Joël Reland | Apr 2022
Shortly after his appointment as Brexit Opportunities Minister, Jacob Rees-Mogg wrote an article for The Sun newspaper, inviting readers to write in with suggestions for EU ‘regulatory barnacles’, encrusted onto the British ‘ship of state’, which the government should remove.
This presents a highly idealised vision of a sovereign UK, where the identification of Brexit opportunities is outsourced to the people, and the government neatly enacts their wishes. In reality, experience shows that identifying potential opportunities and weighing up the costs and benefits is a complex administrative task, with plans often creating unintended new problems for business. Any economic gains are likely to be small compared to the cost of leaving the customs union and single market.
Private citizens are thus unlikely to identify gleaming Brexit opportunities which civil servants have missed. Moreover, parsing thousands of missives from the public is only going to add to the already significant workload of Rees-Mogg’s Unit. In short, the whole process reveals a lack of strategic thinking within UK government about how to manage the process of regulatory divergence from the EU.
Up to now this has mainly resulted in complaints about a lack of Brexit opportunities materialising. Yet going forward it could have increasingly serious implications for the UK economy and Union. As the third edition of the UK in a Changing Europe’s regulatory divergence tracker shows, there are a growing number of cases of ‘passive divergence’ – where the EU makes new rules which the UK does not copy – which are having a snowballing impact on the functioning of the UK internal market.
This is primarily due to the interaction with the Northern Ireland Protocol. The EU has made a number of changes which in isolation seem innocuous enough, ranging from reducing permitted amounts of certain pollutants in waste, to banning the E171 food additive, amending its Energy Taxation Directive, and changing the ‘pharmacovigilance’ system for reporting adverse effects in veterinary medicines.
Yet, because in each case Northern Ireland must follow the new EU regulation, this leads to the rules between GB and NI diverging. The result is that Northern Irish businesses are repeatedly put at a competitive disadvantage.
For instance, Northern Irish companies must now comply with separate GB and EU ‘pharmacovigilance’ systems in parallel – doubling their workload compared to competitors. The new pollutant regulations require Northern Irish construction companies to introduce new waste collection processes with an estimated cost of £540,000 per year. New EU energy duties means Northern Irish businesses could face higher costs when using certain fuels, putting them at a competitive disadvantage compared to the rest of the UK. And GB suppliers of food products containing E171 may cut supplies to NI due to the EU ban.
Over time, these small changes are going to pile up, creating a growing distance between the economy of Northern Ireland the rest of the UK. Yet there is little sign that the UK is keeping track of such changes, or thinking about how to mitigate the impact on Northern Ireland.
The EU’s new pharmacovigilance system, for example, is something which the UK would presumably also want to follow. Indeed, the UK by its own admission played an active role in its earlier development and agrees with much of the content. Yet it has chosen to undertake its own formal consultation before potentially following suit, while Northern Irish business must grapple with two systems at once in the meantime.
Similarly, the UK played a major role in designing new EU vehicle safety regulations, and alignment would make life easier for UK car exporters who rely heavily on the EU market, as well as enable the development of driverless cars. Yet the Department for Transport says it is still considering whether the rules are appropriate for Great Britain.
The question is whether such delays are occurring by accident or design. Is the UK choosing to undertake its own independent consultations so as to give the impression that it is not blithely following EU rules now it is outside? Or is it the case that it is not as responsive as it should be, only getting wind of EU changes late on, and therefore lacking the capacity to implement parallel changes simultaneously?
Either way, the conclusion has to be that Whitehall is not taking the work of managing passive divergence all that seriously, despite its significant implications. Perhaps the UK government hopes to overcome this problem by overturning the Protocol, but even a triggering of Article 16 would only suspend a specific element of it and be subject to lengthy dispute resolution. Another solution might be re-writing the strictures of the Protocol around areas which are causing the greatest headaches (food and environmental regulations).
But these remain unlikely resolutions in the short term. Unless and until they occur, Whitehall is going to have to start systematically monitoring EU changes which are coming down the line, to understand the implications in advance and make clear-sighted decisions about when it is in the UK’s (and specifically Northern Ireland’s) best economic interests to follow suit.
And in cases where, for whatever reason, it does not want to follow EU rules, it will need to think more deeply about how to offset impacts on Northern Ireland. For example, major food suppliers might need to start developing NI-specific supply chains if there is an increasing divergence in food regulatory standards.
It is this work – rather than crowdsourcing ideas from The Sun readers – which is the natural function of a Brexit Opportunities Unit, which presumably wants to ensure the internal market remains intact outside the EU. It is not the glorious image of a sovereign UK many hoped for, but it is the unglamorous reality of regulatory divergence. Monitoring new EU legislation is going to be a job for life for someone in Whitehall.