Leaving the EU: Chemicals Regulation

Kate Green Excerpts

Thursday 1st February 2018 Westminster Hall

[Mary Creagh (Wakefield) (Lab)]

I beg to move,

That this House has considered the Eleventh Report of the Environmental Audit Committee of Session 2016-17, The Future of Chemicals Regulation after the EU Referendum, HC 912, and the Government response, HC 313:

I am delighted to be here with you, Mr Evans, and with so many colleagues to debate this vital matter. I am grateful to the Liaison Committee for granting the debate and to colleagues for attending. I look forward to good speeches and good debate.

Nine months after the Environmental Audit Committee’s report, the chemicals industry in the UK remains deeply concerned about the Government’s decision to leave the European single market and customs union and the impact that doing so will have on their business. Today, I will set out why our chemicals industry is the foundation stone of UK manufacturing; how the chemical regulation REACH—the registration, evaluation, authorisation and restriction of chemicals—regulates the UK chemicals industry; and what the Government’s decision to leave the single market and customs union means in terms of jobs, trade, potential increases in animal testing, duplication of regulation and costs, the risk of tariffs and increased red tape.

Let us begin by looking at the chemicals industry. From the leaked Brexit economic analysis this week, we heard that chemicals is one of the five sectors that will be worst hit by leaving the European single market and customs union. Our Committee looked at that last year. The industry has a £32 billion annual turnover and provides half a million direct and indirect jobs across the country. Chemical clusters tend to be on coastal sites near to petrochemical sites because they are often connected by pipelines. Clusters are found in Hull, Teesside, Grangemouth and Runcorn—areas that have already been hit by industrial decline and capital flight, and where good, well-paid engineering jobs are not easy to come by.

The paints, adhesives, mixtures, polymers, plastics and dyes made by the industry are used in every aspect of our lives, including the car industry, aerospace industry, tech sector, energy sector and pharmaceutical sector—I could go on. They are the backbone of the nation’s manufacturing industry, and we rely on an integrated European Union supply chain. The UK no longer produces a number of important chemical feedstocks and is reliant on them coming in from the European Union.

The UK exports almost £15 billion-worth of chemicals to the EU each year. Chemicals is our second largest manufacturing industry and our second largest export to the EU after cars, but it is not getting the attention it deserves. It is not as glamorous; it is a Cinderella sector.

What is REACH? It is the EU’s regulation, agreed by this country about 10 years ago, which regulates chemicals and hazardous substances. It covers more than 30,000 substances bought and sold in the EU single market. It also covers products and articles such as the coating on a non-stick frying pan, flame retardants in sofas, carpets and curtains, and medicines.

Our chemicals inquiry came out of our inquiry into the future of environmental regulation after we leave the EU. People kept saying, “You need to look at the chemicals sector”, so we decided to do so. The inquiry found that, first and foremost, UK companies want to stay in REACH. They have made more than 5,000 registrations with REACH. Another deadline is looming—31 March—by which smaller tonnages of chemicals will have to be registered. By the end of March, UK companies will have spent an estimated £250 million on registering their products on the database. One concern raised in the inquiry was that smaller manufacturers, looking ahead at the potential of a hard Brexit, would baulk at spending £20,000, £30,000 or £40,000 on registering a chemical when that registration could fall exactly one year later, on exit day.

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

I congratulate the Select Committee and my hon. Friend on the report. I represent a constituency in which 7,000 manufacturing jobs are dependent on the chemicals sector and there are 1,250 jobs in chemicals companies. That exact point about the cost of registration has been raised by companies in my constituency. Some of them have spent hundreds of thousands of pounds on registering chemicals over the years, and they suggest that in the Brexit negotiations we should seek third-country status, so that our companies can continue to register within REACH. Does she agree that that would be one route forward?

[Mary Creagh]

I certainly do, and that was the route recommended in the report. The report was slightly curtailed—we had to rush it out in a form that was not as fine and detailed as we would have liked because of the early calling of the general election—but we were clear that that was the most pragmatic and cheapest route.

The looming deadline raises the threat of market freeze. If a small company decides not to register and just to run down its chemical feedstocks, when a big multinational manufacturer comes to apply that coating to whichever tiny aircraft engine part or car part requires it, the supplier—in some cases they are unique suppliers—might say, “We’ve run out of that stuff now.” We could see market freeze in the automotive and aerospace supply chains long before we leave the EU, because of that deadline and the lack of certainty about what will happen.

Leaving REACH puts at risk our trade in chemicals. The European Chemicals Agency has said that without an agreement to the contrary, all UK registrations will be invalid after exit day. Therefore, the jobs of my hon. Friend’s constituents and investment in their companies will all be put at risk. I will come on to talk about the threat from double regulation.

Secondly, the inquiry found that the chemicals regulation framework established by the EU through REACH would be difficult and—critically—expensive to transpose into UK law. It is not just a list of rules or restricted substances but a governance mechanism; it is an entire working body of parts. It involves data sharing and co-operation. For the UK to establish a duplicate system of chemicals regulation, as the Minister proposed when she gave evidence to us, will be expensive for us—the taxpayer—or the industry, or both.

Thirdly, after Brexit, REACH could become zombie legislation, which is no longer monitored, updated or enforced. When we debated the European Union (Withdrawal) Bill, I tabled new clause 61 to try to remedy that by ensuring that we remained part of REACH. However, it is part of the difficult third of EU environmental legislation that cannot be neatly cut and pasted into UK law through that Bill. The Minister in response said that the REACH regulation is directly applicable, but that is essentially meaningless without the chemicals agency to govern and regulate it. We will end up having zombie legislation, duplicating regulation and potentially diverging from the EU, which could also be a bad thing for British business.

--- Later in debate ---

[Kate Green]

Does my hon. Friend share the concerns of businesses in my constituency? Even if the Government are able to say that existing registrations would continue to be recognised in both European and UK law under some form of deal—the Minister suggested in a letter to me that that was the Government’s preferred position—that would not offer any certainty about future registrations and might lead to businesses relocating out of the UK altogether.

[Mary Creagh]

I do share my hon. Friend’s concerns. UK industry is not waiting for the Government to sort this out; it is already voting with its feet on this issue, delaying investment and winding down operations. None of that is being announced. I asked one senior executive why not, and he said, “In all my years in this industry, I’ve never done a press release announcing job losses and closures. This is not something we want to talk about.” That is understandable, but we have also seen courage—in the case of the chief executive of Airbus, for example, who has talked about how manufacturing and competitiveness will be hit. Our debate goes into the detail underpinning that: what do we mean when we say that, and what will it cost in jobs?

I turn now to what was a touchstone issue during the passage of the European Union (Withdrawal) Bill: the issue of animals and animal testing. We might be able to stay in the registration, but will we be able to stay in the knowledge-sharing scheme? If we do not participate in European Chemicals Agency scientific committees or the forum for exchange on enforcement, we may need more animal tests to be done in this country—something that none of us would welcome. At the moment, UK companies registering chemicals within REACH must share data from animal testing. Other registrants access that data, which minimises the need to carry out and duplicate animal testing, but only participants in REACH have access to that data, so we could see an unwelcome increase in animal testing.

The REACH framework is built on co-operation between signatories. It contains obligations, oversight and control mechanisms. It requires freedom of movement of products between all signing countries. If we do not co-operate in that way, how will we ensure that human health and our environment are protected from chemical hazards, and how will we stop our country from becoming a chemical dumping ground?

As an aside, the Committee travelled to the US to see how it regulates chemicals. We were pleased to hear that the US, after 50 or 60 years of fighting the chemicals industry on the issue, has set up its Toxic Substances Control Act, although there was a question mark over its implementation with the arrival of the new regime under President Trump. We also heard that the EU’s chemical standard was seen as the global gold standard and was being used by the states of California and New York; that things such as babies’ bottles were advertised and marketed as meeting EU chemicals standards as a badge of honour and safety; and that the US chemicals industry had asked for that regulation to keep up and compete with European chemical products and articles.

We also heard that the de-regulatory lobbying and the Americans’ approach in this area had led to the absurdity of asbestos—a known carcinogen hazardous to human health—never having been banned in the United States. I am sure that the citizens of this country, whatever their thoughts when casting their vote for leave or remain, were not asking for an increase in animal testing, a decrease in jobs and the supposed freedom to follow a weaker regulatory regime.

The Government have said that they want to set up their own chemicals agency, but they really have to clarify what system of registering, monitoring and authorising chemicals will be used in the UK post exit. The clock is ticking. What is the plan? How will decisions be made after exit day? Will we be like Switzerland, which does not have access to the REACH database, or Norway, which does, through its membership of the European economic area? How does the Minister propose to protect our £14 billion export trade with the EU?

The Government’s 25-year environment plan promises a new chemicals strategy that will set out the Government’s approach as the UK leaves the EU. I hope we will not wait two and a half years for that new chemicals strategy in the way we did for the environment plan. The Government say that the new strategy will “build on existing approaches”. When will we see it? When will it be published?

Words and phrases such as “build on existing approaches”, “looking” and “monitoring” are a prime example of the “muddling through” that former Department for Exiting the European Union Minister Lord Bridges talked about in the other place on Tuesday. Although we are not clear about what will happen during the two years of the Brexit transition phase—if it is for two years; it will perhaps be longer—Lord Bridges has warned that it

“will be a gang plank into thin air.”—[Official Report, House of Lords, 30 January 2018; Vol. 788, c. 1423.]

We must not force our chemicals industry to walk down it. Will the Minister clarify whether there will be a two-year transition period during which we will remain a member of REACH? Businesses need that clarity.

Let us look at the IT aspect of setting up our own agency. The European Chemicals Agency has a budget of more than £100 million a year and 500 staff to manage its database and monitor compliance. Will we still have our own agency? The Minister’s civil servant told our Committee that a new agency would cost tens of millions of pounds. Who will pay for that extravagant bauble? Will it be industry, which already has the double burden of re-registering the stuff they have already registered with REACH, and would then have to register again in a UK system—a triple whammy—or the taxpayer?

Several witnesses expressed concerns to the Committee about the Government’s poor track record in setting up IT projects. Setting up our own database will be expensive, and we have seen the beginnings of the taxpayer footing the bill for it. The DEFRA permanent secretary wrote to the Secretary of State for Environment, Food and Rural Affairs on 18 January requesting a ministerial direction to approve a spend of £5.8 million between February and July this year on the delivery of a new IT system for registering and regulating chemical substances placed on the UK market, as part of the preparations for a no-deal Brexit.

Will the Minister tell the House what that £5.8 million will pay for, the total estimated cost of the new agency, the total estimated cost of the new database and how much it will cost every year to run the system? How many staff will be needed and what happens to them if the Government negotiate to stay in REACH, as the Under-Secretary of State for Exiting the European Union, the hon. Member for Wycombe (Mr Baker), told Parliament could happen only this morning? How will we recruit the best people to a job that may not be there in a year’s time?

The UK’s chemicals sector will see its costs treble: it will re-register with REACH, thereby losing the money it spent first registering with REACH, and will also have to register with a new UK regime. However, the pain will not stop there. Leaving the customs union will compound that pain. As well as the regulatory barriers, the risks of tariffs and customs red tape on chemicals could cost companies dearly. A Chemicals Industry Association Brexit survey suggests that tariffs on imports could be in excess of £350 million, while re-exporting could cost £250 million.

Ministers often fail to understand that intra-company trade is a significant percentage of those imports and exports. We import things from the EU to make the wings of an Airbus aeroplane in Alyn and Deeside and then export them to Toulouse, where they are fixed on to an aircraft. Those are intra-company imports and exports, and customs and tariffs and paying more money to import and export such things will make British industry non-competitive.

When I first asked the Secretary of State for Environment, Food and Rural Affairs how he planned to regulate chemicals after the UK leaves the EU back in July, he said, “Better”, and sat down. However, 20 months after the referendum, things are much worse. I hope I have explained why “better” is simply not possible. Remaining close to REACH is not only unavoidable—it is desirable, pragmatic and sensible. Staying in REACH is the right thing for jobs, British growth and British investment, and the majority of our inquiry’s witnesses supported continued membership of REACH. The Green Alliance said:

“The REACH regime is the most advanced in the world, protecting citizens and the environment from tens of thousands of chemicals.”

Our Committee recommends that the UK remains in REACH. It is the passport to a global marketplace. UK companies do not care whether that passport is blue or brown, so long as it does not kill jobs and investment. Leaving REACH could mean lower environmental or safety standards than in the EU, exposing UK workers, consumers and the environment to greater risks. Leaving REACH places huge additional financial burdens on the chemicals industry and the UK taxpayer to comply with two different sets of regulations. Leaving the customs union creates the added danger of tariffs.

I look forward to the Minister’s response to colleagues’ speeches and to hearing how she will provide the certainty that our businesses and our constituents rightly crave.