Joël Reland / Dec 2024
Photo: Shutterstock
At UK in a Changing Europe, we have been tracking regulatory divergence between the UK and EU for over three years. In that time, the UK has gone on an eventful journey from seeking to radically diverge from EU rules, to preferring regulatory alignment.
The journey can be split into three distinct acts (Johnson; Sunak; Stamer) and, as Act III gets underway, the big question is just how far Labour will go in taking the UK back towards the EU’s regulatory orbit.
To understand how we got here, we must first turn to Act I: Boris Johnson. Prime Minister Johnson agreed a trade deal with the EU which gave the UK – outside the single market and customs union – significant freedom to diverge from EU rules and regulations. Johnson promised to use this freedom to slash red tape for business, but delivered very little in practice. The chief obstacles were that divergence makes trade with the EU (still by far the UK’s largest trading partner) more complicated and increases the regulatory gap between Great Britain and Northern Ireland (which still follows many EU rules under the Windsor Framework).
Act II was Rishi Sunak: who upon coming to power appeared to recognise these challenges, opting to pause or delay several pieces of divergence – like new regimes for chemicals registrations and product certification – which were causing the most consternation for British businesses. His government also abandoned the Johnson-era plan to repeal all EU-era law on the UK statute book – his Business Secretary Kemi Badenoch quipping “I am certainly not an arsonist” – and promised earlier this year not to diverge in ways which would increase the regulatory gap to Northern Ireland.
Taken together, these policies meant that the UK more or less stopped seeking to diverge from EU rules. Our most recent divergence tracker – the first since Labour took office – shows that this trend is continuing under Starmer.
Yet there is one key distinction between Labour and its Conservative predecessors: the willingness to prevent ‘passive’ divergence (where the EU changes its rules and the UK does not follow) through regulatory alignment.
The central challenge with passive divergence is that, while the UK may now be standing still, the EU is very much not. The first Von der Leyen Presidency was a very active legislator, passing a number of heavyweight regulations, in particular related to the climate and environmental effects of goods. These create differences in the GB and EU rulebooks which, in turn, make it increasingly complicated to trade between – or simultaneously operate in – the two jurisdictions.
To give just one example, the EU’s new regulation on packaging will require British businesses to comply with new requirements to assess, label and track the packaging in which they export goods to the EU; and they may also need to produce different packaging for the EU and GB markets. This makes the process of exporting to the EU more burdensome, expensive, and, for some smaller firms in particular, financially unviable.
Labour’s answer to the challenges of passive divergence is the snazzily-titled Product Regulation and Metrology Bill, which allows the UK government to replicate EU regulations related to the environmental impacts of products. In theory, this could apply to many of the most significant pieces of EU legislation passed in recent years (product safety, ecodesign, deforestation, supply chain due diligence), and at face value sounds like quite a radical policy instrument. But it is important to be clear what the bill does and does not do.
Most crucially, voluntarily alignment with EU rules does not buy you greater access to the single market. British exports will still be subject to full controls at the EU border, because the UK is not formally bound to the EU’s legal acquis. Existing post-Brexit trade frictions will remain.
What voluntarily alignment does do is prevent further regulatory drift between the UK and EU – avoiding new barriers to trade on top of those we already have. This, it is hoped, will provide certainty to business on both sides of the channel – that the current regulatory horizon will remain stable and predictable, and that conformity with EU regulations will generally be sufficient for access to the GB market.
Equally, it prevents further divergence between Great Britain and Northern Ireland (which is in principle subject to new and updated EU goods regulations) and reduces the risk of the Britain becoming a home for foreign goods (e.g. toys, batteries, cars) no longer considered safe enough for the EU.
In other respects, it is not yet clear how the bill will be used. Will the UK seek to systematically align with EU regulations to avoid passive divergence as much as possible, or will it use its powers more selectively, only where the risks of divergence are seen to be greatest? If government does use the powers selectively, what criteria will it use to decide when to align, and whose job will it be to take such decisions?
And will there be any consultative role for MPs, businesses, or other affected stakeholders? The EU laws in question are often the subject of several years of fraught negotiation, yet the UK government is about to get powers to mirror them without an act of parliament – meaning MPs have very little ability to scrutinise or prevent potentially significant regulatory changes. If the government does want to bring the country back towards the EU’s regulatory orbit, that is perhaps not the best way to win hearts and minds.
As with most aspects of Labour’s EU reset, the broad agenda is clear but the finer details are not. Alignment could be a key pillar of the EU reset, done systematically to push the UK back towards the EU’s regulatory orbit. Or it could be done sporadically, only to avoid the most disruptive bits of new divergence.
Given the general caution of Labour on all things EU, the latter seems the safer bet for now.
