paper, as well as meeting the UK Government’s stated objective to reset intergovernmental relations, is to repeal the Act and establish a workable, co-designed system that has the confidence of all governments in the UK.

Recommendation 11: The UK Government must acknowledge that co-decision, co-design and consent are essential features of a well-functioning internal market regime – features entirely absent from the IMA. The unilaterally determined scope of the statutory review limits the likelihood of it delivering the change necessary to reverse the Act’s damage and see the full restoration of the Scottish Parliament’s powers. Moreover, it ensures that the review commences from a fundamentally damaging point - namely without any sense of co-design or collaboration. Specifically, there is no justification to unilaterally ruling out consideration of repeal of the Act, in part or in whole.

Recommendation 12: The UK Government must acknowledge the fundamental flaws in the IMA’s design and operation, as set out in this paper. It must commit, post-review, to joint working with the devolved Governments on the co-design of a new, agreed and workable model of regulatory co-operation that both guards against unnecessary barriers to trade and respects devolution. There should be a formal role for the Interministerial Standing Committee (IMSC) in directing and overseeing this work.