2007 - 2020

Internalising the Market


Last month the Department for Business, Energy & Industrial Strategy published a White Paper on the “UK Internal Market”. The period of consultation closed on 13th August.

Sheer Might

The White Paper starts with the proposition, “As a Union, we are greater than the sum of our parts.” So we can be clear from the start that the answer has been found before the problem has been set. The justification, the expected benefit of the policy, is, “This will give business certainty. If a baker sells bread in both Glasgow and Carlisle, they will not need to create different packaging because they are selling between Scotland and England. Likewise, engineering firms in Scotland using parts made in Wales will know that the parts are compliant with regulations across other home nations.” Another example of stating the solution then seeking to justify it follows, “By enshrining the principle of mutual recognition into law, our proposals will ensure regulations from one part of the UK are recognised across the country.

The logic is entirely the wrong way round. To achieve these benefits does not require the proposed solution (creating a law in Westminster). It would be possible to negotiate mutual recognition in other ways. We should start by defining the expected benefits, and search for a range of solutions that could achieve it. These could include those described by Kohr[1] (1970)

  1. international trade agreements;
  2. special-purpose unions, e.g. International Postal Union and other trans-national ‘natural monopolies’;
  3. common markets; Single economic entities without prejudice to the political independence of participants (e.g. German 1823 Zollverein).

The best solution may vary between different types of business. For example, a local bus service in Argyll does not need to operate to the same legal rules as one in central London, because their zones of operation do not overlap. A “test and trace” service might function more effectively through local, not national structures. The method proposed in the White Paper, where English MPs have a permanent majority, is diplomacy by “sheer might”, otherwise described as bullying.

Simple

The Minister continues, “These principles will not undermine devolution, they will simply prevent any part of the UK from blocking products or services from another part”. The word “simply” is unclear: does it mean that the Minister does not understand the complexity, or is it me? There are many areas in which products or services cannot “simply” be distributed around the UK. To take an example, the Scottish Government has accepted the recommendation of the UK Climate Change Committee to aim to achieve Net Zero carbon emissions by 2045, so that the UK can achieve Net Zero by 2050. This will require prohibition of trade in petrol and diesel vehicles in Scotland at an earlier date than in England, and if sale of vehicles from England is not prevented in Scotland, it would interfere with the ability of both Scotland and the whole of the UK to achieve our Climate Change commitments.

For ever and aye

The White Paper repeatedly asserts historical justification. The word “century” (or “centuries”) occurs ten times. Is it sufficient to assert “this centuries-old success story” without references? The repeated comments about the historical perspective (choosing 1706 as a starting date) require a better knowledge of history than shown in this document. There was an extraordinary situation at the start of the eighteenth century, which I believe makes it an unsatisfactory date for measuring success. The Kingdoms were united from 1603, and the United Kingdom included Ireland until 1922, why choose 1706?

The experience of other countries such as Australia and Switzerland show that a legal underpinning can increase certainty for businesses and governments”. These are countries with very different historical contexts:

  • Before Australian independence in 1901, each state was a separate British colony that voted to join together as one nation.
  • 26 cantons are member states of the Swiss Confederation. Each canton of the Old Swiss Confederacy was a fully sovereign state until the establishment of the Swiss federal state in 1848, with a brief period of centralised government during the Helvetic Republic (1798–1803).

Neither of these is closely parallel to the situation of Scotland. The question should be whether other arrangements achieve the desired outcomes in a more collaborative and consensual way.

The White Paper introduces the phrase, “the Union of the United Kingdom”. Was this mere sloppiness or accidental use of a capital letter on the word ‘union’? It appears to be an attempt to introduce a new concept as if it were historically justified.

Dae as ye’re telt

There are several assertions that we are asked to accept:

  • The UK Internal Market… has been uniquely successful in driving forward economic prosperity across our whole country”. This is disputable, and I doubt it.
  • Frictionless trade … facilitates better investment decisions” is by no means certain. If a company is free to move its operations away from one part of the UK, investors may find that the basis for their investment decisions is undermined, especially if they are concerned about the ethics of the companies they invest in. The statement may therefore be sometimes untrue.
  • These benefits improve consumer choice and help drive reduced prices” appears to be making the case for remaining in the EU. It is potentially misleading because the principal beneficiaries of frictionless trade must be the shareholders of corporations. UK-wide organisations such as the National Grid may decide that shareholders benefit more from low connection costs near to large consumers of electricity (such as London) and high connection costs for producers of renewable energy (such as wave or tidal energy in Orkney). The long-term consequences will not be cheaper. Failure to develop renewable energy will eventually result in higher prices for both consumers and shareholders, as well as costs for everyone in responding to climate change.
  • Only this package of interventions enshrined in law can fully meet this objective.” This requires a legal opinion, but I believe that it is untrue. There are several other ways of achieving these objectives that courts would be able to rely on. This is a bullying approach.
  • A well-functioning Internal Market system, tailored to the interests of businesses across the UK, will therefore play a vital role in supporting our long-term global trade ambitions, ensuring the UK as a whole is capable of competing on the international stage.” This may be true, but it would be equally true if the arrangement were based on treaties, special-purpose agreements or a common market. This does not justify having a Westminster law.
  • Businesses like regulatory simplicity and stability and… companies invest in the UK because it is a highly stable market.” A good point, but this outcome can be achieved in other ways, such as remaining in the EU.

What’s it intended to achieve?

At last, on page 21 the objectives are stated. So far as they go they are good but they are not comprehensive. They do not guarantee compliance with the Human Rights Act, meeting the Paris Agreement commitments on our response to the climate emergency, nor protections across the UK in future pandemics, for example.

How will it be done?

Unprecedented new powers… transferred to Scotland…” and “A legal commitment to reach net zero carbon emissions by 2050 is just one example of this promise”. This overlooks the fact that the UK Climate Change Committee recommended that Scotland should be expected to achieve Net Zero carbon emissions earlier than England and Wales. The strategy for achieving this includes ceasing trade in diesel and petrol vehicles by 2032, whereas Westminster aims to cease trade in 2040. Demanding that the trade in petrol and diesel vehicles from England is not prevented in Scotland would interfere with our ability to achieve our Climate Change commitments, without which the UK as a whole would have difficulty achieving it by 2050. This would breach the international commitment under the Paris Agreement of 2015.

The legislation will “Seek to expressly provide that subsidy control is reserved”. This could prevent devolved nations from exercising their duties and powers. It is vital for Scotland to be able to promote local public transport systems in order to achieve Net Zero carbon emissions by 2045. This may require different subsidy regimes in different parts of the UK, and decision-making should be retained locally. It is not justifiable to require Scotland to achieve Net Zero emissions at an earlier date than England while preventing the Scottish Government from using this method to achieve it – accountability without power.

Monitoring will cover the ‘health of the market”. This is an ominous phrase. The ‘market model’ has failed in many areas – most conspicuously in the early days of the pandemic, when large international companies like Virgin Atlantic were demanding money from the Treasury to support their businesses, even if they paid few taxes in the UK. There are many areas of life in which the market model is wrong and causes harm. UK governments appear to accept that a ‘free market’ is not an appropriate model in some areas, because they have restricted gambling and the sale of drugs of addiction (including alcohol). I believe it is also inappropriate for healthcare, armed forces, and the institutions of the criminal justice system (police, prisons, probation etc.), and for the necessities of life (air and water).

Any demand that NHS Scotland increases marketisation and accepts services from other parts of the UK would prevent Scotland from fulfilling devolved duties and powers. The White Paper says that healthcare is excluded, but we may find that the boundaries (with social care, laboratory services, etc.) are not where we thought. And what about water services? English water companies permit untreated sewage (possibly contaminated with coronavirus) to enter rivers. And there are other services where there are ‘natural monopolies’ and no real market exists – the rail network and other infrastructure. If this proposal is used as a means of marketising everything, it must be rejected.

Businesses and consumers are not the only people with an interest in how trade is carried out. It is unsafe to focus only on “monitoring of the Internal Market and business and consumer engagement”. If there is no protection of public health, human rights, the climate and environment generally, then we could all be harmed.

Tell us what you really, really think

The aim is “protecting the integrity of the UK’s Internal Market”. Chamber’s Dictionary defines integrity as “uprightness; honesty; purity; entireness, wholeness; the unimpaired state of anything”, but these may not all be possible in the context of this document. The consultation offered only four questions to be answered. My answer? I advise you not to start from here. Luckily, the online questionnaire did not prevent me from pasting the draft of this article!

[1]   Kohr, Leopold “Is Wales viable?” (1970) Christopher Davies, Wales

Comments (2)

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  1. Robbie says:

    In reply the phrase “ Get Knotted” comes to mind.

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