United Kingdom Internal Market Act 2020 (Services Exclusions) Regulations 2023

Earl of Minto Excerpts

Wednesday 18th October 2023 Lords Chamber

Moved by

[The Earl of Minto]

That the draft Regulations laid before the House on 20 July be approved.

Relevant document: 49th Report from the Secondary Legislation Scrutiny Committee

[The Minister of State, Department for Business and Trade (The Earl of Minto) (Con)]

My Lords, this statutory instrument will help to ensure that seamless internal trade is maintained for the shared prosperity and welfare of people and businesses across all four nations of the UK. It will enable the effective operation of services regulation in the United Kingdom by adding, amending and removing service sectors excluded from the market access principles in Part 2 of the United Kingdom Internal Market Act 2020—the UKIM Act. I will cover both the purpose and impacts of the instrument in detail, starting with the former.

The UK internal market plays a vital role in maintaining equality of opportunity and certainty for businesses, no matter where they are in the UK, by ensuring that there is an internal market where the free flow of goods and services is protected across the whole of the UK. The UKIM Act was introduced to preserve the United Kingdom’s internal market as powers previously exercised by the EU returned to the UK.

The Act establishes two market access principles: mutual recognition and non-discrimination in relation to goods and services. The principle of mutual recognition means that service providers, such as businesses, that meet authorisation requirements to provide their service in one part of the UK can provide their service in other parts of the UK without having to comply with any additional authorisations or requirements. Non-discrimination prevents service providers being discriminated against, based on where they are from in the UK. For example, if, under a regulatory requirement, a regulator requires a service provider to pay a higher fee because they are from another UK nation, this could be discriminatory.

The Act’s market access principles will apply only to new or substantively amended authorisation or regulatory requirements for providing services introduced after 31 December 2020. For example, a new licensing requirement for accountancy services would be in scope of both the mutual recognition and non-discrimination principles of the UKIM Act, if it were enacted on or after this date.

However, service sectors listed under either or both parts of Schedule 2, on services exclusions relating to mutual recognition or non-discrimination, are not within scope of those market access principles. The market access principles additionally do not apply where the requirement is a response to a public health emergency or there is a legitimate aim for it, as set out in the Act.

In the UKIM Act, there is a power under Section 18(2) to amend Schedule 2. During the passage of the Act through Parliament, this Government gave a commitment to review and further develop the list of services exclusions after the Act received Royal Assent. This commitment was made because the list in Schedule 2 is mainly based on exclusions in the most relevant pre-UKIM Act regulatory framework, the Provision of Services Regulations 2009, which is retained EU law. The exclusions in Schedule 2 were therefore based on the sectors originally excluded with intra-EU trade in mind, rather than intra-UK trade.

In February 2021, the former Department for Business, Energy and Industrial Strategy publicly consulted on whether the existing services exclusions were fit for purpose in a post-EU exit context. The consultation had three main aims: first, to establish whether there were any instances in which regulators previously disapplied the existing mutual recognition requirement to recognise authorisations under the previous retained EU law; secondly, to establish whether any other changes needed to be made to the services excluded in Schedule 2 to better reflect the UK’s circumstances post EU-exit; and finally, to ask for any other ways in which the internal market for services could be further strengthened.

Following my department’s assessment of the consultation responses, including engagement with other government departments and the devolved Governments, this statutory instrument is making the following changes. First, it will add exclusions from the mutual recognition principle for services for the supply of gas, electricity and water, sewerage and waste sector services, construction and operation of heat networks and qualifications-awarding services. This change will mainly reflect how these sectors currently operate. These exclusions will maintain the status quo in areas where mutual recognition was not already in operation, to reflect long-standing existing regulatory arrangements in the UK. Without these exclusions, regulators in the gas and electricity supply sector would not be able to regulate as they have done previously, for example, as they would have to accept authorisations from another part of the UK. Evidence from the consultation responses highlighted that this could have a harmful impact on these sectors, causing consumer protection and public safety issues due to the different standards and systems in the parts of the UK. Not making these modifications to the existing exclusions schedule could also lead to higher regulatory costs, as it would instigate market framework changes that industry is not prepared for.

Secondly, this statutory instrument will also amend the existing exclusion relating to social services. This change will not alter the scope of the exclusion but will make it clear that it applies to children’s social care and childcare services provided by both private and public providers.

Finally, this statutory instrument will remove the existing exclusions for financial services, electronic communications services, statutory audit services, postal services, and services of temporary work agencies. Our view is that exclusions are not needed in areas where the UKIM Act market access principles will have little to no impact on how the service is regulated or provided in the UK. This is because the sectors either are reserved or already currently operate on a UK-wide basis. Removing these exclusions and making the service in question subject to the mutual recognition and non-discrimination principles should therefore have little impact on how this service is provided in the UK. Detail on these changes can be found in the government response to the consultation, published in July 2022.

--- Later in debate ---

[Baroness Blake of Leeds (Lab)]

My Lords, I thank the noble Baroness, Lady Kramer, for the image of a Rubik’s cube in looking at this legislation. I welcome the detail that has been provided; it has been very helpful and, as a result, I will keep my comments fairly brief. I thank the officials who have been involved in the process and the Minister for his detailed explanation.

The major concern I want to raise is that, despite the detailed consultation—I am very pleased to see the extent to which that was undertaken—it is troubling that consent was only achieved with Welsh Ministers and not Scottish Ministers. Obviously, the Written Ministerial Statement was laid before the Summer Recess, which was a significant time ago now, and I wondered whether there have been any more conversations between those bodies to seek further reassurance about the progress of this.

I have a specific question. The Scottish Government made a request in relation to heat network authorisations. Can I seek clarification that that has been incorporated into this SI?

I too would like to ask if the noble Earl is able to give us a more detailed explanation of why consent was not forthcoming. As we know, the Scottish Government did not consent to the UKIM Act. Could the Minister explain whether this is the reason? Has he had any explanation of the reasons? Is there a reflection of any concern with the content of the SI as a result? We obviously have to note the continued absence of the Northern Ireland Assembly and Executive. We want to explore with the Minister if that is seen as one of the reasons consent was not forthcoming.

This speaks to a broader concern, which we have expressed on many occasions, about the hoarding of power in Westminster. This is still seen as an issue. Perhaps the lack of progress on an agreement on a range of common frameworks with the devolved Administrations, and the failure to bring this forward, undermines the co-operative working with the DAs.

In terms of review, paragraph 14.1 of the Explanatory Memorandum mentions a review of the Act’s amendment powers, which “must take place” between the third and fifth anniversaries of the passing of the legislation. Could the Minister provide an update on this? Would it be reasonable to assume that there will be further review towards the end of the period stated? If this is the case, has work already begun to detail what further amendments might be required?

[The Earl of Minto (Con)]

I thank noble Lords for their valuable contributions to the debate on this instrument. I agree that it is a very technical SI, and I would like to answer some of the detailed questions properly in writing. I have a lot of the detail here, but I know that time is short, and we want to get on with it. A number of very valuable points have been made, and I will endeavour to answer them to the best of my ability.

The provisions of the UKIM Act naturally bring up historic opposition, but I hope that the legislation that we are looking to pass today will be considered on its own merits in relation to protecting the UK internal market. As a reminder, the instrument will enable the effective operation of services regulation in the UK by adding, amending and removing service sectors excluded from the market access principles in Part 2 of the UKIM Act to reflect current regulatory practice in the UK.

This instrument is a direct result of a public consultation and therefore a rare amendment to the exclusions list, following the intention to make the scope of the UKIM Act better support intra-UK trade. It continues to guarantee that services connected with the supply or production of gas and electricity can be regulated separately in the parts of the UK. This will ensure regulation, mainly in environmentally sensitive areas, can continue without the application of the UKIM Act’s market access principles maintaining how the service is provided or regulated in parts of the UK. It will also ensure the services excluded in Schedule 2 better reflect the UK’s circumstances post-EU exit by removing exclusions which are no longer necessary in this new context.

[Baroness Kramer (LD)]

Could I ask for clarification? If you are one of the relevant engineers, who is excluded, and you move, do you need to get another set of qualifications? I want to clarify that that is the way this has gone.

[The Earl of Minto (Con)]

I do not believe that that is the case, but I will confirm that.

On the issue of the devolved Administrations and consent, there was absolutely no intention to pass this SI without getting everybody’s consent. Our officials have worked continuously throughout this process with Ministers and officials to bring them along. It is extremely gratifying that the Welsh Government accepted everything. The situation in Scotland is slightly different. There was a fairly robust defence of why they did not want the UKIM Act in the first place. I think that has obviously had an impact. However, we have accepted some of the exclusions they wanted put in.