Regulation after EU Exit

The regulators are struggling to recruit and retain the skills they need to regulate effectively after EU Exit. Having left the EU, the regulators need additional staff to deliver their new and expanded responsibilities. CMA is competing with the private sector to recruit and retain competition lawyers and economists, while both FSA and HSE are struggling to recruit experienced toxicologists in sufficient numbers. A shortage of veterinarians to assure food safety and animal welfare in abattoirs is also a key risk for FSA, which in autumn 2021 had to put temporary measures in place to ensure it had enough veterinarians to deliver this critical role. The regulators are taking action to try to address these shortages, for example, investing in staff training in HSE, and reviewing the pay and conditions of veterinarians at FSA to make the career more attractive. However, the ability to recruit and retain the skilled staff they need remains a key risk to the future effectiveness of all three regulators. Recommendation: The regulators should work together to identify common skills shortages, and develop long-term strategies for recruiting, retaining, and training staff to ensure they have the skills they need in the future. Recommendation: The FSA should work with the Department for Education and relevant professional bodies to address the shortage in qualified veterinarians.

Potential large-scale reductions in staffing levels in regulators will not be achieved without fundamental changes in regulatory approaches. In the Spending Review 2021, the regulators received funding settlements they believed were sufficient to enable them to fulfil their post-EU Exit regulatory responsibilities. Since then, they have been asked (along with the rest of government) to model headcount reductions of 20%, 30% and 40%. Although it is not clear what cuts they may eventually be asked to make, all three regulators are clear that delivering their expanded responsibilities 6 Regulating after EU Exit with headcount reductions on this scale will be extremely challenging. For example, FSA’s SR21 settlement provided for a growth in staff numbers to fulfil its new responsibilities after EU Exit and to directly employ veterinarians. Any future requirement to reduce its number of veterinarians would have a significant impact on the meat industry which, under current regulations, cannot place meat on the market in the UK or export it without veterinary oversight. Regulatory reform to adopt a more risk-based approach could reduce the need for veterinarians, but this would require legislative change. Recommendation: The regulators and policy departments should identify the impact of potential cuts on regulatory risk and set out where significant changes in the regulatory model would be needed to balance the two.

The loss of access to EU systems and lack of progress in taking forward the regulatory cooperation provisions set out in the Trade and Cooperation Agreement increase regulatory risks and costs. On leaving the EU, the regulators lost access to EU data sharing and cooperation arrangements. CMA can no longer share confidential information with the European Commission or member states in merger, competition or consumer enforcement cases, impacting its ability to effectively enforce competition law. FSA has also lost full access to the EU’s Rapid Alert System on Food and Feed (RASFF) which provides member states with information on food safety incidents, increasing the time and effort it takes to deal with food safety incidents. HSE no longer has access to the chemical safety data underpinning the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulations. Industry has estimated it will cost £800 million to replicate this data in the UK REACH system. The regulators are taking action to mitigate these issues, but in some instances the alternatives are more time consuming and are likely to increase costs over time. The EU-UK Trade and Cooperation Agreement (TCA) recognises the value of voluntary cooperation on chemical regulation and includes provisions to establish a separate agreement on competition enforcement cooperation (including the sharing of confidential data). We are disappointed that no progress has been made in taking these issues forward, despite the regulators willingness to do so. Recommendation: The regulators should work together to share good practice on mitigations to address the loss of regulatory cooperation arrangements with the EU and write to the Committee in six months setting out progress in taking forward the cooperation arrangements set out in the Trade and Cooperation Agreement.

Regulatory divergence between the UK and the EU and within the UK internal market risks increasing costs for businesses, but also offers opportunities depending on the approach taken. Following EU Exit there is already some divergence in regulatory approach between the UK and EU. For example, the EU recently banned titanium dioxide as a food additive, while the UK has not introduced a ban and FSA is carrying out its own risk assessment. There will also be divergence because regulatory decisions are made at different times and will take into consideration UK risk profiles and usage, for example, in the authorisation of specific chemicals or regulated food products. Outside the EU single market, there is also greater scope for England, Wales and Scotland to reach different regulatory decisions in areas of devolved competence. The regulators are working with the Regulating after EU Exit 7 devolved administrations under a set of ‘common frameworks’ to reach an agreed way forward where possible and coordinate the timing of regulatory decisions and their implementation. However, in areas like gene editing for example, it is not yet clear whether a common approach will be agreed. There is a risk that over time regulatory divergence (both between the UK and the EU and between the four nations of the UK) may lead to increased costs for business and consumers through administrative burden and regulatory costs. We are concerned that these costs may have a disproportionate impact on smaller businesses. Recommendation: The regulators should put in place robust monitoring to keep track of regulatory divergence and its implications, particularly for small businesses.

It will be vital for regulators to continue to develop their engagement on the world stage. Outside the European Union, the regulators have taken steps to increase their international influence and engagement, recognising the importance of sharing good practice, increasing cooperation in the global marketplace, and working to improve standards worldwide. For example, CMA has both continued its engagement with the International Competition Network and the International Consumer Protection and Enforcement Network, and also agreed a new mutual assistance and cooperation framework with the competition authorities in the United States, Canada, New Zealand and Australia. FSA is strengthening its engagement with Codex Alimentarius, the international standard-setting body for food and feed, and it is investing in its work with the International Food Safety Authorities Network (INFOSAN) that supports international cooperation on the management of food safety incidents. HSE is also representing the UK at the UN globally harmonised system of classification and labelling of chemicals. Recommendation: The regulators should write to the Committee in six months setting out their plans for further international engagement including their objectives and timescales for action. 8 Regulating after EU Exit 1 Regulatory strategy, capacity and capability post EU Exit

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Competition and Markets Authority (CMA), the Food Standards Agency (FSA) and the Health and Safety Executive (HSE) on regulation after EU Exit.1

Having left the EU, the regulators need additional staff to deliver their new and expanded responsibilities. CMA told us that it has always been in competition with the private sector for skilled competition lawyers and economists, and the expansion of its role after EU Exit means the scale of this challenge has increased.15 FSA and HSE are both struggling to recruit skilled toxicologists to carry out toxicological assessments in the chemicals and food regulatory regimes.16 Difficulties recruiting and retaining veterinarians to carry out meat hygiene controls was also raised by FSA. Current regulations require veterinarians to be on-site in abattoirs to oversee food hygiene and animal welfare and although this requirement has not changed as a result of EU Exit, the demand for veterinarians has grown, in part because of increased controls on exports to the EU. FSA also told us that 95% of the veterinarians providing this service are from overseas and a significant number used to come from the EU.17 Since EU Exit, these veterinarians must meet English language requirements to be eligible for professional registration and this has been challenging.18 The implications of this were made clear by FSA, which told us that in autumn 2021 the number of official veterinarians it had available dipped to 210 (when it typically needs 260). It described the situation as ‘hand-to-mouth’ as staff no longer in front-line veterinary roles pitched-in to ensure that all shifts in abattoirs were covered.19 9 Q 40 10 Qq 11, 30 11 Q 8, 39 12 Q 36 13 Qq 39–41 14 Q 30 15 Qq 12–13 16 Qq 10, 14–17 17 Qq 3, 9–11, 25–29 18 C&AG’s Report, para 2.15 19 Qq 25–26 10 Regulating after EU Exit

The regulators set out a number of ways in which they are addressing these skills shortages. On recruitment and retention of veterinarians, FSA has worked with the Royal College of Veterinary Surgeons to agree a temporary arrangement that allows veterinarians who do not meet the language requirements to be employed for twelve months while they improve their English skills. It is also looking at ways to make a career in veterinary public health more attractive to UK-qualified vets as well, including directly employing veterinarians to provide more career progression; reviewing pay and exploring ways to make roles more flexible.20 CMA told us that the interesting and influential nature of it works helps to attract staff and it is participating in a HM Treasury pilot that gives it more pay flexibility.21 In the case of HSE, it has invested significantly in training, with 25% of staff time in its Chemicals Regulation Division spent on training in 2021–22 as it has taken on a significant number of recent graduates to build its capacity post-EU Exit.22 However, it is clear that risks remain, with all three regulators identifying challenges in the recruitment and retention of appropriately skilled staff as one of the key risks to their post-EU Exit regulatory regimes.23 Capacity and future resourcing

In the Spending Review 2021 (SR21), the regulators received funding settlements they believed were sufficient to enable them to fulfil their post-EU Exit regulatory responsibilities. FSA, for example, agreed a £122 million budget covering its work in England and committed to maintaining its 2019 headcount levels, with the exception of growth in staff numbers to fulfil its new responsibilities after EU Exit and to directly employ veterinarians.24 Across its full range of responsibilities, including its new role as building safety regulator, HSE is expecting to grow from around 2,500 staff to between 3,000 and 3,500 over the spending review period. It told us that its SR21 settlement was sufficient to enable it to carry out its role.25

The regulators have since been asked (along with the rest of government) to model headcount reductions of 20%, 30% and 40%, which would have significant impacts on these plans. In HSE’s case, it explained that if the reductions are modelled on its existing headcount, the cuts will include all planned growth in addition to 20–40% reductions. It told us that reductions in headcount would mean it was not resourced to take on its new functions and maintain existing ones.26 We questioned FSA on how 20% cuts in veterinarians would impact on it, and it told us that it would have a significant impact on the meat industry which, under current regulations, cannot place meat on the market in the UK or export it without veterinary oversight. It explained that current regulations prescribe the role of veterinarians in meat hygiene controls and changes would not be possible without a change in the law.27 20 Qq 10, 27, 29 21 Qq 12–13 22 Q 14, C&AG’s Report, para 4.11 23 Q 3 24 Qq 42–44 25 Qq 42, 48 26 Qq 8, 48 27 Q 11 Regulating after EU Exit 11 2 Regulatory divergence and international cooperation EU data sharing and cooperation

On leaving the EU, the regulators lost access to EU data sharing and cooperation arrangements. CMA can no longer share confidential information with the European Commission or member states in merger, competition or consumer enforcement cases.28 FSA has also lost full access to the EU’s Rapid Alert System on Food and Feed (RASFF) which provides member states with information on food safety incidents. It no longer has access to ‘real time’ data on all incidents, receiving information only on UK-relevant alerts by email. These changes have increased the time and effort required to deal with food safety incidents, with FSA estimating it requires around 65% more staff resource to deliver the same international information exchange on food safety incidents now than it did before.29 HSE no longer has access to the chemical safety data underpinning the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulations. Industry has estimated it will cost £800 million to replicate this data in the UK REACH system.30

The regulators told us they are taking action to mitigate issues around access to data. For example, in competition and consumer law enforcement, CMA can investigate itself and use its own powers to gather information.31 Despite no longer being able to share confidential data, it also told us that it has good working relationships with the European Commission and has launched three cases in parallel.32 To monitor food safety, FSA has developed a horizon-scanning data application that extracts information on food safety incidents from open-data sources. It told us the tool has helped it identify 27 food safety incidents, including listeria in some mushroom imports.33 However, it told us this does not compensate in full and managing food incidents is more work than it was before.34 HSE explained it is working closely with the Department for Environment, Food & Rural Affairs (Defra), which is responsible for Registration, Evaluation, Authorisation and Restriction of Chemicals policy, to find a solution to the loss of data from EU REACH that will cost significantly less than the industry estimates for replicating the data. It also told us that in general, the core safety data it needs to assess chemicals safety is available from public sources and data it already holds.35 However, we received written evidence from Green Alliance raising concerns that Defra’s proposals to take a more risk-based approach to the data requirements (based on usage and exposure data in a UK context) are the result of efforts to reduce the costs involved rather than any benefits to human health and the environment.36

The EU-UK Trade and Cooperation Agreement (TCA) includes a provision to establish a separate agreement on competition enforcement cooperation (including the 28 Q 52, 29 Q 52, C&AG’s Report, para 2.17 30 Q 57–58 31 Q 56 32 Q 65 33 Q 54 34 Q 52 35 Qq 57–58 36 REE0002 12 Regulating after EU Exit sharing of confidential data). CMA told us this agreement has not yet been agreed, and progress on this would be welcome as it would remove a significant barrier to effective competition enforcement.37 The TCA also includes broad commitments to facilitate the exchange of non-confidential information on chemicals between the EU and UK, but it does not extend to full data sharing arrangements.38 HSE told us that while overall trade policy between the UK and the EU settles down, there is tight control from the centre of government over when and how they talk to co-regulators in the EU. In due course, it expects information exchange between it and EU regulators to become more straightforward.39 We questioned FSA on whether, in the future, there is scope for better information sharing with the EU on food safety incidents and it told us that it does not feel optimistic about it at the moment because it had recently been asked to leave the Heads of Food Safety Agencies, an informal European network for encouraging cooperation and sharing good practice.40 Regulatory divergence

Following EU Exit there is already some divergence in regulatory approach between the UK and EU. The regulators gave us examples where divergence was happening or could happen due to differences in opinion on what the evidence said or how this related to the UK. For example, the CMA told us that it had taken the decision to block a global merger of companies that sell equipment for container shipping which has been conditionally cleared by the European Commission, and that its decision had been accepted.41 The FSA explained that the EU recently banned titanium dioxide as a food additive, while the UK has not introduced a ban. FSA is carrying out its own risk assessment, as the UK committee on toxicity is not convinced that a ban is necessary.42 FSA explained that its consideration of risk would also take into account the specific consumption patterns in Great Britain, which could be different to those in Europe. As an illustration, the FSA explained that because children in Britain drink more orange squash than in the EU, the FSA might therefore come to a more cautious view on what additives were allowed in squash.43

The regulators also provided examples of divergence where the UK and EU were making decisions to different timetables. HSE has been able to get a chemical onto the market quicker than the EU as it has carried out reviews of the active substance and the product simultaneously, rather than one after the other; it estimates this has reduced the time for approval by 18 months without changing the risk.44 The Government is bringing legislation on gene editing before the House, which will represent potentially quite a significant divergence from EU standards. However, FSA suggested that the EU was also examining gene-editing and was likely “to come out in a more similar place to where the English Government are on that”.45 37 Qq 52, 56 38 C&AG’s Report, para 4.15 39 Q 52 40 Q73; C&AG’s Report, para 2.21 41 Q8 42 Q60 43 Q67 44 Q61–63 45 Q66 Regulating after EU Exit 13

CMA stated that “there is some benefit, particularly for business certainty, in there being consistency as between the UK and the EU.”46 This applies more widely than just in the area of competition and consumer protection, although the overall impact of divergence on trade with the EU is not yet clear. FSA suggested that a UK producer of cannabidiol (CBD) products may not be able to sell them in the EU when the EU has completed its own risk assessments. FSA also acknowledged a potential risk around how the EU might treat “contamination”, for example for crops grown near to those which have been gene-edited, but did not appear to have deeply considered the issue.47 As FSA spelt out in the case of titanium dioxide, Northern Ireland remains subject to EU rules and this will affect its access to products if these rules differ to those in the UK.48

Outside the EU single market, there is also greater scope for England, Wales and Scotland to reach different regulatory decisions in areas of devolved competence, which include food and environmental protect. The regulators are working with the devolved administrations under a set of ‘common frameworks’ to reach an agreed way forward where possible.49 For FSA, this approach involves shared committees of officials and coordinating timing of key steps such as putting advice to ministers at the same time. As a particular example, FSA has worked with Scotland and Wales to ensure all ministers agreed to lift controls on Fukushima products.50 However, in areas like gene editing for example, it is not yet clear whether a common approach will be agreed.51

There is a risk that over time regulatory divergence (both between the UK and the EU and between the four nations of the UK) may lead to increased administrative burden and regulatory costs for businesses. All three regulators use fee models, in whole or in part, to fund their work. Both FSA and HSE are in the process of reviewing their fees, and recognising that budgetary pressures, as well as the level of work required, may have an impact on what might need to be charged.52 We are concerned that these costs may have a disproportionate impact on smaller businesses. FSA noted that fees tended to be more bearable for bigger abattoirs and that they offered “more of a discount” for smaller businesses.53 HSE fees for chemicals regulation are charged on an application basis, which will be proportionately larger for smaller companies. It also noted that applications for CBD products were of a lower quality than it was used to receiving, because these companies were “not used to working with a regulator”. These applications were taking longer to validate, presumably increasing burdens and costs for both HSE and the company.54 However, it is worth noting that both FSA and HSE have responsibilities for making sure the Northern Ireland protocol works in practice, and while they felt that changes to the protocol might increase their workload, neither considered that it would have a substantive impact on levels of safety or on the costs of regulation.55 46 Q60 47 Q66 48 Q60 49 Qq 60, 67 50 Q60 51 Q60 52 Qq 45–51 are on fees. 53 Q50 54 Q21 55 Q64 14 Regulating after EU Exit International engagement

While the UK was an EU member state, the regulators exerted international influence primarily through the EU, even where they took part in international fora as individual organisations.56 The regulators now represent the UK’s interests outside of the EU. The regulators recognise the importance of strengthening their international links to share knowledge, establish best practice and improve standards, and develop cooperation arrangements.57 The regulators told us that for this reason they are beginning to develop strategies for increasing their international presence outside of the EU.58 FSA has recently established a new International and UK Affairs Directorate to lead on its international strategy.59 CMA told us that now it is taking on larger and more complex global competition cases that had previously been reserved to the European Commission, there is “more international attention” paid to its decisions. Similarly, HSE emphasised the importance of sharing knowledge and scientific evidence with counterparts in other developed economies to ensure the UK “remain[s] a globally leading and safe place to do business”.

The regulators are taking steps towards increasing their participation in international fora, as well as developing bilateral agreements and relationships with counterparts.60 CMA signed a mutual assistance and cooperation framework with its counterparts in the United States, Canada, New Zealand and Australia, and also told us it had agreed a common approach to mergers with its German and Australian counterparts.61 FSA and HSE have focused on developing their participation and influence within international bodies, including at the OECD and the United Nations (UN). HSE told us it is participating in the UN globally harmonised system of chemicals classification and labelling and chairs some of its subgroups. FSA’s former global affairs director is now the chair of Codex, the international food standards-setting body. FSA also told us it is developing its involvement in the International Food Safety Authority Network (INFOSAN) for exchanging information on food safety incidents, although it recognises that there is “still a way to go” to improve its effectiveness. 56 C&AG’s Report, para 2.22, 3.22, 4.21 57 Q65 58 C&AG’s Report, para 19 59 C&AG’s Report, para 2.22 60 Q65; C&AG’s Report, para 19 61 Q65 Regulating after EU Exit 15