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

Volume 833: debated on Wednesday 18 October 2023

Motion to Approve

Moved by

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

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

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.

My officials have worked collaboratively and transparently with their devolved government counterparts on this policy over the last two years. I thank them—that is, the devolved Governments—for their engagement and for sharing the public consultation with their stakeholders. We received responses to the consultation from stakeholders operating in Scotland, Wales and Northern Ireland. We have continuously engaged with Ministers and officials in the devolved Governments on the proposals. As a result, we adapted the policy, based on their feedback, in cases where the evidence supported those changes, and the integrity of the UK internal market was not undermined. We sought the consent of devolved Ministers to this instrument, as required under the Act. We have not received consent from the Scottish Government or Northern Ireland, but I am happy to report that the Welsh Government provided formal legislative consent to the regulations.

Under Section 18(10) of the UKIM Act, the Secretary of State may make the instrument without consent from all the devolved Governments as long as an explanatory Statement is published stating why they are proceeding without such consent. The Secretary of State duly published a Written Statement on the Parliament website on the same day that the instrument was laid, 20 July, explaining why the changes were being made without consent from the Scottish Government and the Department for the Economy in Northern Ireland.

I assure noble Lords that, following an extensive public consultation and engagement process, the instrument will ensure that the services exclusions in Schedule 2 to the UKIM Act are both appropriate and effective. The changes reflect how those services are currently provided and regulated in the UK. I commend the draft regulations to the House.

My Lords, I was not involved with the legislation for the United Kingdom Internal Market Act 2020 and I have to admit that, even after reading the Explanatory Notes, much of this SI seemed to me more like a Rubik’s cube, so I was appreciative of the clarifications from the Minister.

To a non-expert like me, the SI appeared at first glance to be essentially technical tidying, but I can also see that it tangles with the underlying tensions between the UK Internal Market Act and the common frameworks—that is to say, the intergovernmental agreements that set out how the Governments of the UK nations will work together to manage regulatory divergence in policy areas that were formerly governed at EU level. That leads me to be a little concerned, at least, that the instrument before us received the formal consent only of the Welsh Government. I have no idea whether that is because of objections by Scotland and Northern Ireland, simple oversight or, perhaps, in the case of Northern Ireland, because its Assembly is unable to sit. Perhaps the Minister might expand on that and explain to us why that formal consent was not given, because on the surface it is certainly a little troubling. I remember warning some colleagues involved in the internal market Act when it was passed that it created the likelihood of confusion and tension between Westminster and the devolved authorities, so I am wondering whether this is an instance of that.

I am also trying to understand what the SI will do on a day-to-day basis for the workforces that it names and what the impact will be on their potential customers. I can understand the removing of the exclusions for financial services providers; I assume that it has a positive impact on competition. But I wonder if there was any consideration that it might have a detrimental impact on the provision of local services. We have always had a great problem in financial services stopping everything being either sucked into London or the major centres and in making sure there is local activity across the whole United Kingdom.

I am struggling to understand the consequences of amending social services exclusions. It is very hard to understand why the qualifications for someone who works in social services should differ and whether this reflects some deeper issues within social service provision.

But I am most mystified by the exclusions that have been introduced for what I will group together as qualified utility engineers. They are now excluded from mutual recognition and the non-discrimination principle. We are in a period where we know we have to focus on net zero. That creates dramatic change in the way energy is provided. There are issues of introducing insulation as rapidly as possible across the country and issues with utilities—for example, shortages of reservoirs and transport. All these individuals will apparently be excluded from mutual recognition and non-discrimination. Could the Minister explain what the day-to-day impact is of that exclusion decision?

I thank the Minister and once again apologise for my lack of familiarity with the underlying legislation. It would certainly help in some of these areas to have some further clarification.

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?

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.

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.

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.

On the Northern Ireland side there are obviously some difficulties and I will write to both parties with exactly what those issues are if I can.

We listened to the Scottish Government’s request for an exclusion on the heat networks and carefully considered the evidence they provided for an exclusion of heat network services. Based on this engagement, the Scottish Government are taking account of the views of relevant policy officials in the UK Government. We added an exclusion for heat network services through the mutual recognition principle of our instrument. The Scottish Government still felt unable to consent to the instrument due to their broader opposition to the Act.

There was another point about changing the Act. For example, we are adding exclusions from the mutual recognition principle for certain energy and utility sectors where regulators suggested exclusions were needed to maintain continuity with pre-UKIM Act legislation to prevent any changes to how the services currently provided are regulated in the UK. I hope that has answered that particular question.

I will write in detail on the other issues, because they all require quite detailed responses. The Government are committed to ensuring the status quo of seamless international trade as maintained for the shared prosperity and welfare of people across all four nations of the UK. It is very important to remember that. However, I should emphasise that this is only for a small number of sectors, where the sector already operates UK-wide or is reserved to the UK Government.

The question was raised of whether this is a power grab for Westminster from the devolved Governments. The answer is no: the UK Government are committed to the principle of devolution, and the devolved Governments now exercise more powers than they did before the EU exit. The changes made by this instrument mainly ensure that this status quo is maintained.

To conclude, I trust that noble Lords recognise the need for this instrument. I assure the House that the Government are more committed than ever to facilitating a workable system of domestic services trade that achieves our strategic business and trade objectives. We believe that this instrument will foster exactly that outcome, making the internal market arrangements for the UK services sector simpler and more workable in the post-EU context. Once again, I thank noble Lords for their contributions—in particular for the image of the Rubik’s Cube that is going around in my head—and I commend these regulations to the House.

Motion agreed.