MAKING A SUCCESS OF BREXIT
Our consultation shows that the prospect of departure from the EU has led to uncertainty about a huge range of regulatory issues. The UK's reputation as a place to do business relies on regulatory clarity and stability. There are steps that the government can take to offer more reassurances in the short-term by providing more information about how the UK and EU can continue to cooperate over future regulation. This is vital to securing a preferential trading relationship. The government should also focus on the many regulatory opportunities that can be seized now, which do not affect UK-EU trade.
EU regulation plays an essential role in the UK domestic framework. Government must make regulatory stability and certainty a priority. A stable and competitive system of regulation and tax is vital to the UK's ability to maintain its international reputation as a good place to do business. A significant amount of the UK's existing regulation currently stems from the EU or cross-European bodies. For vital areas of the economy – such as life sciences, agriculture, chemicals and plastics – EU regulation ensures high quality goods, services and employment environments. Industry-led standards at a UK, EU and international level help companies in sectors such as energy, manufacturing, transport, distribution and logistics to practically implement some areas of this regulation, and provide best practice across the economy.
Businesses across the economy are seeking greater understanding of how the government will approach EU regulations, EU directives and European standards going forwards. Businesses are seeking as much stability and clarity as possible. The Great Repeal Bill has the potential to provide some of the continuity companies are looking for. Businesses will welcome the Great Repeal Bill if it succeeds in its aim of comprehensively 'carrying over' legislation. This is widely believed to be the only sensible approach for the short-term.
However, it is not clear how the Great Repeal Bill process will result in a complete legal framework. For example, regulations governing sectors such as the creative industries and life sciences are currently enforced by European regulators, either directly or indirectly. Businesses are seeking clarity about how the roles of their regulators may change. Similarly, there are other advisory bodies who have uncertain futures – such as European
Work Councils domiciled in the UK.
There are also practical concerns about the Great Repeal Bill. UK policy makers have only limited time, resource and political capital available in the two year Article 50 period. Additionally, adherence to EU legislation and European standards is written into existing commercial contracts. Numerous sectors – including the chemicals, plastics and technology industries – are requesting assurances that these contracts will not face challenges as a result of regulatory changes.
In order to deliver the regulatory stability businesses need, interim arrangements may be necessary. For very complicated regulatory issues, it may take longer than the time provided by the two-year Article 50 period for details to be negotiated. As such, interim arrangements are important to minimise disruption. This has been raised as a priority by various sectors, including life sciences, aviation, financial services, technology and food and drink.
There are considerable areas of regulation where continued cooperation between the UK and EU is necessary to provide shared preferential access to markets. Business understands that this creates a challenge for government as it seeks to address voters' concerns over the UK's sovereignty.
In order to maintain preferential trading arrangements with the EU, the UK must seek a wide-ranging agreement that accepts the UK and EU regulatory systems are currently harmonised. The single set of rules that is fundamental to the EU single market makes the process of doing business across borders significantly easier. There are particular advantages to this harmonisation for small businesses. However, the Prime Minister has indicated her intention to adopt new "British rules" and to remove the UK from the purview of the European Court of Justice. The advantages of preferential trade with the EU could be put at risk if the UK deliberately causes divergence between its regulations and standards. It is therefore vitally important that regulatory harmonisation plays a substantial part in the UK-EU negotiations. It is critical that – in a range of areas – the EU agrees the UK's regulatory system meets its requirements and allows UK-EU trade to continue on a preferential basis. The reverse is also true to allow two-way trade.
The benefits of harmonised regulations have been raised by a range of businesses, including those which do not export. For many businesses across domestically-focused sectors, the principle of a multinational level-playing field is one that should be championed. When it regulates well, the EU is a leading enabler of that principle. Whether it's around rules for drivers in the transport, distribution and logistics sector or standards in
manufacturing, fair international competition is important to business. It will be a challenge for government to communicate this in the political environment. However, companies have direct exposure to the benefits of shared policy making and are willing to help.
There are financial costs to the implementation of EU legal requirements, but the advantages of access provided by harmonisation outweigh these costs. Notable examples of costly EU regulations can be found in the chemicals, plastics, food and drink and financial services sectors. However, the view emerging in every sector is that these costs are largely sunk for current regulation and seamless access to EU markets is a prize worth paying for.
Opportunities for deregulation after the UK leaves the EU should focus on areas that do not impact the ease of trade. Leaving the EU may present opportunities for more domestic flexibility in the EU's regulation. However, businesses are clear that this domestic flexibility must not come at the cost of a preferential trading relationship with the EU. Companies in a range of sectors – including construction, transport, food and drink – have highlighted this as critical. There may, therefore, be most opportunity for long-term flexibility around areas that do not put up extra barriers to trade. This includes areas of EU regulation that the UK has over-implemented, which could be streamlined without harming preferential trading with the EU. And industry has suggestions for areas where the government can use its existing powers to improve domestic regulation now. The government should consider these opportunities before leaving the EU in order to boost UK competitiveness.
As long as the UK remains a member of the EU, it is obliged to continue implementing EU legislation – and must therefore remain involved in these processes. Companies in a range of sectors – from creative industries to energy, financial services to logistics – have highlighted the need for continued UK involvement in ongoing legislation. This includes implementation of agreed regulations and directives. This is a challenge for government given resource constraints, and it will be important for industry to step up and influence those processes directly in the meantime. This engagement is also necessary if there is to be continued regulatory cooperation between the UK and EU after the UK's departure.
Business and government must work together to agree how to secure long-term regulatory cooperation between the EU and UK markets after the UK leaves. The EU is not a static organisation and its regulatory framework will continue to evolve after the UK leaves. This presents numerous challenges. It is not in the UK's interests to be a rule taker. In areas such as social and employment regulation in particular, it would not be acceptable for the UK to implement laws over which is has had no say. The business community is still debating how long-term regulatory cooperation between the UK and EU could work, including: what form mechanisms for equivalence arrangements should take for vital services sectors; whether adequacy agreements in the technology industry are sufficient to support data flows; and how harmonisation of standards and practices should continue in manufacturing, food and drink and energy.
When the UK government is considering its long-term approach to current EU regulations, directives and standards, it will be important to have wide consultation across the entire UK economy.
Many legal requirements introduced by the EU have cross-sectoral implications and as such will require whole-economy consultation. Areas such as employment law and VAT affect every sector. Energy and environmental regulations affect not just energy, utilities and environmental services firms, but many other sectors. This includes construction, housing, real estate, manufacturing, agriculture hospitality, leisure and tourism. Similarly, digital regulation is important for every sector that handles data or has an online presence. This is primarily highlighted by the creative industries and technology companies. However, the range of sectors it is relevant to is vast - from education to financial services, and retail to logistics.
Wide consultation over sector-specific regulation is also needed because these legal frameworks have consequences for sectors that supply and are supplied by the intended industries. There are numerous pieces of regulation stemming from the EU that are sector specific – such as detailed regulation of the chemicals and plastics industry or sub-sectors of creative industries. However, these sectors do not operation in isolation and changes without comprehensive consultation can lead to unintended effects. To take the example of one sector, the future of financial services regulation has been raised by firms in the automotive, housing, real estate and retail sectors. Some companies in these sectors directly offer financial services themselves, but the majority are strongly supported by them.
UK-wide consultation of business is necessary for multiple reasons. Firstly, the priorities of businesses can vary by region and nation. Secondly because there are areas of regulation where competence is devolved at a UK level but currently harmonised as a result of EU rules. Minimum pricing of alcohol is one example of this.