Constitution, Europe, External Affairs and Culture Committee

Meeting date: Thursday, January 13, 2022

Official Report 594KB pdf

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United Kingdom Internal Market

Our next item is the committee’s inquiry into the United Kingdom internal market. This is the committee’s fourth panel on this topic. The committee will hear from Jonathan Scott, non-executive director and chair, Competition and Markets Authority; Rachel Merelie, senior director, office for the internal market; and Sheila Scobie, director, office for the internal market. I welcome you all to the meeting this morning and thank you very much for providing your written submissions. We will move straight to questions and I remind my colleagues to put an R in the chat if they wish to ask a question.

I will open with a question to Mr Scott. Can you please elaborate on the OIM’s role in providing reports or advice on specific regulatory provisions on the request of a relevant national authority? I am particularly interested in the transparency of this work. Will requests of a national authority or any advice given be made public, or will the parliamentary committees or parliamentary legislators be informed of such advice?

I will ask Rachel Merelie to deal with the detail of this question, but I would like to get over the importance of what we are trying to achieve at the OIM, which is that we will give advice that is independent, impartial and evidence based. That takes us back to what the Competition and Markets Authority’s everyday activity is around. It is around understanding markets and how they operate and making that accessible. I think that making it accessible is probably the handover from me to Rachel Merelie.

10:15  

The office for the internal market has two broad functions. One is a broad monitoring and reporting function, but the narrower one, which I think you are asking specifically about, is to provide advice or reports on specific regulatory provisions, either before or after they are made. The national authorities can come to us with a request for those reports or advice and can also ask us for advice on regulatory provision that another national authority has made if they feel that that might be detrimental to the internal market.

I want to ask about engagement and, in particular, about how you engage with different groups. With the EU there is very deep engagement at policy and implementation level, which stakeholders have been used to up until now. In terms of your role, how are you engaging in particular with businesses but also with other stakeholders, such as those representing consumers and perhaps even regulators? What does the programme of work look like? How are you ensuring that your work is transparent and that you are able to take on the views of, and communicate effectively with, those groups of stakeholders? Some detail on that would be most useful.

I think that it is right to put this in context, particularly as we are before a committee of the Scottish Parliament. We have had an office in Scotland for a number of years. We have approximately 60 people and those numbers will continue to rise. We have had a programme of engagement with the Parliament, with the committees and much more widely. For example, we had a consultation on our annual plan at the beginning of this week with stakeholders from industry and consumer bodies. I will ask Sheila Scobie to give a little more detail, because she has led our office in Edinburgh since inception but has now moved over to a director role in the OIM. Reflecting the point that Mr Ruskell made, I think that it is critical that we engage widely to do this role well. I will ask Sheila Scobie to flesh out a little bit what I have said.

I am very glad that you have asked that question, because it is key to what we are working on at the moment. The strong message that we got in response to our consultation on our guidance last summer was that a very important purpose for our first year should be engaging with important stakeholders and building awareness but, most importantly, building trust in the OIM as an institution that can advise on and help with what are quite complex and sensitive issues. We are very much building on our existing relationships.

As Jonathan Scott said, I have been the director in the CMA responsible for outreach in Scotland, Wales and Northern Ireland for quite a number of years. We have a very strong network of contacts across the business community and with consumer bodies such as Citizens Advice Scotland and Which? in Scotland and we are increasingly developing a good relationship with the emergent Consumer Scotland. As part of our work to develop the OIM, but also since launch, we have been reaching out to business organisations such as the Confederation of British Industry, the Federation of Small Businesses and, increasingly now, some of the sector organisations, particularly in sectors that we think are likely to be most in scope, such as the food and drink sector and the environmental sector.

What does that look like practically? Can you give us a worked example of engagement on a particular issue? That might be useful.

Certainly. We ran a number of business round tables on the guidance that we produced in the summer. We issued that for consultation in draft form very early in the development of our design for the OIM. We are very keen to understand where businesses might be coming from and what would be helpful to them. One of the things that had already been identified that we needed to do was to provide an easily accessible platform for businesses and business organisations to come to the OIM with issues that they were experiencing. We now have that online web platform. We are working with the business organisations to expand awareness of it and to direct people.

As Jonathan Scott said, we have sent messages and emails out to people who have attended our various engagement events to encourage them to come forward with issues, but it is also just about being wise, tapping into news and information and things that the Parliament is doing and the sessions that you have been doing. We have been following those very carefully to try to understand and test how much familiarity there is with our work, but also to identify the best way of engaging.

Looking forward, we want to plug into those sectors that are most relevant. As we develop our understanding of what the evidence is telling us—we are running a business survey, for example, to inform our first report—I think that that will help us identify what the need is and what the best sorts of engagement will be. Clearly, if there are ways in which we can tap into existing fora or any ways in which parliamentarians can put us in touch with relevant sectors and business leads, we would be very keen on that.

I was watching the little video that introduces the role, which is useful particularly for consumers and others. You talk in that video about the health of the internal market. What do you define that as? What are the top health indicators?

That is a very good question. It is something that we have been working on very closely with the analytical experts in the Government, but we have also been working with the Fraser of Allander Institute, other academics and the Office for National Statistics to help us understand what the right measures would be for defining what the health of the internal market would be. In effect, we are looking to ensure that trade is effective across different parts of the UK and to identify any subsequent issues that barriers to trade might create for competition, innovation and perhaps investment, leading into what effects there might be for consumers in terms of prices and choice. Those are the sorts of things that we are very familiar with tracking as an organisation. We probably do it at quite a macro level at the moment, but we have experience of dipping into sectors and getting a sense of what is going on.

We have the expertise. I would say that we are still working on defining exactly what that evidence base will be, and we are looking for support from others who are expert in what is quite a new and novel policy area, because we have not had much history of tracking the effectiveness of trade between different parts of the UK. We do that quite effectively in the international context, but we are very keen to build up our expertise and become a centre of excellence.

Finally, where do you see regulation in terms of driving the innovation that can create a healthy market? Clearly, as regulatory innovation comes in, business and industry have to think about how they adapt to that and that can create a lot of economic growth and innovation. Essentially it is about creating a level playing field, but it is also about how you ensure that there is a space there for innovative regulation to drive that innovative market.

Definitely with our CMA hats on, we very much recognise that, and that resonates with a lot of the other work that the CMA does in looking into markets. If you look at some of the work that we have done on things such as heat networks, you will see that we have been very proactive at encouraging Governments to think about how they can design those markets effectively.

From an OIM perspective, it is not really for us to make decisions about what the most effective means is of designing policy and regulation. We can certainly assist with helping Governments understand what the potential effects would be and we can maybe make suggestions as to how they can best design policies that deliver those wider public benefits, bearing in mind those economic effects that I have mentioned we are particularly expert in, but we are not there to provide the expertise on those wider public benefits. That is very much for Government to put into the mix.

I was very interested in the paper that was submitted in advance of today’s meeting, particularly where the request was made for our views as a committee. For me, the issue is how you assist parliamentary scrutiny and support us in that, because there are big issues for stakeholders and businesses with the transparency impact on markets, as has been mentioned. Where there is a strong desire to raise standards and support innovation on issues such as animal welfare and food quality in response to consumer demands, or maybe to set higher standards in order to meet climate change targets, particularly in the light of COP26 and the UK’s leadership on that, what kind of advice would you give and what transparency would you be able to support to enable us to do our work in terms of looking at regulations and Government policies on those sorts of issues? I am not sure who that is best directed to, so maybe the witnesses could volunteer.

If we go to Jonathan Scott, I am sure that he will nominate someone.

I will let Rachel Merelie take that one, if I may.

I am happy to pick that up. As Sheila Scobie was explaining, the expertise that we bring is to look at the economic impacts of any regulatory provisions. We are trying to gather data and assess the technical and economic impacts of any proposed provisions, whether they are in climate change or animal welfare or any other space, at the request of national authorities. It is important to say that those wider policy decisions are very much decisions for the Parliaments and the Governments and we are very happy, as Sheila said, to assist on the technical front, but we would not presume to do the kind of balancing act of the wider political and policy considerations and those more technical assessments.

You asked about transparency, and I probably should have picked this up more in my first response. We are wholly committed to being transparent. It is very important to us. I think that the CMA as a whole has a commitment to transparency. We publish a lot of reports and details of the work that we carry out, and that same commitment to transparency is something that we carry across into the OIM. I think that the convener may have been asking previously about the transparency that we might be able to give on early pieces of advice. This is where we are working very closely with the Governments on what they want, because the only area where we are not required to be transparent is for what are termed our section 34 pieces of advice, which are about regulatory provisions before they are passed or made.

10:30  

Our ambition is to be transparent as possible, but there may be occasions where we are asked to comment on something that is not yet in the public domain. There we need to be quite careful. I think that Governments would want to have some protection and we would discuss with them what was appropriate case by case. I hope that that starts to answer your question, Ms Boyack.

On one level it does. I will follow it up. I was thinking about the publication of advice to different Governments. One of the things that has been apparent in devolution is that the Governments are watching each other. There is what you could call different best practice or different standards. To what extent is there scope for cross-UK sharing of knowledge and information about markets? Are you up for doing that and publishing your advice to different Governments?

Yes, very much so. Our default setting, if you like, is to publish our advice. As I say, we need to work closely with Governments to make sure that we are not putting something in the public domain too early, but in general we are very much committed to sharing and are working closely with all four Governments to try to establish our ways of working. It is important to say that these are very early days for us, and we have not yet had a request for advice. Although we have been talking about these things theoretically, it will be when we have to start dealing with requests that some of these issues will really come to light and we will be able to push on the transparency side, as you suggest.

From our experience and the discussions that we have had on internal markets and frameworks, it seems that there is a huge appetite from the business community and stakeholders to have advance sight of things—if people are to adapt to change, they are after as much information and as much of a heads-up as possible. That commitment to transparency, even in Government advice, is something that we would be very keen to see.

Excellent. Thank you.

I will ask a supplementary on that, which follows on from my introductory question. If advice was given to the UK Government or the Welsh Assembly, for instance, would the other Governments be made aware of that if it is not in the public domain? Would all Governments be informed of advice that had been given, and when and where it was given?

Thank you, convener, for following up. These are issues that we are working through as we talk. As I say, our default is very much to share with all four Governments. That is what we aim to do, but there may be specific cases where that is difficult to achieve, so we will have to look at that case by case.

I would like to return to the questions that Mr Ruskell asked about engagement. I note that you have done an initial stakeholder survey. What key learnings came from that? I noticed that there was mention of being even-handed. Could you expand a bit on that statement, please? That is for Mr Scott.

Forgive me—I was not sure that you wished to come to me. I will let Sheila Scobie deal with the detail, but I will say a word or two on even-handedness. The point is so fundamental.

I will go back a stage. The CMA is an independent, non-governmental—sorry; I always get my terminology wrong. The CMA is an independent, non-ministerial Government department. We are independent. That is absolutely at the heart of all the work that we do, whether on mergers, markets or consumers. For me as chair, questions of even-handedness and independence in the OIM carry a very real risk of contagion across to what we do in all our work. Even-handedness and independence have to be absolutely front and centre of what we do, what we are seen to do and what we are perceived to do. That is why we recommended to Government that we went with our proposed structure, which involves the OIM being housed within the CMA, but also the panel system. We will come back to that, but that is a further guarantee, I hope, of independence and even-handedness.

On the survey results, I will let Sheila Scobie take that.

Certainly. The business survey that we ran through the autumn is not yet complete. We are still waiting for the final results and will want to have a look at those, do a bit of analysis and present them in the most effective way. We are intending to do that as part of our report in the spring, which will be published and made available. That is where that is.

On even-handedness, I will go a little bit further into the detail. There is a requirement in the legislation for us to act in an even-handed way. As Jonathan Scott said, we take that very seriously, almost going beyond what we might normally do within the CMA. Some of the work that we do is discretionary, so we have a choice to make as to which projects we take up. It may be that we will embed that notion of even-handedness in deciding which projects and reports we should fulfil.

On the analysis and the use of evidence, it is sometimes difficult to get comparative data across the different nations of the UK, as you will probably be aware. We are intent on improving the evidence space, on the basis that that will mean that we can make evidence-based decisions and reach conclusions that do not reflect what some people have described as asymmetry between different parts of the UK. We will be very focused on trying to get that right.

We will also be even-handed in the way that we communicate and engage with each of the four Administrations, making sure that we share information on an equal basis, that we deal with things on an equitable basis, and that, as we said earlier, in our ways of working, we work collectively and do not have a conversation with one Government that we do not have with all four.

We have learnt quite a bit from the way the common frameworks programme has been developed on the basis of trying to work on the same collaborative basis with all four Administrations.

I was struck when you said—and I do not mean to misquote you—something along the lines of there not being much evidence gathered with regard to the levels of trade between the UK countries as things stand now. What is the baseline that we will compare to? Does that make sense?

We have reasonably good trade statistics for Scotland, Wales and Northern Ireland, as you might expect. What we have less of are the trade statistics for England as a unit in itself. We are working very closely with the Office for National Statistics on that because it has been identified as something that all Governments would definitely find useful, post-Brexit. I understand that there is a programme of activity to improve that information. We are certainly involved in that discussion, as are analysts from all the other Administrations. It is quite important that we can get that information at a macro level, but also down to the sectoral level.

When we did our consultation back in the summer, people flagged that as a challenge for us as a new institution. That is why we have prioritised the business survey and are working so closely with other analytical bodies. It is a first step. Over time we expect to use the data to help us track what is happening and identify whether particular effects are being seen, to allow us to dig into those a bit more to see what particular policy interventions may be used.

This question may be a bit specific. At our previous meeting, we took evidence about the possible impact of the Subsidy Control Bill on agricultural policy in Scotland. Do such things fall into your remit? How will you work with legislation that may be brought in that impacts the internal market?

If Jonathan Scott is happy, I will cover that question. It is a very relevant question to ask while the Subsidy Control Bill is going through the Westminster Parliament.

We are very mindful that the CMA has a role in giving subsidy advice. That will be done by a separate unit within the CMA, which we are starting to design and shape. It is probably too early for us to give any detail on how the two bits of legislation interact. They are two separate pieces of legislation coming from different places, as it were, but we see the potential synergies, and I guess that there are potential risks and opportunities.

The internal market act set out no specific role for the OIM to look at subsidies. We are not expecting to do that as part of our normal business.

I have a final question. I am interested to find out what matrices you will use to check whether the UK internal market is working well, efficiently or effectively. Clearly, there are economic and business matrices, but there are also matrices for wellbeing and health. Again, there are concerns about a devolved Government wishing to bring in a specific policy because of a specific issue in its area of competence. Minimum unit pricing for alcohol is an example.

As Rachel Merelie has said, we are very much focused on the economic analysis. Our findings will be based on our understanding of the effects on how trade is working, and the subsequent potential effects on competition, access to markets and consumer choice. That will be our focus, but we acknowledge that there are wider issues in relation to health and environmental objectives. Those are for Governments to consider in the round, alongside any advice that we give.

On health and the internal market, we will be focusing on the economic technical issues and not attempting to go beyond the remit that has been envisaged for us and our expertise. We are mindful of the need to make sure that that is very clear when we do our reports, so that people do not reach the conclusion that there is a problem in the holistic understanding of how the four nations are working together. Our focus is really on the economic issues and not the broader wellbeing issues, as you have described them.

I will start with Sheila Scobie and then move to the rest of the panel to see whether there are other views. The stated position of the Scottish Government with regard to the UK Withdrawal from the European Union (Continuity) (Scotland) Bill is to align with new EU laws as they are introduced. If exercised, that could lead to divergence in regulations and create distortions in the UK internal market. Are you concerned about the potential impact of the continuity bill?

10:45  

It is very important to be clear that we are quite a technocratic organisation and our role is primarily to advise Governments on the effects of particular regulatory divergence on the internal market. We do not have a role in judging what is appropriate for Governments to do in terms of regulatory divergence. We note that—and we think that this remains the policy of all four Governments—there is an intention to reach agreement through the common frameworks programme that would allow harmonisation or divergence, depending on what Governments have agreed. That appears to be the appropriate mechanism that Governments have put in place. Our role is to support Governments, if necessary, with that common frameworks discussion or with any matter that does not fall within the programme. However, we are not there to reach judgments or decisions.

Jonathan Scott, do you have any comments?

I have one comment. One of the things that we can do—we do it already—is shine a light to make sure that facts are collected together, analysed and assessed, which goes back to the transparency point. The divergence issue is clearly one that the four nations will have to grapple with. We can only describe what is happening on the ground and what the effect, or the likely effect, is. However, those are political decisions. I would not want you to be in any doubt that we are very conscious of the sensitivity of the role that we have been given; we are also very conscious that we must not step beyond our remit.

Mr Scott, I will ask a supplementary on that. You said that it is something that the four nations would need to come to an agreement on. The Northern Ireland protocol means that Northern Ireland will stay in step with European regulations and European law. It is a stated wish of the Scottish and the Welsh Governments to implement European law going forward—we call it the keeping pace power in Scotland. Can the UK Government override the wishes of the three other Governments in an area where there is a problem in reaching agreement? What happens when there is stalemate and maybe there are three to one against in implementing European law or a European regulation?

I will let Rachel Merelie answer on the technicality of that, but you have clearly identified an issue that we are going to have to grapple with. Our role is to report, which potentially takes us into the common frameworks area, where I think that there has now been real progress. However, there will clearly be other areas.

Rachel, perhaps you would like to elaborate a little.

We cover the issue in our written submission. I think that it is clear that the Northern Ireland protocol and the regulatory provisions to implement it are outside our remit as the office for the internal market. You are absolutely right that there could be divergence, where Northern Ireland implements provisions that allow it to stay in line with the EU, and the rest of Great Britain chooses, or individual nations in GB choose, to diverge from that. We are likely to be able to look at that if we are requested to do so, but obviously only in the goods area, because the Northern Ireland protocol only applies to goods.

We recognise the challenges associated with the Northern Ireland protocol. As I say, we are not able to look at it directly, but it is a very important factual context that we will take into consideration. To the extent that there is divergence as a result of Northern Ireland choosing to stay, or having to stay, aligned, we may be able to look at that in terms of the impact on the UK internal market.

This question is directed to Rachel Merelie. I appreciate that you are not a political body and are not making political decisions, so please do not think that I am in any way holding you accountable for this, but how are you, as a body, going to navigate the reality that you are implementing an act that does not enjoy overall political support in Scotland?

[Inaudible.]—question. As, I think, my colleagues have already said, we are very conscious of the political sensitivities and the environment in which we are operating. We have had very constructive conversations at official level across the four nations, and we are working to complete the task and implement the functions that we have been given by the UK Government.

One of the ways in which we progress is by being as factual and evidence based as we can be. We have information-gathering powers that support us if we need them, but we have, so far, found all four nations to be comfortable in sharing information with us. That has particularly been on the analytical side, as we were talking about before. It is our first state of the internal market report that we are putting together at the moment.

We just need to continue doing the job that we have been given to do in a relatively technical and straightforward manner. Nevertheless, as you say, the political context is important and we are certainly not blind to it.

My next question is for Sheila Scobie. Jenni Minto asked about various examples of the kind of things that might come before you for a decision or for you to produce advice and factual information on. You mentioned the concept of a barrier to trade. As Jenni Minto pointed out, that is a contentious concept in a number of areas, not least around the control of alcohol pricing. Quite accurately, you mentioned that all you can do is provide factual advice—it is then up to ministers to make a political decision. Have you any picture of what context or what process UK ministers would use to reach such a decision? Do you have a clear picture of how that process would work at their end?

That is a really good question, and it is one that we have been asking Government officials, because it is an important part of the jigsaw.

There is a legislative requirement for Governments to produce regulatory impact assessments, which are an obvious tool or mechanism. In Scotland, there is the BRIA. We are increasingly seeing those being used very effectively to set out what the economic effects could be on things like competition and on consumers, which I think has been a really positive development in Scotland in the past few years.

You can imagine that, if a Government has approached us and sought advice from us on a particular aspect of a regulation or a policy that it fears might have some effect on the internal market, it could then reflect that in the BRIA and present it to Parliament for your scrutiny. That is one option. The other thing is that the UKIM act allows an opportunity for an authority—a Government—to seek to fulfil the role of the OIM by using an alternative body. There is an option for Governments to take advice from many different places. It may be that there is a particular regulator already within a sector that has a good amount of information on cross-border effects or on effects on trade or on competition, and it might be appropriate for that regulator to deliver advice or for us to work collectively. We have not explored that in depth, but we are very open to suggestions as to how to make it work effectively, because the key aim of the OIM’s role is clearly to support Governments rather than to get in the way of any work that they are trying to do.

I just want to acknowledge Dr Allan’s question, because that is something we are acutely aware of. For an unelected body, it is something that carries risk, not just in our carrying out the function but more generally. That is why I am delighted that we are here today, having this dialogue. I think that that is also reflected in the fact that we have sought to allocate some of our most senior resource within the organisation to it. I hope that the fact that I am here today, as the chairman, is an acknowledgment of that sensitivity.

We are going to have to play it as it develops, but you can rest assured that the issue that you have raised—and, more generally, the risk to us as an organisation that sits between the four nations—is something that the board is very alive and alert to. I hope that you will take some comfort, not just from the resource that we have allocated, that this activity is not going to just sit all on its own but will have the full support of the organisation as it needs it. So, Rachel Merelie, who is leading the team, can draw in from the wider skills of the organisation.

Thank you. I am very grateful for that answer.

I have a final, brief question for Ms Merelie. I think that it was you who mentioned the on-going factual context of the particular situation in Northern Ireland. I appreciate that it is not the same situation as Scotland’s, but, if there is an on-going policy intention in Scotland, which appears to be becoming consistent, of keeping pace with European requirements, is there also a factual context that is building up around Scotland that has to be borne in mind?

Yes. I suppose that it is more likely that there would be examples of regulatory divergence in Scotland if England and Wales did not choose to follow that path. That is something we will take as it arrives. You are absolutely right in saying that it is important for us to be aware of that.

I have a brief follow-up question for the OIM. I am thinking about the common frameworks that have been established—there is one, for example, around waste and the circular economy. Some regulations are in place already—regulations that, in effect, made the cut and are emerging, such as deposit return schemes—and new regulations are coming forward that will come more fully into the remit of post-Brexit consideration of EU alignment or otherwise. How do you work with those? Is there, in effect, a firewall? You would not consider the deposit return scheme, for example, because that existed previously, although regulations can be updated over time. However, the common frameworks span all three areas and I am interested in where you draw the line, because some of them have contexts that affect each other.

I am sorry, but I am not sure who was being asked to comment on that. I am very happy to kick off, but I might hand over to Sheila Scobie for any further detail.

I am sorry—it was not a brief question at all.

It is a good question. We have been working very closely with colleagues on the common frameworks side. We understand the importance of common frameworks and we want to make sure that our role adds to the role of the common frameworks rather than cuts across it in any sense.

I think that your specific question around the timing is an important one. We look at regulatory provisions only post-transition, so things that already existed pre-transition would not be relevant regulatory provisions for us to consider. As they get amended or changed through any kind of process, either legislative or otherwise, they might then come into our scope and our remit.

Sheila, do you want to add anything on the specifics of those examples?

I do not think so. You have pretty much covered what I would have said.

11:00  

Specifically on the deposit return scheme, if that scheme was amended, would it come within the scope of your remit?

Yes, to the extent that that was done through a new regulatory provision or a legislative amendment, it would come into that scope. In general, we have to look very carefully at the scope, because there are various exclusions and all sorts of things that need to be assessed on an individual basis. However, broadly speaking, if it is a new regulatory provision, that is something we would certainly consider.

I was going to ask questions about the protocol and the common frameworks, but most of those questions have been answered. I note, just as a final observation, that there is a clear tension between the internal market act and common frameworks. Do any of the witnesses have any observations to make on how they might manage that tension? That is a rather broad and general question to finish on, for whoever wants to answer it.

We are very aware of the common frameworks process. Indeed, when we took on our functions, the nations were keen to come and tell us about the common frameworks. We understand that they are a collaborative way of reaching agreement on potential regulatory divergence or potential regulatory alignment.

It is important to say that it is early days even for the common frameworks process, let alone for the office for the internal market. We are keen to assist, where we can, with any issues associated with common frameworks and potential exclusions from the UKIM act, for which I know a process has now been articulated by the UK Government and agreed by the four nations. Where we can provide any assistance, we are happy to do so. It is something that we are working on actively at the moment with our colleagues across the four nations. As I say, it is still quite early in the process to articulate exactly how we can best help.

I think that that is the last of the questions from the committee. I suspect that this has been an introductory session with you. The subject area is going to be of interest to the committee as the situation develops and as you start to finalise some of the areas that are in development at the moment. I thank Mr Scott, Ms Merelie and Ms Scobie for their attendance at the committee this morning.

Meeting closed at 11:04.