UK Chemical Industry: Regulatory Divergence

Bill Esterson Excerpts

Wednesday 26th February 2020 Westminster Hall

[Bill Esterson (Sefton Central) (Lab)]

I beg to move,

That this House has considered regulatory divergence in the UK chemical industry.

If we buy a car, house, cleaning products, food or clothes or visit the swimming pool or cinema, chemicals are involved in making the products we use. Chemicals are ubiquitous in our lives, and the chemical industry is a vital part of our national economic wellbeing. Chemicals are vital to the jobs of thousands of workers. Contract Chemicals is an SME in Knowsley that manufactures chemicals, and Blends is another that sells products made from chemicals. Both employ some of my constituents, whose livelihoods could be at risk if the Government do not get the chemical regulatory regime right. In the Liverpool city region, Jaguar Land Rover, Ford and Vauxhall employ thousands of workers in car production in which chemicals are vital components. Without a robust system of regulation, safety and quality will be compromised and our chemicals market will be open to the dumping of cheap chemicals from markets that do not have our high standards.

The consequences of poor regulation are spelled out in “Dark Waters”, which will be released on Friday in the UK. The film depicts what can happen to tens of thousands of people and to wildlife without adequate safeguards. In our addressing the climate crisis and moving to net zero, the chemical industry has a vital role to play in ending the use of fossil fuels, recycling plastics and finding sustainable alternatives, including for the types of forever chemicals depicted in the film.

The chemical industry employs 102,000 well-paid people in the UK, with 24,000 in the north-west alone. The industry is worth £31.4 billion in exports and £34.6 billion in imports, and its products feature in their thousands in the production of goods across the entire economy. Some 57% of those exports are into the EU. The importance of the industry around the country is also spelled out by the productivity of the sector compared with the rest of the economy. In the north-east, it is three times more productive; in the north-west, four and a half times more productive; and nationally, it is twice as productive. We cannot afford to undermine such a key part of our economy.

Chemicals are the subject of REACH—the registration, evaluation, authorisation and restriction of chemicals—the strict European-wide regulations that make sure the chemicals used here are the safest in the world and help to produce the highest quality products.

[Alex Cunningham (Stockton North) (Lab)]

My hon. Friend rightly says that REACH regulations are central to chemical production not only in this country but across Europe. Does he share my concern, and that of companies in my constituency, that without the same REACH regulations in Britain as in Europe, the movement of chemicals between countries will be inhibited?

[Bill Esterson]

My hon. Friend is absolutely right. I know he has a good relationship with the chemical industry in the north-east and has spoken many times on this subject and in support of people who work in the industry. I will come on to make the point that he touches on in more detail.

REACH regulations protect human health and the environment. In chemical regulation, the high standards for chemicals used in our manufacturing also sustain the reputation that encourages people around the world to buy British. Before the current Prime Minister took over, the Government indicated a willingness to negotiate associate membership of REACH, and that is still the preferred option for the industry. The system delivers assurance to the industry and its downstream operations, including our entire manufacturing sector, all of which uses chemicals at some stage of production.

[Kate Green (Stretford and Urmston) (Lab)]

I congratulate my hon. Friend on securing the debate. I too represent a number of chemical companies in my constituency. He is right to draw attention to the administrative benefits of remaining associated with the REACH regime, but also to the cost implications. Companies based in my constituency make the point that they have spent a considerable sum on REACH registration. Having to register for a new scheme at similar cost will make their businesses unviable in some cases, or may lead them to relocate to EU countries.

[Bill Esterson]

My hon. Friend is absolutely right. I have been told that estimated costs of between £50,000 and £100,000 per chemical are likely if a UK REACH system is introduced in the way the Government appear to be proposing. I will cover that in more detail as well.

The Government have made clear their opposition to regulatory alignment in general, and given that UK REACH is the default option, they appear to not want to make an exception for the chemical industry. The British Coatings Federation speaks of the practical and real problems that businesses will face with such a system. For example, REACH will continue to apply in Northern Ireland at the end of the transition period, even if a separate UK-based regime applies in the rest of the UK. It is not yet clear how that would work in practice. There is obvious concern that EU and UK REACH will, in theory, apply at the same time in Northern Ireland and will contradict each other.

Let me quantify my hon. Friend’s point. BASF employs 5,000 people in the UK. It estimates that it will have to find up to £70 million to re-register all existing lines. Its alternative is not to offer many of its smaller volume products in the UK, but many are critical to manufacturing. In the car industry, an average of 1,300 different chemicals are used in the production of each vehicle. If many of those products are not available in the UK, car manufacturers will have to import them; it will fall to car companies to register the chemicals and to develop the skills and facilities for storage. This would apply to all chemicals where usage volume was more than 1 tonne per year. Registration costs of £50,000 to £100,000 per chemical are likely to apply, as the Government have confirmed. At that cost, chemical companies would find it uneconomic to continue the production or import of many chemicals. Meanwhile, car producers would find it much harder to compete with EU-located production facilities in the manufacture of vehicles destined for the EU market.

The chemical industry exports 57% of UK-manufactured chemicals to the EU27. A UK manufacturer will have to register its products to comply with UK REACH, as they are made here, and also EU REACH if they are exported into the EU. If our regulations diverge, as the Prime Minister appears to favour, and as may be required as the price of a trade deal with the United States, manufacturers would need not only to demonstrate compliance with both sets of regulations but have two production lines—one to comply with UK regulations, the other for the EU’s. The alternative is to move production to the EU for the EU-compliant product, meaning a loss of exports and jobs from the UK.

[Alex Cunningham]

Will my hon. Friend give way?

[Kate Green]

Will my hon. Friend give way?

[Bill Esterson]

I am spoiled for choice. I will give way first to my nearer neighbour.

[Kate Green]

Your north-west friend.

[Bill Esterson]

My north-west friend; there we are.

[Kate Green]

I am grateful. My hon. Friend rightly highlights cost issues and the potential need to register through two different regimes, which would bring additional administrative complexity. He will be interested to know that a chemical company in my constituency has also drawn attention to the need for extra testing if there is a need to comply with two different regimes, including extra testing on animals, which I think would be particularly unwelcome to the British public.

[Bill Esterson]

I am glad my hon. Friend mentioned the real concern about animal testing, which we can minimise currently because we are members of EU REACH, so testing does not need to be repeated in the UK. The industry has raised that as a real concern, which I will return to.

[Alex Cunningham]

Both my hon. Friends are right to raise the issue of cost. One company in my constituency is already up against it trying to making any profit at all because the regime is changing for carbon credits. The current proposals mean it will soon no longer receive the relief it currently does. That company is a supplier to other chemical companies within my constituency and elsewhere, so if it falls over and that product is no longer available, there will be a knock-on effect on many jobs across the area. Does my hon. Friend agree that this is another reason that we cannot have the divergence that the Prime Minister seems to favour?

[Bill Esterson]

My hon. Friend has explained well that the problem goes across the economy because chemicals are crucial to every manufacturing process.

I was talking about the problem of having to comply with two different sets of regulations and the impact the industry predicts, including a loss of exports and jobs in the UK. Products cross borders multiple times during manufacturing. The integrated nature of supply chains in manufacturing is a big reason why it would be difficult to manufacture in the UK for the EU market in the event of different chemical regulations.

Despite the Government’s presumption in favour of regulatory divergence in general, the Minister may want to say that the Government do not intend to change the regulations that are introduced with a UK REACH. I am interested to hear her comments on that point. The suspicion that divergence is likely has been reinforced by part 8 of the Environment Bill, which gives the Secretary of State the powers to diverge. If the Government do not intend to change the regulations, why have that in the Bill? In his speech on Second Reading this afternoon, the Secretary of State did not mention the section of the Bill that deals with regulation of the chemical industry, which is disappointing because the industry is so vital to the wider economy. Likewise it is disappointing to the industry and those who rely on it that there is no news about a sector deal for the chemical industry.

[Alex Cunningham]

Perhaps that was not mentioned because the Government have seen sense and realised that they cannot have these tremendous changes. This is about not just day one—when we might say, “We will have the same regulations on day one”—but the future regulations, because every day something changes in the REACH regime, which means one part of a process may no longer be compliant in Europe and Britain at the same time. Therefore, we need to ensure we have common regulation across the piece.

[Bill Esterson]

My hon. Friend has explained well why the industry is worried about this: sooner or later divergence leads to the problems that he and I have outlined.

Some 54.8% of cars produced in the UK are exported to the EU, so preferential access to the European market and avoiding regulatory divergence on chemicals is therefore extremely important. The automotive industry uses 13,000 chemical substances, only 1,181 of which are exclusively registered by UK companies. Many of the remaining 98,000 chemicals registered by the European REACH system could need to be re-registered in the UK. According to the Society of Motor Manufacturers and Traders, the cost to the automotive industry alone could be up to £1.3 billion. The Government have not denied those figures in their own analysis. The car industry is deeply concerned about the impact on its competitiveness and on the future of volume car manufacturing in the UK if we move away from a single European regulatory system.

UK REACH will either require access to the chemical testing data, as my hon. Friends mentioned, held by the European Chemicals Agency, or have to repeat and duplicate testing, hence the cost of registration for each substance, which I quoted earlier. Consortia of European companies own most of the data, and UK companies pay a fee for access to the data, which is held by the ECHA. Selling access to the data is a commercial decision not governed by EU data sharing rules.

The Health and Safety Executive, which is due to become the UK chemicals agency—perhaps the Minister can clarify when that will happen—will need to build its own database if it cannot access the ECHA database. According to the plans for UK REACH set out in the European Union (Withdrawal Agreement) Act 2020, basic data about the market and each substance will need to be submitted within 120 days of the end of transition, while full information appropriate to the registrant’s tonnage band will need to be submitted within two years. It took 10 years to build the ECHA database. How can that be replicated in two years, given that many companies will have to carry out testing from scratch and many importers are not specialists in the chemical industry?

Concerns have also been raised about the capacity of the HSE and the legal framework it will follow. It could either repeat the work of ECHA or rely on the work ECHA has carried out. The former would be hugely expensive, time consuming and dependent on a level of scientific expertise that may not be available. The latter could leave it open to challenge on the grounds that it should not be reliant on EU evidence and should have made its own assessment of risk. Either approach is potentially problematic.

An additional concern of the industry is that, as some registration of chemicals in REACH has relied on animal testing, a UK REACH would mean the introduction of animal testing—a point my hon. Friend the Member for Stretford and Urmston made earlier. Steve Elliot, the chief executive of the Chemical Industries Association, said

“The EU remains our biggest customer and supplier, so securing a tariff-free, frictionless free trade agreement is essential. Most crucially creating a parallel UK regulatory regime for chemicals, whilst still needing to meet the legal requirements of our biggest market place under EU REACH will, in our view, bring no commercial or environmental benefit and could put businesses and jobs at risk right across the country, including seeing a whole new programme of animal testing, something that none of us wants to happen.”

In a written answer on 4 February, the Under-Secretary of State for Environment, Food and Rural Affairs, the hon. Member for Taunton Deane (Rebecca Pow), said that UK REACH will maintain the “aims and principles” of EU REACH. In the light of the industry’s importance, is that not an argument for staying part of the current system and avoiding the problems of implementing a separate version? In a recent British Coatings Federation members survey, 90% of members expressed their fear of having a duplicate set of chemical regulations through a UK REACH and all the extra bureaucracy and costs that would bring. The BCF said:

“We need government to understand the complexity of the integrated chemicals supply chain and come up with an appropriate free trade deal to prevent—or at least minimise—substantially added costs or disruption to our members.”

I place on record my thanks to the Chemical Industries Association, the British Coatings Federation, the Chemical Business Association, the Society of Motor Manufacturers and Traders, the ADS group, the CHEM Trust, BASF and multiple trade unions, as well as the specialists of the House of Commons Library. They have all helped with this complex, technically demanding subject. They have all helped confirm just how serious the issue is for our economy and for safety, too. I hope the Minister and her colleagues are listening to their advice.

Steve Elliott of the CIA said:

“The isolationist approach doesn’t work for us. I can’t think of a member company who isn’t exporting at least 50/60 per cent of its production.”

We have to remember that most of that exporting is into the EU. ADS gave me the example of potassium dichromate, which is a crucial chemical coating that protects aircraft structures from corroding. The example makes Mr Elliott’s case: there is no viable alternative to the use of that chemical in aircraft structures. It is produced in the UK and marketed in the EU. It is registered with REACH, so if the UK is removed from REACH, the registration would become non-existent and it would not be possible to import or sell it in the EU, to manufacture the mixture or to apply it to aerospace components. That would cause huge commercial damage to the aerospace industry in the UK and in the EU.

That story is repeated many times for UK-manufactured chemicals, so what is the plan for products like potassium dichromate and for aircraft manufacturing? What is the plan for the regions that rely on the chemical industry for their productivity? What is the plan for all other industries that rely on chemicals in their processes? What is the plan for multiple cross-border manufacturing supply chains? What is the plan for exports and imports, for safety, for data analysis, for testing and scientific expertise, including animal testing, for the creation of an alternative database, or for access to the existing ECHA database? What is the plan for capacity and expertise in the HSE? What is the plan for a sector deal? Tell us, Minister, what is the plan?

--- Later in debate ---

[Victoria Prentis]

I understand the hon. Gentleman’s anxiety. What I will say to reassure him, in so far as I can in a live negotiating situation, is that we will avoid change for change’s sake. We will do our best. We are fully cognisant of the need to minimise the burdens on business. That lies at the absolute heart of all that we are doing to put UK REACH in place.

Let me give the hon. Gentleman an example. In building the UK REACH IT system, we have made sure that it will work very much like the ECHA REACH IT system, including the same software requirements and many of the processes that businesses have been using and understand. I am aware that we will require businesses to provide us with the data that supports their registrations. I understand the concern that that may not be as straightforward as they would like and may generate costs. That is why we have introduced the transitional arrangements that I mentioned earlier, which give businesses two years, starting from the end this year, to provide that information. We will keep those timeframes closely under review.

We are often asked why we need the data and why information that has already been provided to the ECHA needs to be reprovided to UK REACH. In short, we need it because we will not be able to rely on the fact that the data has already been sent to the ECHA. Registration is how a company shows its understanding of the hazards and risks of a chemical. It does not mean that the ECHA has, in legal terms, approved a chemical or endorsed it as safe. The data is necessary for any regulator, such as the Health and Safety Executive, to operate an effective regulatory regime, to understand the hazards and risks of chemicals, and to ensure their safe use. We are making sure that the HSE as the UK regulator, the Environment Agency and the Department for Environment, Food and Rural Affairs have the resources and evidence they need to ensure the safe management of chemicals and to protect public health and the environment.

With the UN projecting a doubling in the size of the global chemicals industry by 2030, it matters more than ever that the UK continues to be a world leader in the management and regulation of chemicals. Our internationally recognised scientific expertise and evidence-led, risk-based approach give us a strong and influential voice as we advocate for ambitious global action on chemicals and waste management after 2020.

I want to finish by saying something about the chemicals strategy we are developing, which will set out our priorities and approach to domestic regulation now that we have left the EU. It will be our first such strategy for 20 years. We aim to drive sustainability, circularity and innovation in the chemicals industry, while protecting human health and the environment from harmful chemical exposure. A call for evidence will be published very shortly—this spring—and we will then undertake a public consultation on a draft strategy before its final publication, which is scheduled for 2021-22. We genuinely want to hear from the industry.

[Bill Esterson]

I am grateful for some of the answers that the Minister has given, but one of the points she has not addressed is exports. Some 57% of UK chemical exports and 54% of car exports go to the EU market; the role of chemicals with the correct regulatory registration will be vital, as will approval for the European market. Will she address the export problem that is faced both directly in the chemical industry and, more generally, in industries whose products contain chemicals—not just the car industry—in having these two systems?

[Victoria Prentis]

As the hon. Member says, the export market is very important. There are exports worth £28.3 billion, with 57% of that going to the EU and 43% going elsewhere. It is clearly important that we get to the end of our trade negotiations as soon as possible, so that certainty can be provided. He knows as well as I do that the situation is fluid at the moment, and I am unable to give him all the answers he seeks. What I can say is that we have a new and exciting chemicals strategy, on which we will be consulting.

--- Later in debate ---

[Bill Esterson]

I thank all hon. Members who have taken part in the debate for their comments. I appreciate the Minister’s difficulty in giving fuller answers, and I take her point that it is important not to speak in the middle of negotiations. I am glad that we are in the middle of negotiations and that they have actually started, because the reports lead us to question whether we are even at that stage. Time is rapidly running out—an important point that needs to be reiterated.

The Minister talked about divergence. Is not one of the problems that once we give ourselves the ability to diverge, the assumption is that clarification can be given to enable the import and export of chemicals, or anything containing chemicals, only through having two sets of regulations? That is one of the main reasons why the industry is so concerned about moving away from being part of EU REACH, either as an associate member or through some other close relationship. I encourage the Minister to pursue those avenues, because the chemicals industry and everybody who relies on it need clarity.

Investors need certainty. They are making decisions about where to locate and whether to continue investing in this country or to put alternative arrangements in place, particularly in the EU27, with a cost for jobs and an impact on our economies, especially in the nations and regions of the UK outside London. It is therefore vital that all attention is given to getting this right in a way that protects and enhances our industry, and does not undermine it.

I thank the hon. Member for Angus (Dave Doogan) for his comment about potassium dichromate. I hope that was not the cause of the injury he described—it seems a little unlikely. He made some excellent additional points, as did my hon. Friends the Members for Stretford and Urmston (Kate Green) and for Stockton North (Alex Cunningham). I thank my hon. Friend the Member for Newport West (Ruth Jones) for her contribution.

The chemical industry is fundamentally important for pharmaceuticals and across manufacturing. Anything we do to undermine it we do at our peril. It is a high-profile, high-quality and world-leading industry in the UK, and every effort must be made to listen to the concerns being voiced by the relevant organisations. There is unanimity in what is being said across the piece by the industry, trade unions and the environmental lobby—it is almost unheard of. The Government will do well to take that on board. I am glad the Minister said that if a longer timescale is needed to get this right, the time will be taken, but to be frank the industry needs assurances now; it cannot wait to make decisions. I hope the Minister will take on board all the points made this afternoon.

Question put and agreed to.

Resolved,

That this House has considered regulatory divergence in the UK chemical industry.