Tue. Jul 5th, 2022

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When it comes to defining the “benefits of Brexit” there is a long tradition of trumpeting the benefits that would flow from escaping the stultifying regulatory orbit of the EU – or “slashing Brussels red tape”, in the conventional tabloid shorthand.

But in truth this notion of a “deregulatory dividend” was always something that existed more in the imaginations of Brexiters and the Conservative right, than in reality.

And there was forewarning. When David Cameron commissioned the “Balance of competencies” review in 2012 to systematically audit the impact of how EU regulation affected the UK, the results (contained in 32 meaty reports) sank without political trace.

Had there been an obvious dividend, you can bet your bottom euro that you’d have heard about it at the time among those arguing the case for Brexit. But the reports did not provide the anticipated ammunition.

That’s because while the EU was far from perfect, its regulatory systems did underlie the EU single market – so the findings called for “less and better” regulation, not the wholesale ripping up of an increasingly seamless pan-EU trading system.

The UK leaving the EU did not dismantle this ecosystem, it just removed the UK’s voice from its creation. Nor did Brexit reduce the importance of the EU to UK trade – as recent trade figures compare the UK with other G7 countries show (see chart below).

So after Brexit, the EU regulatory juggernaut rumbled off into the distance, leaving Brexiters on the roadside trying to describe a unilateral deregulatory dividend that – six years after the vote to leave – they have still been unable to properly articulate, let alone enact.

That Brussels juggernaut moves reasonably slowly, but a year into Brexit proper, we are starting to see the regulatory gaps beginning to open up between the UK and Brussels, and questions being asked about how to manage these.

The latest (third) edition of the UK in a Changing Europe’s divergence tracker throws up two or three interesting examples of where the UK is having to decide whether or not to align with new EU rules – or go its own way.

The first is an EU update to its “pharmacovigilance” regulations – the way in which medicine-related adverse effects are reported by industry – which means the UK and the EU now have different systems.

That bites immediately in Northern Ireland (which must follow EU rules) but also begs the question about whether there’s any advantage for the UK not following suit, given the size and nature of UK vs EU markets where the same drugs or veterinary medicines are used.

A consultation is being promised by the UK government on how to proceed, but until there is a result – and ministers make a decision – there is what Joël Reland, the author of the tracker, calls an “airgap” between the EU and UK regulatory systems .

Similarly, new EU car safety rules enter into force this summer which, among other things, will make cars safer for women.

Given the nature of UK car manufacturing supply chains – where EU sales and exports are fundamental to the viability of UK production – the industry is very clear it would like to align with the EU but is still waiting for ministers to formally decide.

Auto industry insiders express frustration. The new EU rules kick in from July 6, but there is only medium confidence that the “airgap” will be closed before then, as Whitehall struggles to find the bandwidth to engage with the sheer volume of EU divergence.

Of course, these examples are only the beginning – UK industry will soon have to wrestle with a new EU battery regulation that will set the terms for performance and recycling, as well as data management regulations (that will affect driverless cars).

Across a huge range of industries, this is the actual story of managing the fallout of the regulatory freedom from Brussels that was delivered by Brexit – what Reland terms the constant “passive divergence” that occurs when the EU moves, and the UK stands still.

This bites hardest and most immediately in Northern Ireland, which must follow EU rules as part of the post-Brexit trade arrangements and so is wrestling immediately with managing dual regulatory regimes on “pharmacovigilance”, for example.

Brexiters are quick to highlight this new regulatory divide within the UK internal market as an argument for the Northern Ireland protocol being “Untenable” – and there are 29 other regulatory areas where divergence is also coming.

But narrow point-scoring on the protocol is to obscure the far broader challenge about how the UK systematically manages the continuous process of divergence from the EU.

As Reland puts it: “It’s a job for life, horizon-scanning, and looking at often quite small practical changes business has to make, and it’s always going to be there, lurking in the background.”

That job requires bandwidth both within industry and government as the post-Brexit UK tries to build the regulatory capacity to make these decisions – that means installing new people and processes across a vast array of industries, from toys to building supplies; chemicals to medicines and medical devices.

Given the intermediate nature of UK manufacturing and the continued importance of the EU to UK trade, the positive case for active divergence will be much harder to make than the “slash Brussels red tape” agenda would have the public believe.

Whitehall insiders confirm what industry well knows from recent experience dealing with government – that there is currently no systematic approach to addressing these questions. No one is sitting in Whitehall with a spreadsheet, identifying upcoming EU regulatory changes and doing the cost-benefit analysis on aligning or diverging.

Indeed, as one insider puts it, a systematic approach of that kind would positively be “viewed with suspicion” by the current government, which often likes to say that the civil service needs to break the mindset of “EU regulatory capture” that comes from dealing with Brussels for the past 40 years.

The result, concludes Reland, is that the UK approach on divergence thus far is “patchy”, with little sign that anyone is really engaging in the unglamorous work on monitoring and deciding how to respond systematically to EU regulations – where alignment should be sought or not ”.

Do you work in an industry that has been affected by the UK’s departure from the EU single market and customs union? If so, how is the change hurting – or even benefiting – you and your business? Please keep your feedback coming to brexitbrief@ft.com.

Brexit in numbers

Line chart of Rolling 3-month average, 3-month to Jan 2020 = 100 showing UK goods exports are underperforming the rest of the world

It will not have penetrated far beyond the confines of Westminster, but there was an interesting little moment this week when the chancellor Rishi Sunak accepted that Brexit was the likely cause of the UK’s dismal trade performance relative to other G7 countries.

It was nothing more than a statement of the obvious, but it was a rare admission from one of the big beasts of the cabinet that the trade frictions imposed by Brexit are costing the UK.

To the point of last week’s newsletter, Boris Johnson returned to the official script later in the week by declaring (when asked about that same performance) there was “no natural impediment” to UK exports that “will and energy and ambition” could not overcome.

No one should expect an overnight change, but when you look at what Sunak said – and the reporting around the Spring Statement – then drip by drip the top-line effects of Brexit are perhaps starting to feed into the wider political conversation.

And, finally, four unmissable Brexit stories

Nigel Farage was caught up this week in a controversy involving a Dutch carbon offsetting company. The former Brexit champion is in line to gain up to € 18.5mn from share options he owns in Dutch Green Business if the share price rises from the current € 1 to € 20.

The cumulative costs of Brexit are piling up for Boris Johnson, writes Philip Stephens. The damage done by the Johnson premiership to the nation’s economy, its political fabric and its standing abroad have been immense but becoming “normal” again will not be easy, he concludes.

There’s an obvious temptation in the EU to feel schadenfreude about the UK’s content-free Brexit triumphalism, writes Alan Beattie as he bemoans the impact of Brexit on UK-EU trade. But he warns EU trade policy is at serious risk of protectionist drift.

New columnist Stephen Bush writes about the fascinating shift in the role of female voters in British politics. For most of the 20th century, he writes, women were more likely than men to back parties of the right across the democratic world. Today, however, it is the other way round. Stephen explains what is driving the switch.

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