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Welsh Affairs Committee 

Oral evidence: Internal Market Bill, HC 791

Thursday 15 October 2020

Ordered by the House of Commons to be published on 15 October 2020.

Watch the meeting 

Members present: Stephen Crabb (Chair); Tonia Antoniazzi; Simon Baynes; Virginia Crosbie; Geraint Davies; Ruth Jones; Ben Lake; Robin Millar; Rob Roberts; Dr Jamie Wallis; Beth Winter.

Questions 1 to 51

Witnesses

I: Professor Aileen McHarg, Professor of Public Law and Human Rights, Durham University; Professor Jo Hunt, Professor of Law, Cardiff University; and Professor Nicola McEwen, Co-Director of the Centre on Constitutional Change, and Professor of Territorial Politics, Edinburgh University.

 


Examination of witnesses

Witnesses: Professor Aileen McHarg, Professor Jo Hunt and Professor Nicola McEwen.

 

Chair: Good morning. Welcome to this session of the Welsh Affairs Committee, where we are taking evidence on the UK Internal Market Bill and the implications of this Bill for devolution in the UK and in Wales specifically.

I am delighted that we are joined this morning by three prominent experts in the field of legal and constitutional studies. I will ask each of them to introduce themselves in a moment. I ask that our guests and members of the Committee remember to keep our questions and answers as concise as possible and that will give us the time to get through what I hope will be a very rich and rewarding session this morning. We are joined by Professor Aileen McHarg, Professor Jo Hunt and Professor Nicola McEwen. Please introduce yourselves and then I will ask each of you to answer an opening broad question about the Bill.

Professor McHarg: Good morning. I am Aileen McHarg. I am Professor of Public Law and Human Rights at Durham University.

Professor McEwen: Good morning. Thank you for the invitation. I am Nicola McEwen. I am Co-Director of the Centre on Constitutional Change at the University of Edinburgh and a Senior Research Fellow with the UK in a Changing Europe.

Q1                Chair: Thank you very much. I am hoping that we will get Professor Jo Hunt back very shortly, but in the meantime I will ask Professor McHarg and Professor McEwen to give the Committee, in very broad and concise terms, your assessment of what you think the UK Government are trying to achieve with the Internal Market Bill. Please give us a sense of how you see the importance of this Bill and where it sits within the current constitutional architecture of the United Kingdom.

Professor McHarg: On what the UK Government are trying to achieve, this has to be seen in the context of Brexit and the removal of the cross-cutting constraint that currently exists on the powers of the devolved legislaturesand, of course, also the UK Parliamentto comply with EU law. The UK Government are concerned that once we lift that common constraint there could be regulatory divergence between the four parts of the UK that creates barriers and costs for internal trade.

There is a process going on, as I am sure you are aware, of negotiated common frameworks to identify areas where regulatory divergence would be particularly problematic, but I think this Bill represents a kind of belt and braces approach. It is something that will apply in addition to the common frameworks and provide a mechanism for removing barriers to trade in areas that are not covered by common frameworks—and we will come on to discuss this—but also potentially in areas covered by common frameworks.

I think the Bill is extremely important. It is a major recasting of the devolution framework. Although it does not explicitly alter devolved competencies—except in fairly limited respects—it does so in some respects because it reserves state aid control and it makes the Bill itself a protected statute. It has some effect on devolved competencies but its major effect is to introduce a new type of constraint on devolution that affects the territorial extent of devolved legislation and changes the ability of the devolved parliaments to effectively regulate their territories. It will tie regulation in areas that are caught by the Bill to local producers and local service providers rather than to local markets. In a very important and potentially very far-reaching and hard to predict way, it alters the ability of the devolved legislatures to effectively regulate their territories.

Professor McEwen: I agree with everything that Aileen has just said, so I don’t want to repeat it. One observation is that the Bill is trying to do different things and what Professor McHarg just outlined is the core elements of the Bill of market access principles and their effect. It is a pity that those have been somewhat overshadowed by the other elements of the Bill that affect and interact with the Northern Ireland-Ireland protocol. The implementation of the market access principles, in the way outlined in the Bill, has the potential to profoundly affect devolution and the status of the devolved legislatures and their ability to legislate within their own territories in areas of their own competence. We don’t know exactly the extent of that because the Bill is, of course, about the future and the future is inherently unknown. We don’t know the extent to which there would be regulatory divergence.

All the Administrations have been working together where they think it is important to have if not harmonisation then at least a regulatory umbrella that is complementary, is not harmful, and does not raise some of the concerns that seem to be motivating this legislation. There is a risk that the Bill, in trying to introduce a backstop—and I have heard the term used—to the process to mop up things that might not be covered by common frameworks, undermines the work that has been going on for an number of years now in the common frameworks stream, but I am sure we will talk about all of that.

Q2                Chair: The concept of a UK internal market is a relatively new phrase in the conversations that we hear at Westminster. Is there a shared understanding between UK Government and devolved Governments of what that concept actually is, how it is defined and what it looks like in real terms? Do they agree on the essentials of the UK internal market?

Professor McEwen: I don’t think so. I am not sure that the devolved Governments, and certainly not the Scottish Government, would accept the principle that there is the internal market in the way that the UK Government talk about it. Of course there is a domestic market and it is in the interests of all Governments to try to ensure that there are not disproportionate barriers within that. That was the case in the context of the independence debate several years ago. Even then the Scottish Government were keen to ensure that there would be, broadly, the ability to trade across borders, even under that radically different constitutional standard. I think there is a shared interest in trying to avoid unnecessary barriers to trade but there is quite a different view on what would be necessary and proportionate.

It is perhaps worth noting, going back to the UK Government’s White Paper, that the way they defined the internal market—I can’t remember the exact words—was about the totality of economic relationships around the United Kingdom. That is an incredibly broad definition of an internal market that I would normally assume to be about the rules that underpin those relationships. No, I don’t think there is a shared understanding or a shared acceptance between the Governments.

Q3                Chair: Do you think it was always going to be necessary to legislate in this area or does the fact that the UK Government are legislating on the internal market reflect a failure of the frameworks negotiation process?

Professor McEwen: I don’t think it was always going to be necessary. It might be necessary, but I think that would be a decision that perhaps would be better taken in light of experience. I don’t think the frameworks process has failed. We have just seen the publication of a new framework. It is ongoing. Clearly it has been interrupted somewhat by the priorities of Governments in response to the Covid pandemic but it is still ongoing and it is still underway. There is occasion in lots of areas of retained EU law to allow some time for a more co-operative process to unfold.

It might have been the case that there would be a need for legislative underpinning in a general sense. There has been acknowledgement of a need for legislative underpinning in particular areasand we have seen that alreadybut because this is all about the future it seems to be perhaps more of a sign of a lack of trust on the part of all of the Governments. We know that trust between the Governments is very low, but perhaps it is a lack of trust on the part of the UK Government that they would be able to produce co-operative arrangements through the four-nations approach, the common frameworks approach, and this is a backstop, as I said. It seems to be something of a sledgehammer to crack a nut.

Q4                Chair: Professor McHarg, do you have anything to add to that?

Professor McHarg: On your question of whether there is a shared understanding, there is a tendency to conflate the reality of highly integrated markets with the legal concept of an internal market. An internal market has a specific legal understanding. It is a trading area in which there is a set of common rules and a set of constraints to expressly remove barriers to trade. In the White Paper and the explanatory notes and so on there are references to the UK internal market going back to 1707 and the Acts of Union, but the legal supports for the UK internal market have always been historically rather limited in their scope and also asymmetrical. Different rules and constraints apply in the different parts of the UK. In that context, we have never had a legally defined UK internal market and we have always had areas of significant regulatory divergence, areas that are not subject to and will not be in future—the legal profession will not be—subject to the UK internal market.

It is not surprising that in that context—and especially when these proposals have been produced at a very late stage in this process, very quickly with a very short period for public consultation and so on—that there should be disagreement over what an internal market, as a legal concept, ought to cover and look like.

Was this always inevitable? I think it was always an option. I can remember several years ago talking about the options that there might be for replacing EU law, and the idea of new internal market cross-cutting constraints was certainly one of them, but it was not one that was being pursued. Other options were attempted. The initial attempt to return EU competences to the UK level and freeze out the devolveds didn’t happen. Then we moved to the common frameworks negotiated approach and we have come to this third option very late in the day.

Q5                Chair: Thank you very much. That is really helpful. I understand that Professor Jo Hunt has rejoined us. I don’t know how much of that you were able to listen to. I am really glad that you are back. To help us set the scene for this morning’s session, would you very briefly give us your take on the importance of this Bill within the UK Constitution? What do you think the Government are trying to achieve through the Bill and what trade-offs are they trying to strike?

Professor Hunt: Thank you. Apologies for the disruption so far this morning. It is a piece of legislation, both in the way that it has been created and its content, that is perhaps the antithesis of a co-operative, collaborative partnership approach to governance that I think we hoped to see, given 20 years of devolution to Wales and Scotland and longer for Northern Ireland.

It is an approach to try to ensure that the powers that are held by the different parts of the United Kingdom are exercised in a way that are able to respect the matter of local choice, reflect the fact of devolution, but also marry that with broader economic considerations and the economic strength of the United Kingdom as a whole. But it very much puts the balance on the latter, economic integration, strength of the economic union, and privileges that above all else as an approach.

It takes us to a very different place to that that we have experienced over the last 20 years while we have had devolution within the context of EU membership. Within EU law, there has been the opportunity to have an approach that allows local solutions and acknowledges subsidiarity. Those things have been baked into the system so far and now there is an attempt to shift away from that but an attempt to do it in a way that has not proceeded in a partnership approach.

Chair: Thank you very much. Those are all very helpful answers.

Q6                Geraint Davies: I will ask Professor Hunt first. My understanding of the Bill is that the regulations that do not meet the market access principles will not apply. That will mean that in a very broad range of activity—in particular public health, the environment, planning, licensing, food standards—that is currently devolved, Wales or Scotland will not be able to set higher standards. For that matter, they will not be able to set lower standards because the standard will be set in England and that is the standard. Is that correct?

Professor Hunt: The approach is one that the UK Government have indicated does not impact devolved competence. Obviously there are some explicit incursions into devolved competence in relation to state aid being reserved under this Bill, but more generally the Government maintain there is no restriction on devolved competence, that the devolved legislatures can still adopt their own laws and policies in those areas. The effect is, though, that the force of those laws is somewhat hollowed out because they can only apply them to their own local producers or to direct imports from outside the UK.

Q7                Geraint Davies: I will ask the same sort of question of Professor McEwen. If we had a US trade deal and we had adulterated food coming infor instance hormone-impregnated beef that gives rise to premature puberty among children although it is allowedis there anything that the Welsh and Scottish Governments could do to stop that entering their territory or to label it to warn people of the health dangers?

Professor McEwen: If products satisfy the regulatory requirements in one part of the United Kingdom, they are eligible for entry into the markets in all parts of the United Kingdom, if that answers your question. Similarly with labelling, there has been a common framework around nutritional labelling and a four-nations approach to trying to agree that.

But to take the example that you gave, if there was an imported product and it was deemed to be safe and satisfied regulations in England or wherever, the Scottish Government, the Welsh Government, the Northern Ireland Government, or the UK Government if it was the other way around, could not prevent those products entering the market. That is the nature of the Bill and the market access principles.

Q8                Geraint Davies: If England wanted to let in hormone-impregnated beef, Wales and Scotland could not stop it, could they?

Professor McEwen: No, I don’t believe so.

Q9                Geraint Davies: I will ask Professor McHarg a similar sort of thing. If Wales wants to ban nine single-use plastics, which it does, and England wants to ban three, we end up banning just three. That is correct, isn’t it?

Professor McHarg: Yes and no. For Welsh producers and service providers, there would be a ban on nine but the additional bans would not apply for anyone coming from any other part of the UK.

One complication I want to throw in here, with your hormone-impregnated beef example, is that you could imagine circumstances in which a devolved legislature, unable to ban the sale of hormone-impregnated beef, might attempt to ban the use of it, say for school meals. Whether bans on use are caught by the market access principles and, if so, which one—is it mutual recognition or non-discrimination—is really unclear.

There are areas of unclarity here that are also problematic. These rules do not simply reproduce EU law. There has been about 50 years of experience of internal market rules under EU law, so people who know about those things have a fairly good understanding of how they apply but the principles under this Bill are not the same. We have a whole new set of areas of uncertainty about what may or may not be possible.

Q10            Geraint Davies: I don’t want to disagree, but if there is a clear rule on mutual recognition and non-discrimination and I am trying to sell hormone-impregnated beef and I judge it, in England, to be safe, the Welsh Government will not be able to stop those products being sold in schools because they will be deemed to be safe. I can’t see that there is any ambiguity at all. Professor Hunt, do you have a view on this?

Professor Hunt: In the situation at present under the devolution settlements—for the import and export of food products, animal welfare, animal productsthere is the legal capacity for Wales and Scotland to do that. Under EU law, that would be permitted. There would be an independent system of verification for food safety with the European Food Standards Authority. There are concerns about the Government’s architecture for handling those sorts of issues and there is a four-nations approach to them rather than being able to be driven by one part of the union. Given its market size, that is likely to be driven by what England wants.

Q11            Geraint Davies: In the internal market, England will drive these standards. If it has lower standards and it wanted chlorinated chicken and hormone-impregnated beef, we in Wales or people in Scotland will have to have them without impeding their trade and in the past we wouldn’t have to. That is correct, isn’t it?

Professor Hunt: That is correct. The grounds for justification that are available under EU law are much broader than those that have been reproduced or read across into UK law.

Q12            Geraint Davies: There is the devolved competence and power to have your own public health, environment, planning, food standards and so on under EU law. Is there anything to stop the Government changing the Internal Market Bill to allow that divergence and choice and devolved competence? It has worked all right up until now.

Professor Hunt: I think that is very much the point: what is the case for moving away from the situation that has existed for as long as we have had EU membership but within that, as long as we have had devolution? Our courts are used to applying these principles and our producers and importers know how they work. The case has not been made for why a more restrictive reading of these rules is necessary.

Q13            Geraint Davies: Professor McEwen, can you think of some good economic benefits to having this new approach that, it seems to me, overrides the devolutionary settlements in Scotland, Northern Ireland and Wales? Can you think of any good ideas?

Professor McEwen: Some of the documentation that accompanied the legislation and the White Paper suggests that the ability to negotiate trade agreements is part of the rationale for this. Indeed, the common framework principles also included that as part of the rationale for harmonising where appropriate. That is reflected in the questions that you are posing.

I think that is partly why there is such concern that this could be a tool to alter the regulatory standards, leaving the devolved legislatures with the inability to do very much about the goods that are entering their markets from elsewhere. We don’t know if that will be the case. The UK Government have committed, at least verbally, to maintaining high standards. We do not know what the future holds, but I think it is a reflection of a lack of communication to the Administrations and also a lack of trust in the direction of travel that is contributing to the concern about the constraints in the Bill.

Q14            Geraint Davies: By way of example, I think the Welsh Government are trying to introduce a Clean Air Act, so they will presumably set legal limits on particulates and PM 2.5 and this sort of thing. Under the new internal market, if they set a standard that is not applied in England, that standard will not apply, will it? Is that right, Professor McEwen?

Professor McEwen: I think I will leave that to one of the lawyers. I am not familiar enough with the proposed legislation.

Q15            Geraint Davies: Does anyone want to answer that, just one person? Professor Hunt? If environmental standards are set in Wales they will not apply if they are lower in England. That is the basic question.

Professor Hunt: It depends what they are bearing on. If they are bearing on the nature of a product to be sold or the way in which it is sold surrounding that, potentially it would be caught by these measures, but the reach of these measures will not necessarily attach to more general environmental protection legislation on emissions if it does not have a connection to sale.

Q16            Virginia Crosbie: Thank you to the three professors for their time and expertise this morning. I have two questions. I will start with Professor McEwen. You have previously suggested that the market access principles could result in England dominating the UK market. Could you expand on this, please?

Professor McEwen: It is a matter of scale. The English market is so much bigger than the others, which seems to suggest that for businesses trying to enter that market from other parts of the UK and for the scale of goods and services entering Wales, Scotland and Northern Ireland from that considerably larger market, the regulatory standards that are set in England will have a disproportionately large effect compared to the others.

One reason is just scale. The other reason is that the regulations that are set for England are set by the UK Government and the UK Parliament. These institutions do not have the same constraints on them as are imposed on the devolved institutions as a result of this legislation.

Q17            Virginia Crosbie: Thank you very much. I will ask that question to Professor Hunt, please.

Professor Hunt: I concur with what Professor McEwen has said but also I will pick up the point about the impact on rules that are made for England by the UK Parliament. Is the assumption here that Acts of Parliament may potentially be disapplied or if standards are set in Acts of Parliament they will overtake what is in this Act of Parliament? It is a reflection of the powers that the different Parliaments have.

The Westminster Parliament is acting for England but that brings with it the guarantees of parliamentary sovereignty. There is not an even-handed approach to the way that the different parts of the UK are being treated in this legislation. It is very much a tool to keep the devolved legislatures in check, as I read it.

Q18            Virginia Crosbie: What do you read as some of the positives relating to this, Professor Hunt?

Professor Hunt: The positives of the Internal Market Bill?

Virginia Crosbie: Yes, relating to any of the dominance the other way around. I talked about England dominating and then doing it with the devolved nations the other way around.

Professor Hunt: With dominance the other way around, there needs to be space for local choices, devolved choices to be able to operate effectively and to have a force rather than being hollowed out by the reach of regulations or laws for England. It is how we balance that, how we balance a commitment to a union and to an internal market for that union but also respect for local choices, and this Bill does not do that yet.

Q19            Virginia Crosbie: Thank you. Professor McHarg?

Professor McHarg: To pick up on your last question, it is technically possible under this legislation for higher standards in England to be undercut by lower standards from the devolveds, but there are two problems with that. One is the scale issue. As things currently stand, the English market is so much bigger than the devolved markets that without something changing very significantlya devolved Government aggressively going out to attract suppliers to base themselves in Wales and Scotland on the promise of a lower standardit is quite hard to see significant undercutting from the devolveds.

But the other point that has been made is that if the UK Parliament sees that happening with the standards it has set for England, it has the ability to implicitly but at least expressly set aside the market access principles whereas the devolveds cannot because the UK Internal Market Bill for the devolveds will be a protected statute that they cannot repeal or modify. There is that inherent asymmetry of size and of the ability to say, “Hang on a minute, we don’t like what is happening here. The UK Government for England can do something about it, the devolveds can’t”.

Q20            Virginia Crosbie: Professor McEwen, you have suggested that the Bill could have a negative impact on legislative innovation. Why do you believe this to be the case?

Professor McEwen: I think it is broadly a comment on how policy divergence is regarded. There seems to be an implicit assumption within the Bill that regulatory divergence is a bad thing, a barrier to trade and, therefore, something to be avoided. My point is that one of the strengths of devolution is that you have the ability to set policies that are responsive to local preferences, to ideological differences between the Administrations. Sometimes that also frees up the space for different Administrations, perhaps on a smaller scale, to try something different. A lot of the areas where that has happened in the past have been in social policy issues.

That will continue to happen in much the same way if they don’t have market implications, but where they do have market implicationsfor example, minimum unit pricing or single-use plastics that was already mentioned in the forthcoming Welsh legislationthe sorts of things that are being tried differently in one part of the United Kingdom, it may not be possible to see the potential benefits of those policies if they can’t be applied to everything that is taking place in that territory. If you minimise the societal benefits, you minimise the potential for us to see if the policy is going to work, to help to do something different that might be emulated in different parts of the United Kingdom.

It is interesting to note that the impact assessment that accompanied this legislation acknowledged that. It acknowledged that societal benefit resulting from different regulations in different parts of the United Kingdom would be forgone and that is a price that the Government seem to think is acceptable in order to avoid barriers to trade. My concern is the way in which divergence is used negatively as a harm whereas I think it can be a benefit. It can be beneficial not just for the part where the innovation is expressed but for others as well.

Professor McHarg: I agree with everything that Nicola has said so far. To amplify, Nicola has pointed to the fact that by not being able to impose innovative standards across your whole market you don’t see the benefits, but also you are placing your domestic producers potentially at a disadvantage if those new standards are burdensome and costly. There is a double whammy: you don’t see the benefits and you impose a cost.

The other issues are about the freezing of differences. Existing regulatory differences can continue to apply, but if they are subject to substantive change they are brought within the purview of the Bill. We don’t know what substantive change means. That is not defined, but that is a disincentive to try to update your regulatory schemes, to improve them and address weaknesses and so on. In that way it also potentially undermines innovation.

There is the opportunity to justify some types of regulatory standards, particularly if they fall under the non-discrimination rule. There are limited opportunities to justify them on probability grounds, albeit much narrower than currently exists under EU law. What concerns me about the pure innovation space is that the divergence is reasonably necessary to meet a legitimate end. If you take something like minimum alcohol pricing, which had to go through this justification process under EU law, a lot of the discussion was about whether these measures were necessary because of the Scotland’s particularly severe problems with alcohol abuse.

Where you are talking about pure innovation it is not that there is a particular problem here. It is just that a devolved Government wants to try something new or there is a political demand to go further, but elsewhere in the UK it is not deemed necessary for public health or public safety or whatever to make that change. I worry that it will not be possible to meet that “reasonably necessary” test. Again, we don’t know what that means. It is not the same wording as under EU law and we don’t know how it will be interpreted and applied by the courts.

Q21            Rob Roberts: I have a very specific question that I was going to ask both of the legal professors but we seem to have lost one of them. No offence, Professor McEwen. It is a legal question.

Professor McEwen: None taken.

Rob Roberts: Professor McHarg, I will go back to one of the questions that my colleague Mr Davies asked earlier on about—as he kept mentioning, a dozen or so times—hormone-impregnated beef. In the Chamber earlier this week the DEFRA Minister said that, “In our trade negotiations we will not compromise on our high environmental protection, animal welfare or food standards. Our current import standards are enshrined in existing law. They include a ban on importing beef produced using artificial growth hormones and poultry washed with chlorine. The European Union (Withdrawal Agreement) Act 2020 carries across those existing standards on environmental protections, animal welfare and food safety into UK law. Any changes to that legislation would need to be brought before Parliament to specifically vote against those regulations. Would you agree, Professor McHarg, in a very short answer, that we won’t be able to do any of the things that Mr Davies was talking about earlier unless we specifically vote to do so?

Professor McHarg: You are right that where there is an existing domestic rule it would have to be changed to comply with a different rule in a trade agreement. That is a basic principle. I suppose the concern would be that the UK Parliament can change it for England, not attempt to explicitly change it for Scotland, Wales or Northern Ireland and, therefore, not get into any problems about a requirement, a consent under the Sewel convention. We don’t pay that political price. Instead, we make the change for England, which there may or may not be support for but there may be.

Q22            Rob Roberts: What I am trying to get to is that to be able to import the beef and the chlorinated chicken and all of those things, we would need to specifically change the regulations to allow that because currently and going forward with the EU (Withdrawal Agreement) Act they wouldn’t be allowed. Is that the case?

Professor McHarg: I don’t know the details of food standards law to be able to give you a definitive answer, but in principle what I am trying to say is that the change would only need to be made for England and then it applies by default in Scotland, Wales and Northern Ireland.

One of the clever aspects of this Bill is that it depoliticises the imposition of these standards on the devolved territories because it is not the UK Parliament saying, “We are going to change devolved law in order to implement this trade agreement”. It is left to individual traders, individual businesses to enforce these rules by default.

Chair: Okay, let’s move on from this discussion. Thank you all.

Q23            Beth Winter: Thank you, witnesses, for coming today. As you will be aware, there has been an absolute uproar in Wales about this Bill and the way that it has been introduced. We have the First Minister Mark Drakeford saying it represents a smash and grab on the devolution settlement, Jeremy Miles saying it is an attack on democracy, and the Welsh Government will do everything to challenge the power and the “race to the bottom” the Bill represents.

On the other side, you have the Secretary of State for Wales saying that he would love to know what powers we currently enjoy that we won’t be able to enjoy when the Bill becomes law. Who is right? Is there anything that the Welsh Government have done previously that you believe would not be possible under the provisions of the Bill? Is Professor Hunt with us now or not?

Professor Hunt: Yes, I am back on the dial-in.

Beth Winter: Okay. Could you respond, please?

Professor Hunt: On things that have been possible previously that might not be possible in the future?

Beth Winter: Yes.

Professor Hunt: Much of the legislative decision-making has taken place within the context of EU membership, so a lot of what is being done, but not everything, in relation to products, services, trade is within the context of EU law, that it has to respect free movement principles, but also a lot of it is giving effect to EU regulations, EU legislation.

The single-use plastic measures that have been taken so far have been done under an EU directive and the proposals for future measures on single-use plastics is a reflection of what is in an EU directive that will apply for all of the European Union. At present that is possible. Wales can introduce that legislation but in the future it may not be able to or it will be able to introduce it for its own producers but its impact may be hollowed out if the rest of the UK, other parts of the UK, don’t introduce that legislation also.

Professor McHarg: I am going to find it difficult to give you examples from Wales because I am more familiar with Scotland. I have a couple of examples. Currently in Scotland there is a ban on the sale of air weapons over the internet. Air weapons have to be sold face to face. If a change were to be made in the future, that would be subject to non-discrimination principles and would have to be justified as reasonably necessary for public safety. Unless the Scottish Government could show that there is a greater need to regulate firearms sales in Scotland than elsewhere in the UK, it could not be applied to sales of air weapons from elsewhere in the UK.

Another example in Scotland is the deposit and return scheme for single-use drinks containers that has been legislated for but is not yet in force. This would be caught by the legislation. It is quite complicated as to how exactly different aspects of the scheme will be caught. Under EU law that is able to be justified for its environmental benefits but there is no opportunity to justify it on environmental grounds in this Bill.

Q24            Beth Winter: With the examples you have given, would you agree that that Mark Drakeford is right in saying that this is a power grab and it will undermine the ability of the devolved nations to make rules and regulations themselves?

Professor McHarg: There is a sort of semantic difference here. The UK Government are right to say that it does not remove competencies that are already there, but it severely undermines the effective use that can be made of those competencies and severely undermines the ability of the devolved legislatures to do things differently in their own territories. It is a kind of form versus substance distinction.

Professor McEwen: Returning to the point that Professor Hunt made, we can look back and find probably a handful of examples of where legislation or regulations that were introduced previously in Wales may fall under the scope of this legislation and, therefore, not apply to products and services entering Wales from elsewhere in the UK, but I think the point is that previously all of the Administrations were operating under an EU regulatory framework and that will no longer be the case.

The concern is that the potential for this to affect legislation and regulations in the future is much greater if, as we expect, at some point Administrations in the United Kingdom, legislatures in the United Kingdom, depart from EU law and EU regulations. The potential is much greater for the future than it would have been if we were looking to the past, but I think it is about the scope.

My understanding of the Welsh Government’s position is not that it is opposed to support for a UK internal market but I think part of the problem is the way that this process has got to this stage and the top-down nature of it. The Welsh Government, unlike the Scottish Government, participated in the discussions with the UK Government on a UK internal market. They participated in the discussions that were led by the team in BEIS but were cut out from the process in the months leading up to the legislation.

The content obviously matters, the content is important here, but it is also the process that has led to it that has caused so much anxiety and anger on the part of the Welsh Government and the Scottish Government as well. It is interesting to note that these are Governments that constitutionally come from very different places in some senses but are very much on the same page in their responses to this legislation.

Beth Winter: I think that is fair. We are coming on later to the common frameworks and there is a lot of scope already in existence for the nations to co-operate anyway. Thank you very much for now. Diolch yn fawr, Chair.

Q25            Ben Lake: Thanks to all the panellists for their time this morning. I have a further question on the exemptions to the market access principles, which we touched on earlier. In particular, would the panellists comment on the implications for devolution of the UK Government having the right or the power to decide and amend the exemptions? As an add-on, how does this compare to the situation under the EU internal market and its operation?

Professor McHarg: It is very surprising that the UK Government have the unilateral power to change the scope of these principles potentially very, very substantially. If you change the justifications for indirectly discriminatory rules, that significantly affects the ability of the devolveds to regulate effectively. That could be change in the direction of adding new legitimate aims or it could be change in the direction of taking away what is already a very narrow set of aims. This is a very significant power.

There is a provision that allows Ministers to change the definition of what is covered by market access principles versus the non-discrimination principles. There is a duty to consult the devolveds for that power, but for the other ones—the amendment of schedule 1 and schedule 2 and the amendment of legitimate aims—there is not even a consultation obligation, which is really surprising.

I think the idea of UK Ministers having the ability to change unilaterally things that affect the devolved legislatures’ effective legislative powers is pretty objectionable in principle. If you cast your mind back to disputes over the EU (Withdrawal) Act 2018 you will recall that there was a huge amount of controversy at that time over similar ministerial powers to freeze areas of retained EU law and affect the scope of devolved competence. The compromise reached on that occasion, which allowed the Welsh Parliament to grant its consent, was that consent had to be sought from the relevant devolved legislature for the exercise of those freezing powers. It could be overridden but any decision to override has to be expressly justified before Parliament.

There is a relatively strong procedural mechanism to deal with this constitutional anomaly of allowing UK Ministers to affect the scope of devolved competencies. I would expect to see something equivalent to that in this Bill, given how important these ministerial powers could turn out to be in practice.

Professor Hunt: If we want to draw parallels or identify where there are very significant differences between the approach taken in the UK Internal Market Bill and the approach taken under EU law, the starting point is very different. In EU free movement law generally there is a good distinction drawn between the measures that are on their face discriminatory and a set of treaty-based exemptions for situations where member states may draw distinctions between their own goods and goods coming from other countries. There is a treaty-based set of derogations that are already significantly broader than the ones that are recognised in the UK Internal Market Bill.

More generally for all other measures, for anything else that impacts or hinders access to the market that is caught by what is the mutual recognition principle, as expressed in the Internal Market Bill, there is a much wider, open list of justifications. It is not a closed, fixed list. It is public policy reasons that the member states can show are justified or proportionate in their response to achieve a policy aim. Those things include environmental protection, consumer protection, respect for social and cultural choices, protecting the pluralism of the press. These are all things that have been recognised as a ground for the exercise of the mutual recognition principle. Mutual recognition in EU law is only a presumption. It is a rebuttable presumption that you accept products from other member states. It is a sort of balancing act that takes place, balancing out the free movement as against local choices.

The way that the UK Bill operates is very different. It raises that mutual recognition to more or less an absolute rule. We see a very different approach there. As Professor McHarg said, the process of determining what is caught anyway by those rules is a decision for the Secretary of State without the effective input of the other Ministers from the UK, from the devolved Administrations. At the very least we should be seeing something equivalent to the provisions in the Withdrawal Act for the consent process on that.

Q26            Ben Lake: Moving on slightly to the Office of the Internal Market, what are your views on the suggestion made by the Welsh Government that the Competition and Markets Authority is not currently a “suitable vehicle” for the Office of the Internal Market?

Professor McEwen: I saw that that was the position they had taken and I am not quite sure of the reasoning behind it. Perhaps it reflects a concern that there might not be an understanding of the broader policy landscape that exists in all of the different parts of the United Kingdom. The Competition and Markets Authority is quite narrowly focused on competition and markets. That is a lot about what this Bill does but it also profoundly affects devolution. For my part, I hope that while it is perhaps legitimate for some bodies, this one or another, to monitor and evaluate the effect on the market, it is also appropriate for it to be monitoring and evaluating the effect on devolution. They are twin things here and that is missing so far from the Bill.

Q27            Ben Lake: Professor McHarg or Professor Hunt, do you have any further comments on that question?

Professor McHarg: The Competition and Markets Authority has a broad remit currently. It deals with standard competition inquiries, abuse of monopoly position and so on, but it also undertakes broader market investigations.

For instance, with regulated industries and so on it can deal with consumer super-complaints. It depends what you are looking for here. There is a whole set of criteria about the independence of any body undertaking this kind of role and I would have thought that the provisions for appointments of panel members, security of tenure and so on are appropriate. The Office for the Internal Market will be a specific panel within the CMA, so it won’t just be one of its generic panels. It will be separately appointed and appointments have to be made in consultation with the devolved Governments.

The other issue, as Nicola said, is who is going to be appointed? Are they people who have an appropriate understanding of the principles of devolution and what are the criteria that they will apply when they undertake their investigations? The Internal Market Bill disapplies the general duty to promote competition and replaces it with a concern with the effective operation of the internal market, but the effective operation of the internal market is itself extremely vague and potentially very contentious.

My concern would not be so much about this body, or the use of this body, but rather who is being appointed to it and what criteria are they taking into account when they carry out their investigations.

Q28            Ben Lake: Professor Hunt, what role do you think the devolved legislatures should play in scrutinising the work of the Office of the Internal Markets?

Professor Hunt: The OIM, which is within the Competition Markets Authority is a non-ministerial Department in the UK Government. We would perhaps like there to be a more four nations approach taken to the Government's architecture and, at the very least, have a situation where rather than simply being consulted, each of the four nations makes nominations to that body, so there is a sense of joint ownership of those institutions that are going to be making these decisions, that are market driven but have very significant impacts and implications for devolution. Given that the significance of that reach into the devolved settlements, there is a need for more of a representation of the devolved nations within that body.

Q29            Ben Lake: Finally from me, the UK Government have indicated that intergovernmental processes will play quite a key role in managing the space between the administrations in relation to the UK internal market. What are your thoughts on whether these current mechanisms and processes are robust enough for such a purpose?

Professor McEwen: No, in a word. There is widespread recognition that intergovernmental relations in the United Kingdom are not fit for purpose and countless inquiries in parliamentary committees across the United Kingdom have come to that conclusion.

As you know, the Governments have been working on a review of intergovernmental relations, and I understand making some progress finally within that review. However, this Bill and the provisions within in it totally rely on effective intergovernmental relations to manage differences and to manage disputes, at the same time the process that has led to it and the nature of the Bill and the nature of the constraint on the devolved institutions, does risk making it very difficult to make sufficient progress within the review of intergovernmental relations to help us to get to the stage where they are more effective and they are more fit for purpose.

This is doing nothing to support the trust that is essential to effective intergovernmental working. I think we would need some sort of forum, whether it is a joint ministerial committee or something else, that brings the different administrations together to review the functioning of the internal market, to review the governmental common frameworks and, if this Bill proceeds as it is, to review its effect. We do not have that just yet.

Part of the problem in all of this has been about the process. We talked earlier about the differences and the scope of exemptions in this Bill compared to EU law, but one of other obvious differences is the process that leads to the rules being adopted in the first place. This, in contrast to common frameworks, in contrast to the EU internal market, this has not been a co-produced process. That is one of the biggest problems and one of the biggest hurdles in getting us to the point where we have an intergovernmental relations machinery that can support this and help make it work.

Q30            Ben Lake: Thank you. Professor McHarg and Hunt, would you agree with that viewpoint?

Professor McHarg: Yes, I would. I think Nicola is right about the weaknesses in the current approach and also the importance of the intergovernmental relations.

I come back on your previous question to Professor Hunt. You asked if there is scope for the CMA to be more accountable to devolved legislatures. There is a precedent that could be drawn on here. Ofgem, and I think also Ofcom, has a duty to answer to the Scottish Parliament, at least. That was a change made in the Scotland Act 2016. I am not sure about the other devolved legislatures. There is a precedent for making UK-wide regulatory bodies answerable to the devolved legislatures, which could usefully be emulated here.

Q31            Ben Lake: Thank you, that was very useful. Professor Hunt, do you have anything to add on the question of whether or not the existing dispute resolution mechanisms are appropriate for the task of resolving any disagreements arising from the Internal Market Bill?

Professor Hunt: As far as dispute resolution is concerned on an intergovernmental level, Professors McEwen and McHarg have clearly shown the limitations and the concerns around the process as it stands.

There is another point. We do not know where that intergovernmental dispute resolution sits alongside resolution in other ways, whether we are going to be using the courts for this, whether these are going to be enforceable principles, and that is still not clear. We know that these provisions are said to have direct legal effect. There is a suggestion that the courts are going to be involved to some extent in their enforcement but it is not clear how and where the balance lies between intergovernmental settlement of these issues and the use of litigation to settle those issues.

A new clause 12 that has been introduced into the Bill gives powers to the Secretary of State to give guidance on how enforcement will take place. That does not give us any clarity at all; it just leaves the question open as to how it is going to work.

Q32            Robin Millar: I have been listening with great interest to this, and apologies for joining the meeting late; I was held up with other business. It would be helpful if the panel could briefly clarify for the Committee and the record the UK's sovereign nation status and the limits this places on equivalence between the UK Government and the devolved Administrations.

Professor McHarg: I am happy to confirm that the UK Parliament is a sovereign Parliament and the devolved legislatures are not sovereign legislatures. That is true, but it does not make it any the less problematic in this context and we are replacing a set of constraints that apply symmetrically with a set of constraints that apply asymmetrically.

Q33            Robin Millar: With respect, that is exactly the point of the question: it is asymmetric because the UK Government are a sovereign power and the devolved Administrations are not. Those powers that return to the UK Government are those which have been vested in, and lay with, the superior EU and they have not been passed to the devolved Administrations.

I apologise, Chair, I do not want to get too involved into the discussion at this pointI may come back laterbut I am very interested in if the panel members could clarify this for the benefit of the Committee.

Professor McHarg: Returning EU competence in the areas that are otherwise devolved under the terms of the EU Withdrawal Act do fall to the devolved Parliaments. There was a very long dispute over that which was resolved in favour of respecting the existing devolved settlement. It is certainly true to say that the devolved legislatures are not legally entrenched. The Sewel convention was supposed to, and for 18, 19 years did, operate as a form of political entrenchment but, from my perspective, you are identifying a problem here not a justification for the approach taken in this Bill.

Professor Hunt: Yes, absolutely, Westminster Parliament, of course, is sovereign within the context of the constitutional conventions that operate there—it is the United Kingdom—but this Bill emphasises how England benefits from the sovereignty of the UK Parliament. There is no parity there in terms of how the four different parts of the United Kingdom are treated under this legislation.

Professor McEwen: I do not have anything to add. I am not questioning the view of the sovereignty of the UK Parliament and the lack of sovereignty, in a sense, in the same way that there is a lack of equivalence of the devolved legislatures. All we are trying to do is to point out how the Bill potentially changes the system of devolution that the UK Parliament created. It will have effects and constraints and it is for the UK Parliament to decide whether that is the system that it now wants to create, but recognising that that has consequences for the scope of what the devolved institutions can do and possibly wider consequences too.

Q34            Ruth Jones: Apologies for being late this morning; I had to come from the Chamber. I do apologise.

I am going to move on to spending powers now. It has been suggested that part 6 of the Bill could be used by the UK Government to administer the shared prosperity fund. What do you think the implications of the UK Government using the powers for this purpose could be? Professor McHarg.

Professor McHarg: Yes, the purpose of the spending powers seems to be—there seem to be a number of potential purposes here. At times it is talked as being the basis for the shared prosperity fund, so replacing EU funding streams, but there are also references to this being the basis for post-Covid recovery spending and also the basis for spending to support UK values or British values, whatever that means. Part of the justification is the replacement of EU funding but the purposes may be wider.

The difficulty with this provision is that it is very wide indeed. It sets out a number of types of expenditure that are permitted but with no indication of how it might be used, what sorts of amounts of funding we are talking about, whether it would be supporting one-off projects or the basis for establishing funding streams. How this power might be used in future is very unclear.

Q35            Ruth Jones: Professor Hunt, anything to add to that? Is Professor Hunt still here?

Professor Hunt: Yes, obviously there is an issue of any replacement funding, particularly in Wales where there has been very significant funding. In comparison to the rest of the UK, Wales has been a net beneficiary of EU funding. There have been commitments made about maintaining the same levels of funding as being reviewed under the EU programme and there would be continued respect for the devolution settlement throughout that. If it is the shared prosperity fund, then there are certain guarantees that do not necessarily flow through within the Bill, and there has been some very provocative language around it that has been quite challenging.

Again, it is one of the other aspects of the Bill where we simply have no clarity. We have waited a very long time to know what the shared prosperity fund is going to look like and how it is going to work. Currently we know that WEFO, part of the Welsh Government, has had a central role in the administration of those funds on a partnership basis but there is no suggestion of what the architecture is going to look like in the Bill. Again, there is a lack of clarity and a lack of guarantees here.

Q36            Ruth Jones: Just a supplementary to Professor Hunt. You mention the guarantees. You have a legal background. What sort of wording would you like on guarantees?

Professor Hunt: In terms of how it is approached, there could be commitments as there are in the EU regulations that we see in this area towards a model of partnership, acknowledging the different roles that different levels of Government might have within that process. There is nothing at all on the face of the Bill around a partnership approached. That is something that could be incorporated.

Professor McEwen: I agree with everything that has been said so far but just to add one thing: the structural funds were very much needs-based spending and needs-based allocation, and obviously that has been beneficial for Wales up until now. We just do not know enough about what is anticipated with the shared prosperity fund element of this or indeed how the shared prosperity fund will folded into this broader general spending power, which is potentially very broad. I agree with the Professor Hunt, the concern—and this is reinforced by some of the statements, including by Ministers, that have surrounded the Bill—is about the extent to which this will be in co-operation with the devolved Administrations or in competition with them. Some of the language has not helped.

In a sense, it is a pity that this has been tacked onit does feel like it is tacked onto an Internal Market Bill because that has meant that we have not had sufficient scrutiny of this element. There has not been the same sort of requirement in a sense of the detail of what is proposed here, because we simply do not know what the intention is and we do not know how it will interact with the existing system of territorial finance.

Ruth Jones: Thank you for clarifying the uncertainty that is part of the Bill. That is very helpful.

Q37            Tonia Antoniazzi: There is all this uncertainty and time marches on. A quick answer from all of you: how much longer can we wait?

Professor McEwen: About what specificallythe Bill or just the spending power?

Tonia Antoniazzi: Basically about the Bill. The uncertainty around the spending powers and the Bill and the shared prosperity fund. We are getting to a situation where it is getting ridiculous and things need to be sorted out. The sooner the better. What are your thoughts?

Professor Hunt: From the perspective of the Bill generally, some parts of it can definitely wait. There has not been the case made that there is a need for any of the horizontal market access principles and the common framework should be allowed to see what happens there.

But for the shared prosperity, it is getting incredibly late and yet this is still the best that we get. We do not even know whether this is the shared prosperity fund and it is incredibly sketchy. It is very late in the day but this is not the solution.

Q38            Tonia Antoniazzi: Do any of the rest of you want to make a comment?

Professor McEwen: No, I completely agree. I do think that there is urgency now around the shared prosperity fund, or whatever it will be called, and we absolutely need to see the details of that. A lot of the other elements of the Bill can wait. They can wait until we see if a co-operative approach can be met through the framework process, and that does seem to be making progress.

Retained EU law, remember, does carry us a bit around some of the regulatory frameworks that are brought into the domestic legal framework. That does buy some time to work on alternative ways to do this rather than what used to be a rather blunt tool.

Q39            Rob Roberts: I appreciate the time being given by the panellists today. With regard to projects and spending in the devolved Administrations, what potential is there for a UK Government to bypass the devolved Administrations and seek to work directly with local government in regions and other stakeholders to deliver projects, rather than through the devolved Assemblies themselves? Professor McEwen.

Professor McEwen: The general spending power that the Bill provides to the UK Government suggests that they would be able to do that, and indeed the accompanying documentation suggests that this would be a way for them to work directly with local authorities, with sporting bodies, with cultural organisations and so on. It would depend on the scale of what was intended here and if it was around a big infrastructure projectfor example, a bypassthen that would inevitably intersect with other areas of devolved competence like planning, like environmental assessment and it would be very difficult to then bypass the devolved Administrations in trying to make something like that happen.

I am not sure what the intention is here, whether it is to bypass or to work together. I am sure from a population perspective a promise of new investment will be a broadly welcome one. It becomes problematic if it is used to undermine a decision that has already been taken by a devolved Government. Clearly the issue of the bypass is one of those examples. We do not know and there is just so little detail in the Bill around that. For larger projects, it will intersect with other areas of devolved competence anyway and even some of the smaller ones might do too, so there will be a need for some sort of co-operative arrangements with the devolved institutions, otherwise we just end up getting into conflict and tension, and politics actually.

Q40            Rob Roberts: It may be then, potentially, from your point of view that something like planning, which might be integral to things like this might be best brought back and re-reserved with the UK Government?

Professor McEwen: No, that is certainly not what I am suggesting here at all. That would be perhaps even more provocative than what we have in the Bill as it stands.

Professor McHarg: I think Nicola is right that it will depend on how this power is intended to be used, whether it can be done directly with other partners or will inevitably engage some kind of devolved Government functions. I would be concerned if this is used to directly contradict a devolved Government decision—if a decision has been taken not to do X but the UK Government comes in and decides to fund X.

I am much less concerned about the idea of there being plural sources of funding that local authorities and other non-governmental organisation can tap into where there is not that direct conflict with devolved functions. Looking at the definitions in the Act, so if we look at clause 48(2), infrastructure is defined as including court or prison facilities. Now, prisons and the court system in Scotland are clearly devolved matters and I cannot see any justification for the UK Government overriding or seeking to override the decisions of Scottish Ministers in those circumstances. I am just not sure why you would permit a power that could be used in that way where you are centrally dealing with devolved functions.

It is all very unclear how this is going to be used and what kinds of conflicts might arise. It looks to me like a power that has the potential to create conflict and that is a problem.

Professor Hunt: I have nothing further to add to that. That has all been very comprehensively addressed.

Q41            Rob Roberts: No problem. In that case, Professor, I will start with you and ask my next question. The use of these extra spending powers: do you think that they might have an impact on Barnett consequential funding in any way at all?

Professor Hunt: Again, we do not know. As has been referred to already, the EU based funding has been on a needs based approach and if it is Barnettised, that would be problematic from a Wales perspective. Again, we have no clarity on this.

Professor McHarg: Again, we do not know and his is the other concern I would have. One is if it could be used to directly contradict devolved decision-making and another is if it is used to divert funds that would otherwise be available to the devolved Governments but we simply do not know.

Professor McEwen: The suggestion has been made that the two would be separate. The statements that I have read in relation to the spending power suggest that it would be outside of the normal funding arrangements. But it seems to me that the purpose of the power is to enable the UK Government to spend in devolved areas in the devolved territories and obviously that is quite different from Barnett consequentials, which result from spending in England with knock-on effects for the block grants that go to the devolved institutions.

Again, as everyone has been saying, and it is probably frustrating for the Committee to hear this again, we don't know the answer to this because the detail has just not been provided, not in the Bill and not in the surrounding documentation.

Rob Roberts: I do have another question but it might be a little inflammatory so at this moment I will hand back to the Chair and I might jump back in with it later on. Thank you.

Q42            Beth Winter: Picking up on what has been said about bypassing Welsh Government, at the weekend the Secretary of State made it quite clear in relation to the M4 road that the intention is there to use the powers within the Bill to bypass if necessary. There is obviously a very distinct difference between justification and intention and I think it is quite clear from his comments on the weekend that is the intention. Does anybody on the panel feel able to respond on that direct opinion that I have expressed?

Professor McEwen: We have had similar opinions expressed in Scotland as wellnot around specific examples so much, but as a general way to promote the presence and the visibility of the UK Government in the devolved territories. There has been a concern, particularly in relation to Scotland because the question of the Union is more prominent there, on the part of the UK Governmentand it was there within the previous Administration as wellthat the visibility of the UK Government was perhaps not quite as prominent as it could have been.

I suppose my response to that would be a less provocative way to manage that would be to be more visible within areas of reserved competence that still have a very large effect in the devolved territories.

On the specific example around the M4 road, you could see that there might be an internal market link there if it is about strengthening the transport infrastructure across the United Kingdom. But, again, there are different ways to approach this and either you have a system of devolution that you celebrate and respect or you risk undermining it and politicising all of these issues. That is one strategy, but there are others that in the longer term might be more effective.

Q43            Robin Millar: Professor McHarg, you mentioned Section 48(2) of the Bill. My understanding is that refers to state aid or subsidies. It would seem to be perfectly sensible to have capacity to prevent one country within the UK from supporting products and providing state aid provisions. Therefore it seems eminently sensible that that is a reserved power, in the same way that the EU reserved it and prevented for example the UK from subsidising its products through state aid.

Professor McHarg: No, that is not about the reservation of state aid. Clause 48 is about the power to provide financial assistance that we are talking about. The reservation of state aid is now clause 50 in part 7 of the Bill.

Robin Millar: I am sorry; I am clearly looking at a different version of the Bill.

Chair: Is there a question, Robin?

Robin Millar: We are disagreeing over the versions of the Bill that we are looking at, so I am happy, Chair. I have made my point; thank you.

Q44            Geraint Davies: Can I start with Professor McEwen? You may know that Wales receives a lot of EU funding, £375 million a year, to alleviate poverty in west Wales and the valleys, the poorest parts of Wales. There is some talk that that money will be taken from poverty alleviation and promoting prosperity and spent on a motorway, the M4 relief road to connect with England as opposed to, for instance, investing in railway infrastructure where Wales has had only 1.5% of the UK funding for 5% of the population. Do you think that there is a danger here that this internal market will enable the Westminster Government to spend money on its priorities rather than Wales’s own priorities such as connectivity and alleviating poverty?

Professor McEwen: I do not think it is so much the internal market that is contributing to that; it is the general spending power, the financial assistance powers, which are part of the Bill but not really very strongly related to the main purpose of the Bill, which is around market access principles. Reflecting on the discussion that we have just had, we just do not know what the intention will be with the use of these spending powers and it does seem to be the case at least that they potentially go considerably beyond the replacement of structural funding. The accompanying documentation talks about Covid recovery funding as well, which you might expect to be greater.

Again, we do not know if there will be an opportunity for the Governments to agree what the priorities would be or indeed for the Welsh Government and the other devolved Governments to set their own priorities. We just do not know and I think one of the things that I would hope would come out of the debate when the Bill comes back to the Commons is for the Government to be pushed more on what the details of all of these provisions would be.

Q45            Geraint Davies: Professor McHarg, the EU structural funding of £375 million a year given to Wales to alleviate poverty is currently used to respond to the Covid crisis because the money we get for Covid does not take account of the fact that Wales is sicker, older and more rural and poorer. There is a worry if that money is put by the UK Government into the shared prosperity fund and spent on a road, for example, that when we move into January we will not have the money to respond to Covid. Do you think that reuse of EU funding or its substitute is appropriate? Presumably that will be enabled through this Act. Is that correct?

Professor McHarg: I think it would be enabled in the sense that your original question is would this allow money to be spent according to UK Government priorities rather than devolved priorities? I think the answer to that is yes, because it is a power for the UK Government and there is no obligation to consult or get consent. There is no doubt that it will be UK Government priorities that determine it. What those priorities will be, your guess is as good as mine.

Q46            Geraint Davies: If they want to spend it on a road into England at a time when we are concerned about air quality and we want to build railways, is there anything to stop them?

Professor McHarg: Not that I can see.

Q47            Simon Baynes: Apologies again, I was in the Chamber earlier on but I have heard much of the discussion, none the less, and I too would like to thank the panellists for their time today.

I want to move on to state aid, which we started to touch on earlier. Given that the UK Parliament is the sovereign legislature as we have discussed and provides the finance for state aid, what are the practical implications of the UK Government making state aid a reserved competence, particularly given that many industries such as steel and aerospace are truly UK-wide businesses? Can we start with Professor McHarg?

Professor McHarg: Some of the budgets for the Scottish Government and the Welsh Government come from UK finance and some come from local taxation. The implication of reservation of state aid is not to stop the devolved Governments spending, but to allow the UK Government, the UK Parliament, to set the framework within which spending takes place. Currently that framework is provided by EU law; certain types of aid are permitted or not permitted and there is a process for granting approval to certain types of state aid. What we are talking about is the replication of that process. We are not talking about spending being arrogated to the UK Government.

All that this Bill does is take away the power from the devolved legislatures to set rules around subsidies. What we do not know is what kind of framework at UK level will replace the current EU state aid process. That will partly depend on the outcome of current negotiations, because with the EU, state aid is a big part, and it will depend on political choices made at the UK level. There could be a very strict state aid regime approximating to the current EU regime, or there could be a very lax regime approximating more to WTO. That is what we are talking about. It is about the ability to set the rules about what money can and cannot be spent on and what kinds of approvals are required or not. We are not talking about the ability to spend per se.

Professor Hunt: If I may come in here, obviously the EU state aid regime that is operated and applied across the UK is one that the UK has made comparatively little use of. It has not spent under those state aid rules to the same degree as other countries have done, so we might be feeling surprised that there has been this battle over whether or not the UK can introduce a more lax regime and is not agreeing to having the same regime that it had previously under the EU system, but perhaps there is going to be a renewed focus on spending and on providing aid in this way.

From a devolution perspective and the fact that effectively these were not necessarily reserved powers under the devolution settlement, these areas that had fallen within devolved competence for their exercise, just as the UK Parliament could not set a state aid system because it was bound by the EU system, why is this not a system that is being co-created through the common frameworks approach? It appeared on that list from time-to-time but it does not seem to be the way at all that this is going to progress, that this might be a top-down process where the Westminster Parliament creates that system and sets the priorities.

Q48            Simon Baynes: I will ask Professor McEwen to come in to round off the question but presumably part of the benefit of having left the EU is that it gives us much greater flexibility with regard to our approach to state aid. Professor McEwen?

Professor McEwen: I think the fact that this is in the Bill suggests that you are probably aware that within the common framework analysis there was a dispute about where competence lay around state aid; the devolved Governments said it was devolved and the UK Government said it was reserved.

The fact that it is in the Bill as a reservation suggests that there was not sufficient confidence in the initial judgment that it was a reserved matter. I am fascinated by the discussions that we have been hearing today and more generally around a re-emphasis of sovereignty of the UK Parliament. Of course the UK Parliament is sovereign but in creating devolved institutions it has accepted de facto limits on that sovereignty and this is an example of one of those areas. Yes, of course, that was within the context of the European Union and perhaps when you exit the European Union it is appropriate to think it through again and there is a strong case to make, in the case of state aid, for having a UK-wide state aid regime, strong arguments to make for that. That does not necessarily mean that you have to centralise, that the decision has to be made by the UK Parliament and be applicable everywhere.

There are other ways, and in other countries that have systems of multilevel government there tends to be more effective processes to bring the Governments together in areas of mutual interest and in areas of overlapping competence. Again, if we had better systems and if we had perhaps more trust between the administrations there might have been scope to do that in the area of state aid as well, but we just do not know, again, what the details of this will be. We have not seen any proposals or certainly I have not seen any proposals around what a UK state aid regime will look like.

It is perhaps the one area of the Bill that might be influenced by the negotiations with the European Union and whether or not a future trade agreement has any obligations around state aid there as well.

Q49            Simon Baynes: I will just finish but with one quick addendum to that. State aid is one of those areas that is a true UK-wide competence and surely the fact that we need to keep in balance the Union with devolution this is a classic area where Governments work better on a UK-wide basis than on a singular basis. In a sense that is implicit within the relationship that currently exists with the EU, where it has a UK-wide competence in this area in terms of what is allowable under state aid. I think this is one of the areas where a union approach is very beneficial to the process. Would you agree with that?

Professor McHarg: Can I jump in on that? You are right that there is a risk. If state aid is unregulated there is a risk of damaging economic competition, of different parts of the UK trying to subsidise or spend money to attract businesses in ways that are destabilising and damaging. The reservation of state aid does not necessarily prevent that happening, because it depends entirely on what kind of state aid framework is put in place. If it is a state aid framework that approximates to what we currently have under EU law then the risk of that kind of economic competition is minimised. If it is something much looser, which is what has been talked about, approximating more to WTO law then the risk is higher.

There are two necessary steps here to avoid the consequences and have the kind of union approach that you want. One is to facilitate decision-making on a UK-wide basis, which could be done through reservation or it could be done through agreement, but the second and more important part is getting the agreement, getting the common set of rules that effectively prevent damaging competition.

Q50            Beth Winter: As you will be aware, back in 2017 the four UK nations agreed to develop common frameworks, which have also been mentioned during the course of the morning, to enable the functioning of the UK internal market and to make sure that the UK could meet its international obligations. Would it not have been better for these shared frameworks to be legislated for to ensure that the partnership approach continued and that Wales could continue to have a say over standards and so on, as has been discussed this morning? I ask that to Professor Hunt because you just mentioned the common framework, I think, in your last answer.

Professor Hunt: As we have already said this morning, that common framework process has been in development since 2017 and we are seeing some evidence of some very positive progress in how co-operation and partnership can take place across the UK. Ideally within areas of devolved competence this would be the way to proceed and we would be giving the four nations the space to proceed in that way.

We have the power to retain existing EU law that can give us the space to do that and a commitment not to change those rules while creating these new common frameworks is being undertaken. What we do not know is how the common frameworks are going to relate to the provisions within this Internal Market Bill and it seems astonishing that that has not been made explicitly clear. There is a suggestion perhaps that the principles in this Bill might cut in to the common frameworks and there may be some divergence that has been agreed and accepted within the common frameworks that might still fall foul of these internal market principles. Again, there are concerns there about how that positive collaborative process has been undertaken that might be undermined by the top-down provisions within this Bill.

Professor McHarg: I agree with what Professor Hunt has just said. There is a risk if the two processes operate in parallel that any agreements are just going to be undercut. Any divergence rules that are agreed to the common frameworks process, and that is the point of a common framework, to balance common standards with ability to diverge, that those then simply get set aside because they do not have to be complied with by incoming producers. That is really problematic.

Where that common framework is contained in legislation that applies throughout the UK then I think it would not be subject to the internal market principles, but again that is not 100% clear. That relationship really does need to be clear because there is no point in spending time and effort agreeing common principles and agreeing scope for divergence if then these cross-cutting rules undermine it.

Q51            Beth Winter: The UK Government have argued that the Internal Market Bill is there to fill gaps that exist in the common framework. Is there any merit in their argument or again could I go back to the original question about the fact that the common framework could have been legislated and those gaps filled in during that process?

Professor McHarg: I think there is some merit in the argument. A common framework approach is by definition a sectoral approach and so there may be some unanticipated divergence that arises in an area not covered by a common framework, and therefore you might want some kind of backstop. Of course that backstop does not have to be this whole architecture of the internal market rules. There is always a backstop. That backstop could be agreement, that backstop could be the ability of the UK Parliament to legislate and the same goes for issues that might arise under new trade deals that was mentioned earlier. That is a big area of uncertainty about what future regulatory standards might need to be.

It goes back to the justification for this large and intrinsic set of principles. Is the potential problem really big enough to justify all this, particularly when it might have the effect of undermining any agreements that have been reached, because the relationship has not been made clear?

Professor McEwen: The rationale for all of this, whether it is frameworks or whether it is the Internal Market Bill, is moving away from the EU regulatory framework. The frameworks’ work streams have been looking at existing EU regulations that intersect with devolved competence for a long time and they have come to the conclusion that not very many of these require a framework at all. In the latest analysis they are talking about, of the 154, they think 22 require a non-legislative framework and 18 a legislative framework. The rest do not require anything. It seems to me that if you have something that is a backstop that might sweep up everything else then you end up potentially undermining that analysis that has suggested that you do not really need anything in these areas at all.

The common frameworks work started with a set of principles that I think have been quite important in guiding the work. I was a little bit sceptical of those principles because like many statements they can mean different things to different people, but one of the important ones was enabling the function of the UK internal market while acknowledging policy divergence. It seems that in one sense the UK Internal Market Bill will still acknowledge policy divergence, because it does not necessarily stop it from happening, it just weakens its impact, and the assumption that is built into this legislation is that divergence is a harm and as we have been trying to suggest all along that is not necessarily the case and it depends on the societal ambitions and so on.

I do think there is a real concern that the Bill will affect and undermine the work that has been taking place within the common frameworks, but I acknowledge that it might be necessary to have something that is beyond the specific sectoral approach of the frameworks, but we just do not know that yet. I have not seen a case made for why there is a need to do that in anticipation of a possible issue emerging at some point in the future given everything, the political implications and consequences of what doing that will do to the relations between the Governments.

Chair: Beth, thank you very much. That brings us to the conclusion of our proceedings this morning. We are just about to hit our limit, just before 11.30 am, so again thank you very much to our panellists this morning, Professor McHarg, Professor Jo Hunt and Professor Nicola McEwen. We really appreciate your time and it has been a very useful session. My thanks as well to my fellow Committee members for making this a very useful meeting. Thank you. Have a great day.