Recommendation 16

HM Government Accepted

5. PAC conclusion: 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. 5. PAC recommendation: The regulators should put in place robust monitoring to keep track of regulatory divergence and its implications, particularly for small businesses. FSA Response 5.1 The FSA agrees with the Committee’s recommendation. Recommendation implemented 5.2 The FSA has put in place a range of monitoring activities across its regulatory regime to keep track of differences in regulation within the UK. The FSA also has processes in place to manage different aspects of divergence with EU and more generally internationally, for example, horizon scanning and to try and understand potential changes to legislation at an early stage and mechanisms in place for engaging with industry stakeholders 5.3 For changes within the UK, the FSA considers its approaches on a four-nation basis, working closely with Food Standards Scotland, and using robust scientific evidence to develop policy advice and reach consensus where possible. This supports the effective functioning of the UK internal market. The FSA also consults stakeholders including small businesses as part of risk analysis which ensures businesses have opportunity to communicate concerns and impacts with proposed regulatory changes, which informs the advice we provide. Any advice the FSA provides to ministers on divergence or common approaches will meet requirements set out in the common frameworks. CMA Response 5.4 The CMA agrees with the Committee’s recommendation. Recommendation implemented 5.5 A particular area of regulatory divergence with the EU in the CMA’s remit relates to ‘block exemptions.’ These are legislative provisions which automatically exempt categories of agreement (for example, research-and-development collaboration) from the competition law prohibition against anti-competitive agreements, on the grounds that their benefits outweigh any adverse effects. The EU issued a number of block exemption regulations, each lasting several years (typically around ten), after which they are replaced by new ones whose terms reflect changing commercial and economic circumstances. On the UK’s exit from the EU, the existing block exemptions were ‘retained’ in UK law until expiry, at which point they will be reviewed by the CMA. The CMA advises the Secretary of State for Business, Energy and Industrial Strategy on whether and how to replace the retained block exemption regulations with new and revised UK block exemption orders, made under powers in the Competition Act 1998. 5.6 In the CMA’s reviews of the retained block exemptions to date, the issue of divergence with the EU, and its implications, has been an important consideration, as evident in its public consultation documents. Here it has acknowledged the balance between the advantages of tailoring block exemptions to UK markets, and the benefits of consistency for business trading both in the UK and EU. The CMA will continue to monitor areas of divergence carefully, as this will inform its future reviews of the Block Exemptions. 5.7 Another area of potential divergence in which the CMA maintains a keen interest is in the regulation of digital markets. Here, the CMA is following attentively the implementation of 15 the EU’s Digital Markets Act, in anticipation of the government legislating for the UK’s corresponding regime, in which it is envisaged that the CMA’s Digital Markets Unit will be responsible for enforcing a UK pro-competition regulatory regime for the digital sector. 5.8 The Retained EU Law (Revocation and Reform) Bill 2022 may also lead to accelerated divergence in certain areas. The CMA will be carefully monitoring the progress of the Bill, in order to understand how its work might be affected. HSE Response 5.9 The HSE agrees with the Committee’s recommendation. Recommendation implemented 5.10 HSE undertakes a range of monitoring activities across its chemicals regulatory regimes to support a functioning UK internal market. Examples include: • tracking pesticide and biocide product and active substance expiry dates in the EU and which are being withdrawn from sale in the EU and Northern Ireland; • monitoring which substances are being evaluated, authorised and restricted under the EU Registration, Evaluation, Authorisation and Restriction Regulations (REACH) to inform prioritisation within the UK REACH work programme; and • responding to all published Harmonised Classification and Labelling decisions for hazardous substances and mixtures made by the European Chemicals Agency Committee for Risk Assessment under EU Classification, Labelling and Packaging regulations (EU CLP), and assessing whether these are right for Great Britain (under GB CLP). 5.11 When HSE makes regulatory decisions and provides regulatory opinions on chemicals, it takes the impact on businesses, including small b