Constitution, Europe, External Affairs and Culture Committee [Draft]

Meeting date: Thursday, May 16, 2024

Official Report 798KB pdf

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Office for the Internal Market (Annual Report)

Our second agenda item is to take evidence from the Office for the Internal Market on its annual report. We are joined by Murdoch MacLennan, chair, and James Macbeth, director, both from the Office for the Internal Market. I give a warm welcome to you both. I invite Mr MacLennan to make an opening statement.

Thank you, convener. As you mentioned, I am the panel chair for the Office for the Internal Market, or the OIM. It is a pleasure to be back in front of the committee, having given evidence last September. On this occasion, I am joined by James Macbeth, who is one of the directors of the OIM and who was responsible for the OIM’s 2023-24 annual report. James and I welcome the opportunity to meet you this morning, because we plan to update the committee on the OIM’s recent work. With your permission, I would like to briefly set out some points.

As the committee is aware, our role is to assist Governments, legislatures, businesses and other key stakeholders across the United Kingdom in understanding how the UK internal market is operating and the impact of regulatory provisions. Our advice and reports are absolutely non-binding. The OIM is not the regulator of the internal market, and we have no enforcement role whatsoever, so we are there in an advisory capacity. Since our previous evidence session with the committee, the OIM has produced two key outputs, which I will turn to shortly.

In November, we welcomed the appointment of the OIM panel, after the best part of two years trying to recruit the panel members. The seven members are outstanding and bring with them a variety of relevant experience from across the UK. We are grateful for their input and insight into the OIM’s work so far, and I look forward to working with them further to consider the effective operation of the UK internal market.

In March 2024, the OIM published its 2023-24 annual report on the operation of the internal market. That was our second annual report, which builds on the previous iteration. The report expands our coverage of the UK internal market to include analysis of services sectors and regulated professions, as well as goods sectors, which featured heavily in the previous report. The report also includes four case studies, on high fat, salt and sugar foods, precision breeding—otherwise known as gene editing—deposit return schemes and single-use plastics, some of which are areas that we discussed with the committee previously. The case studies have helped us to better understand how businesses are working with regulatory differences that are arising or are likely to arise across the internal market. They provide some takeaways for policy makers on how policy design choices might impact the internal market.

We continue to progress our data strategy. Last week, on 9 May, we published an update on the data strategy road map. The committee is aware that the road map was first published in March 2023 and looks to promote the collection and publication of data on the operation of the UK internal market. The update provides an overview of progress that has been made on initiatives that are outlined in that road map. It also sets out our intention to identify data sources, which will enable us to build a more complete or holistic picture of how the internal market is operating from the perspective of businesses and from consumers’ point of view.

We continue to have excellent engagement with a wide range of stakeholders in Scotland, as well as Scottish Government officials. The OIM works even-handedly across the four nations—I make that point time and again—and it has developed open and equal working relationships across each Government more widely.

We welcome our on-going engagement with the committee and we are pleased to be appearing here today. We are keen to expand our portfolio of work to reveal more of the emerging picture of the internal market and how successfully it is operating. We remain available as a source of advice for all four Governments and we will continue to work closely with them and other stakeholders to see where the OIM can best add value in the coming year.

I hope that was helpful as a general picture. We are trying to make a bit of a sales pitch today to offer the skills and services of the whole department, if you want to avail yourselves of them. If we can give any further clarification, we are happy to do so.

I will open with a question about the case studies. You say that there is

“a clear view, particularly among the larger businesses ... that the Market Access Principles are unlikely to be used as the preferred approach to address regulatory differences.

Could you expand on that and say what the implications of that will be for the Internal Market Act 2020?

Businesses do not seem to need or want to use that approach. They just get on and do business, picking what is probably the least difficult option for themselves and move on. They have hardly picked up on the principles at all.

I think that that is right. The important thing to note is that we have drawn that conclusion from the four case studies that we have undertaken. Those case studies were stronger on evidence from larger businesses that had quite extended and complex supply chains and often higher brand values than maybe some smaller businesses or microbusinesses. That is the first thing, and I think that it is quite an important caveat. It conditions how much we think we can apply those specific findings to the economy more generally.

That said, the stakeholders that we spoke to are businesses of a significant size. We are talking about supermarkets and large food producers whose impact would be significant and would account for a very large amount of turnover.

The specifics are really about how those businesses make the trade-offs between, on the one hand, potentially using the opportunity presented by the market access principles to do business in a slightly different way and, on the other, a quite complex set of considerations around things like brand values, wanting to be able to comply with local regulations wherever possible, their customers’ expectations, which are particularly important, and their view of how things might develop in future. Many of those businesses are making strategic decisions not just for the next six months or the next year or two, but often for many years into the future, particularly where that involves relationships that might involve a variety of suppliers, their overall logistics and supply chain operation. They do not want to be changing that regularly.

If we put all those factors together, we see that, certainly for some businesses, as long as the design of the regulation permits it—we come back to this in some of our findings later in the report—the most attractive option is to ask what the highest common denominator is and whether the businesses can develop a single product that allows them to satisfy the regulations everywhere in the United Kingdom. If they can, that might be the best way to go.

That was true across the four case studies that we looked at, but it also emerged from our studies of the peat industry. Earlier in the year, we looked at a potential ban on using peat-based media to develop a range of potting composts and other types of growing media for the retail and professional markets. There was a similar finding: businesses wanted to be able to produce a single product that they could sell everywhere across the United Kingdom using consistent branding and marketing, rather than having to adapt a product to lots of different scenarios.

That is particularly interesting because it has quite wide ramifications for efficient policy design and for how the impacts of policy might be felt on the ground. What we do not yet know—I go back to the caveat that I gave at the beginning—is how much that applies to all sorts of businesses right across the economy. It is not hard to see that a different approach might be taken by some microbusinesses, by businesses that work in areas in which brand values matter a bit less and price matters more, and by businesses that are involved in the production of intermediate goods. We will need to explore such issues again in the future.

Good morning. You have touched on the sizes of the businesses that seem to manage to co-ordinate and cope. You have indicated, as others have done in the past, that larger businesses manage to cope much better in these scenarios, because they have the means to do so. Smaller businesses have had much bigger challenges, and some have chosen not to continue with the process as a result.

We have talked about some of the existing common frameworks, and you have touched on the data that you have collected and collated. It would be useful to get a flavour of how you see the situation progressing for businesses as a whole. Your scenarios and case studies provide us with examples of what has happened and what might happen in the future, depending on how things go. The data that you collect will give us a much better understanding of how things are progressing and a road map to ensure that we manage to collate information in the future. It would be useful to hear from you on where you see things going.

The overall position on data collection is mixed, but it is encouraging that the Office for National Statistics will publish consistent estimates of trade between the four nations in the autumn and will then do so annually. We are still getting our act together.

The picture is mixed mainly because the devolved Governments’ trade surveys are our main source of data, and no data whatsoever is produced for England. In addition, Wales is pausing its trade survey for 2023, which was due to be published next year. That means that it will not be possible to produce robust UK interregional trade data for 2023. However, I think that the situation will steadily improve, as there will be a demonstrable need for such information in the future.

That is very helpful. I will set out some context. When we talk about data, we need to think about data collection on three levels. First, we have data that is collected at the level of the economy as a whole. The picture is very challenging in that regard, because, as Murdoch MacLennan said, we do not have any trade statistics to speak of for England. Although we have trade statistics for Northern Ireland, Wales and Scotland, the situation there might look less good in future years than it looks now. For example, the trade survey for Wales, which is a critical component in building a UK-wide picture, is likely to be paused for the reference year 2023, with the results being published in 2025. As I understand it, there is also some discussion about whether the Northern Ireland trade statistics might be paused or scaled back for some years, which would obviously also have an impact.

It is not inconceivable that there might be a year or two in the future when we have data only for Scotland. That would necessarily have an impact on the good work that the ONS has been doing, which Murdoch MacLennan referred to, to create a consistent interregional data set. We are expecting the first results of that work later this year, but it is highly dependent on those underlying trade surveys. If they are not being run, the interregional data set will be compromised, which would be a real shame because it would really cloud the view. That is the high-level data set.

At the intermediate level, we look at data at the level of individual sectors. We might ask questions about a particular industry. That matters because although individual regulations are important, we should also look at the way in which they interact. We see that picture most clearly when we look across a sector and ask businesses to examine the overall regulatory environment in which they work and how they integrate. We are considering doing more work on that in the future.

09:15  

The third is more of a micro level, which I would describe as probably being best illustrated by our case studies. In those, we closely examine a development that is taking place for specific businesses, and we ask them what changes they are making as a result. We then get to understand something of the mechanics that drive those changes. In contrast, when we look solely at the broad trade statistics, we might see what is happening but we do not always get much of a clear picture as to why.

In our view, therefore, all three of those different perspectives need to be put together in order to have a really clear picture. However, for some of them, and in particular high-level data, the picture looks challenging for the next few years at least.

You have identified possibilities that could be problematic for some sectors. You also said that if the data is not complete, so that we do not have a complete picture, that might give a skewed view as to how things will go in future.

It has been interesting to see that businesses have been resilient. In some of the areas that you have explored they have adapted so that they can progress towards what they see the future holding. However, there is no doubt that we are not sure what the end of the journey will be, depending on where we take this. If we do not have all the data packages for the future, then it becomes even harder to analyse how successful some sectors have been or how difficult they have found it to cope, depending on the information that you have to hand.

It is fair to say that we do not always have the complete picture in our hands for any given year. However, if we think that we might have, say, a gap in a particular area, we can ensure that in those areas that are much more under our control—for example, those where we do case studies—we can balance the work out a little more in order to compensate. That approach is not perfect, but it is certainly better than doing nothing in response to those challenges.

We talk closely and regularly with the statistics teams in each of the Governments, to understand exactly what the future developments might be. There is a common understanding on that: everybody recognises that we would like to keep the production of these statistics as broad and as well managed as we possibly can, for exactly the reasons that you have mentioned. The challenges are principally on budget; they are not on appreciation of the value of the data.

Good morning. Thanks for joining us.

I would like to hear your reflections on the UK Internal Market Act 2020 exemptions process. I presume that you will be reluctant to talk about individual decisions, and their merits or otherwise. What are your reflections on how the process by which IMA exemptions are granted or denied has worked in various sectors, given the number of different policies that have been in place over the last year or two?

The OIM does not have a formal role in that process. There is no point at which we are required to do anything under our specific remit. We have told all four Governments that if the collective view is that it would be helpful for us to offer our technical advice in a certain area, we would be happy to do that.

However, that approach would have to be conditioned by two or three criteria if we were to make it useful. First, there would have to be broad buy-in for the work, because it would require us to engage with officials within each Government. We would therefore need to have a good, co-operative relationship with the policy teams who work up the policies that would be affected.

Secondly, it would have to be done at the right time in the process. We would need a little bit of time to do our research, largely because much of it is driven by speaking to external stakeholders. That means that the timing decision often needs to be finely calibrated, because we do not want to talk to businesses and other stakeholders too early. If we do that, they often have not got their heads around the facts and so are not in a position to give us particularly clear answers. If we do it too late, it will be too late to genuinely influence the policy development process. There is therefore what we might call a sweet spot in which the work can be valuable.

Thirdly, it would need to be done on the understanding that all the work would have to be brought forward in an even-handed manner. That would mean that, when we are collecting evidence, reporting back our draft findings and talking to people about the direction and the scoping of the work, it would have to be done on the basis of all four Governments being involved.

We think that, subject to those conditions, there is potentially a role that we could play. As things stand, the IMA does not give us any formal role to do that, but it could be done by agreement between the four Governments.

You have reflected on the IMA’s role within the decision-making process. Given that you have reflected on and have spoken to businesses to get an understanding of their view of the exemptions process, do you have thoughts on whether the process is working effectively? I will use the example of the deposit return scheme. The UK Government granted an exemption for a DRS in Scotland, with an exclusion of glass as part of the scheme. A requirement was that any scheme that was brought forward in Scotland would have to align with an English scheme and the rules around that. However, that has effectively provided a block, because there is no English scheme to align with, which means that there is a lack of clarity around what the future rules might be. Of course, in the past couple of weeks, the current UK Government has announced that it will not be moving forward with an English DRS scheme until 2027.

From what you have heard from the businesses that you speak to and your reflections on that process, do you think that we have an ideally functioning process at the moment? There is now a lot of uncertainty about the direction of the regulations in England, and, given the announcement that has been made, it feels like there needs to be another stage in the process where businesses can say that the position needs to be revisited. I do not know, but it feels as though the voice of those who are affected by such decisions is not built into the process.

I am trying to tease you into reflecting on all the evidence that you have gathered from businesses and to say whether you feel that the process in relation to DRS has left us in a place where businesses can get certainty around what the market for glass and other recyclates is going to be through deposit return.

To go back to the way in which we operate, we have not been involved in that exercise. It is not as if anyone has missed the boat, because we are still in our infancy. We have produced one periodic report and we will be getting involved in other issues going forward.

The issue that you raise is not one that we were asked to be involved in. That makes it sound as if we would have been involved if only we had been asked, but, at that point, we were just at the inception stage, as it were, and, as far as the exclusions are concerned, that is not part of our remit.

But you could have been asked for an opinion on what the view of businesses might be and what the impacts might be.

I am not trying to get you to comment on the merits or otherwise of the decision, but what I am seeing is a process that is very uncodified and I am struggling to see what the role of the OIM is within it. You are, not an arbiter, but a sort of independent body that is able to gather evidence that is useful for ministers when they make decisions within a common framework, but I do not see that your role is codified in the way that, say, the role of the Climate Change Committee is in relation to decisions on climate. I am struggling to see where you should and must fit within that process. It feels that we have had some decisions that have created a huge amount of business uncertainty and are certainly now subject to an enormous amount of criticism in this Parliament and at Westminster. However, we are still struggling to see where you might have fitted within that and where you may fit in the future.

We may fit into the process in the future, but we were not asked to fit in at the beginning of that particular exercise. Part of the reason why we are here is to make a pitch about what we can do in future.

We have expert technical and economic advisers at the top end in our business, and we are well represented in Edinburgh. I am not saying that, at some future stage, we will not be involved in that, but this is what we can offer. We are totally impartial, and we work across the four Governments. We are part of the Competitions and Markets Authority, and it is the same sort of business, in that we are completely independent and very willing and happy to be involved in any exercise that you would deem us fit to help you with. If there are any future regulatory changes, we can advise and, as I said the last time, the best thing of all is that you do not have to take the advice if you do not want to—but why not use the skill sets that we have?

I appreciate that you are here to make a pitch for your use, but it feels a bit odd. If you have a critical role in the process, it should surely be codified. You are an independent voice, and you are able to gather the evidence and present it to all Governments. Certainly with the DRS, and certainly on one side, it felt as though the political decision making was led by what the Secretary of State was reading in the Daily Express. Now, that is a very political statement, but I think that there was a role in that situation for an independent body to gather the independent views of businesses and ensure that evidence was presented to all parties so that a rational decision could be made. Instead, we had a very amplified argument and discussion in the press and in politics, which perhaps masked the genuine issues in the integration of schemes in the market that were operating in the UK.

Thank you, Mr Ruskell, for helping us to make the pitch.

I will answer your question in two parts: there is a general proposition and there is something a bit more specific about DRS.

On the general question about whether we have reviewed the exclusions process end to end, the answer is that that is normally taken forward through our periodic report, which we are required to publish every five years. The last one was published in March 2023. We are currently considering when will be the appropriate moment to publish the next one. We will, obviously, need to see things move on a little bit from where we were in March 2023. That report would have to pick up the operation of common frameworks and, within that, something about the exclusions process, I am sure. It would be good to be able to look across several examples and, as we see, that is now starting to build up over time.

I am asking you to comment on whether you think that it is working.

Our periodic reports ask us to look specifically at the functioning of the regime in that way, so I would expect us to be able to do that at some point in the future.

But not right now.

Well, yes—as I say, we will have to find the right moment to do that.

The second point is the more specific one around DRS. It is an interesting case because it is a scenario in which the regulatory difference, if you want to give it that term, arose from a situation not so much where some parts of the UK were static and one part was moving but where all the parts were in place simultaneously. At least to begin with, the differences were predominantly intertemporal, and there was an expectation that, sooner or later, there would be a DRS in operation everywhere across the UK. Scotland was in the vanguard.

The question then became, what are the differences that will emerge? There are two challenges in that from a practical perspective, if we just address the practicalities. One is that, as I said earlier, there is a sweet spot for doing the analysis in relation to such cases. DRS is one of a very small number of regulations whose origins predated UKIMA and, indeed, even the existence of the OIM. If I am being completely open with you, the opportunity to influence the design of the Scottish regulations through any input that we might have given was probably at a point before we even existed.

[Inaudible.]—regulations. We discussed them in this room, actually.

That does not mean that the opportunity has been lost, but it probably means that the most appropriate moment might now be at some point in the future, once the regulations have started to have some effect.

09:30  

The other practical reality, which is not something that is within the Scottish Government’s control necessarily, is that it is much easier to say something about what the effects are likely to be and to draw that evidence from businesses once there is some clarity on the design of the schemes in England, Wales and Northern Ireland. Last summer, in the run-up to the Scottish scheme going live, there was still a great deal of uncertainty about exactly what those schemes would look like, including in relation to some of the issues around the scope of the articles that might be included and around the interoperability of schemes.

It is not impossible to try to do some work in those scenarios, but, clearly you will get a much more robust and comprehensive piece of work if you have a bit more clarity about what the four elements will look like. This particular question, in which the divergences are intertemporal—it is not a situation in which something is static and something else is moving—will probably be one of the more challenging areas to deal with. It remains to be seen what role common frameworks and intergovernmental co-operation of other types will have to play in that.

All that said, I still think that we can potentially play a role, but that would require good quality dialogue with the Governments in advance to scope out what the work is for—that is, what question it is trying to answer, given some of those uncertainties—and to figure out what the timing is. The earlier we have those conversations in the development of any regulation, the better.

You have said that you are not an arbiter and that you cannot get involved in dispute resolution. In your report, you said:

“We have not attempted to draw firm conclusions about the future direction of travel for the UK internal market.”

I will play devil’s advocate: what is the point of the Office for the Internal Market?

We are there as an advisory function, part and parcel of the CMA. As I said earlier, we have experts on the technical and economic side. When you are thinking about putting a new law in place, if you want an expert take on the economic and technical side, why would you not ask us for some advice?

Why would I ask you for advice? By the sounds of it—again, I am playing devil’s advocate—I cannot see a huge amount in the report. It mentions the peat industry. How many other industries have engaged with you on a regular basis? Has any survey work been done to find out how many businesses know of your existence?

That is a fair question. I met different parts of the Scottish business community when I was in Edinburgh with the CMA board, including the Institute of Directors, the Food and Drink Federation Scotland and the Federation of Small Businesses Scotland. Since we last met you, the OIM team has had a number of meetings with trade groups, including the British Retail Consortium and the Agricultural Industries Confederation. It has also engaged extensively with business groups as part of the annual case studies report, including the Scotch Whisky Association and the Scotch Whisky Research Institute. We have also met think tanks—the Fraser of Allander Institute and the Institute for Public Policy Research.

It is important to emphasise the importance of the new panel of members we have just appointed, who are hugely experienced and knowledgeable. They are already contributing to the work of the OIM. To return to your question, it is our intention to have the panel engage with key business groups in Scotland.

We are also encouraging businesses to contact us directly through our online form and to share experiences. We have very good contacts in the Scottish scene. Our CMA operation, which has more than 100 people in Edinburgh, is well plugged into Scottish Government and Scottish business.

Do you want to know about our contacts with Scottish Government officials or just with businesses?

I am asking about businesses, although I might come on to officials in a little bit. Taking an example of some of the areas that have been dealt with lately—although avoiding the DRS—say that I have a business in the area of fireworks and have concerns about how I can sell in the UK. Why would I come to you as a body for advice when I know that you are powerless, because you are not an arbiter and you cannot do dispute resolution? What is the point?

One thing that we are trying to do with our work is to frame our findings in a way that is helpful for policy makers in particular. As a general rule, the advice that we wind up giving will be to Governments and policy makers rather than to businesses directly. The output is designed to be helpful for those who are developing policy. It aims to give them a better handle on how decisions that they might make on policy design—there will always be trade-offs in policy design—might be used to help achieve the best of both worlds. Whatever the primary policy objective might be—it could be public safety or environmental protection—it is about how that might be achieved with the minimal effect on trade, competition and other aspects of the internal market.

If our work is primarily about having a conversation with Governments about policy design, that of course raises the question of why a business would be interested in speaking to us. The answer is that, if businesses understand that relationship and understand that we are providing advice that might be helpful to policy makers and might even influence their decisions, clearly, they have an interest in speaking to us.

There are a variety of mechanisms through which businesses choose to engage. Some of it is done through trade bodies, which are very effective at representing the views of their members and with which we have had a good deal of engagement, as Murdoch MacLennan has explained. Some of the engagement can be done directly with us. We have a web form so that people can contact us and submit information about things that they think we should look at. That is used from time to time by relatively small businesses that want to raise issues that they want us to look at.

The other way is by talking to other people who are involved in having conversations with businesses. For example, a couple of weeks ago, I was presenting to the UK Regulators Network. One thing that we discussed was how we might use other regulators’ contacts with the wider business communities that they serve to inform our work, and vice versa.

We have different mechanisms or touch points with businesses but, fundamentally, what is driving our approach is a shared initiative and endeavour to try to provide the best evidence base on which policy can be put.

As a minister—I speak as a former minister—why would I take advice from your organisation and not go directly to the businesses or take advice from the civil service in such matters? I am trying to figure out what the point of the organisation is if it deals only with advice, it is not an arbiter and it cannot resolve any disputes. Let us be honest, in the interactions between Governments, what is required in some regards is dispute resolution rather than advice.

I assume that you would be interested in taking the best technical advice that you can get from any quarter. We have to be realistic and recognise that there are political sensitivities, but I have to say that, in the meetings that we have had, I have been impressed with the ministers and officials from across all four Governments. My experience in business is that demonstrating success is always the best way to win hearts and minds. The report on the banning of peat in England, or the annual periodic reports and the developing data strategy, should go a long way to adding value to the decision-making process so that ministers are not going in there blind.

I suggest that it is always good to take advice or listen to it. At the end of the day, you do not have to take it, but I implore you to consider that asking for our involvement might help you in the decision-making process to see cause and effect.

To go back to James Macbeth’s point, we have a statutory duty to act in an even-handed way in respect of the relevant national authorities. We do not take sides. That is another real benefit from it.

You came in this morning, Mr MacLennan, and said that you wanted to give us the “pitch”. I am quite a cynical person, as you have probably gathered. How would you pitch to not only me but the general public out there to explain why we should not think that you are just another bit of bureaucracy that is not really required?

I will use the peat report as an example, because James Macbeth was the architect of it. It was an important project and, when James explains what he did and how he was involved, it will show you the detail that we go into.

On your question about where the value is in this, if you are a minister looking for input, for example, we can draw in evidence from right across the UK to inform policy making in a particular nation, because we can operate on a four-nations basis.

One of the things that we were able to do with the peat report, and which we would no doubt look to do with any similar work in the future, is to engage with all the Governments, draw together a data set that previously did not exist, and then use that new data set to analyse the likely impacts. That information is then there for everybody. It is not there just for the Government that has requested that advice; it gets put into the public domain and is there for everybody to use. The value flows from such activities. It goes beyond what might be done in another context.

If I were pitching, I would find an example other than peat—not that I do not think that peat is important but, if you will excuse the pun, it hardly sets the heather alight.

Thanks for coming along this morning. It is probably true of any new organisation that you are basically asked to justify your existence. It is not unexpected; it is true of most such bodies. Given that Scottish taxpayers will be contributing to the cost of your organisation, it is legitimate that we ask such questions.

In a similar vein to the previous questions, there are things that concern me. First, I ask you to accept my assurance that, if you were a department of the Scottish Government, you would be frequently termed “the Scottish National Party OIM” or “a creature of the Scottish Government” and you would be derided regularly in the media for being such. That is just the nature of politics in Scotland. However, you are a department of the UK Government, and surely some people will raise questions about your independence and the nature of your advice. It is quite dispiriting to hear you say that you do not take sides—not that I am asking you to take my side, but, in some cases, surely there is a side to be taken, presumably on the basis of an open market.

Some of the background in relation to the DRS has been mentioned. If it seems as though the way in which the market operates is at the behest of one party to it, which is how it is perceived by many people, that hobbles that market. The DRS could be termed as being regulatory. Others could say that it is part of the market itself and that markets will have to adapt to climate change. However, that development was stymied because of the interests of one group, according to some people’s interpretations.

The extent to which you may be seen—I am sure wrongly—as being supportive of the UK Government, which you are a department of, perhaps undermines your purpose, as does the lack of powers. I appreciate the point that, if you got such powers, we would be duplicating powers that others already have, such as the CMA. How do you overcome that? That is one question.

09:45  

Secondly, to go back to Alexander Stewart’s question, there is an appalling lack of proper data on economic and market conditions. That also undermines your powers. Even ONS-produced stuff is based on surveys; it is not based on data. Employment figures are based on surveys. Export figures are completely opaque in the UK. It is not possible to have a proper estimate of what exports go from Scotland or from other parts of the UK. Given how bad it is to hear of and read about the lack of data in England, I ask you to consider a situation whereby a future UK Government decided that it did not like something that a Scottish or Welsh Government did and was able to say, without any evidence, that that would affect the English market. If nobody knows the conditions of the English market, that cannot be tested.

There are three things that might undermine your role. The first is the lack of powers. The second is your attachment to the UK Government as a department of that Government. Presumably, the panel appointments were agreed by the UK Government, but I do not know that. The third is that you are being asked to work in an environment in which you have very poor data, which cannot be conducive to the efficient working of a market economy. What is your response to that?

I can say categorically that we are not a weapon of the UK Government. We operate on the basis of looking after the four Governments of the UK, and we value our independence. The key message from us is that we are here to assist Governments, parliamentarians, lawmakers, businesses and other key stakeholders, which might be professional trade bodies. We are not a regulator of the internal market. As I said at the beginning, we have no enforcement role at all, which must be helpful. I am still continuing with my sales pitch on that bit.

The second annual report that was produced extended to an analysis of the service sectors and regulated professions. There is lots of detail, and we are building up a strong statistical base. As you can probably gather, I am neither a politician nor a civil servant. My background and career lie in the private sector and the world of business—in the media industry to be exact. I am no expert in the world of information technology, but a major part of my work as a chief executive officer in the printed media sector was leading and managing the transition from print to digital, which included being a member of Google’s digital news initiative council. There has been enormous technical and cultural change, and the change is still on-going today.

I guess that I am trying to say that I understand the particular challenges that are faced in dealing with something that is very new like this, where little case history exists—we are back to data—and new systems and structures are still under development. The OIM is kind of in that position. It does not necessarily mean that everything is plain sailing, but we are here to help to make the act work as best we can in the best interests of every part of the UK. I cannot emphasise enough that we are very much an impartial organisation. We are a resource for you to use and gain maximum benefit from. If changes need to be made to the act, perhaps in the light of experience, that would not be up to the likes of us; that would be up to you as lawmakers. Again, I am putting forward that I am here to help as much as I can.

The data thing is often confusing. As I said, I am no IT expert or statistician, but throughout my long career—longer than I care to remember, actually—I have always been aware of the key distinction between data and information. Data, or lots of it, can be of little use unless it is providing the information that matters. With the data strategy road map, the OIM team is seeking to identify the relevant data, much of which is compiled and gathered by different organisations from a range of different applications at different times, and to repurpose that to provide the information that we need to understand the trade flows that James Macbeth talked about. That work is on-going.

Does that help?

I understand your points. However, on the point about data and information, you can understand why a business survey would be the appropriate way to test business confidence, for example—that is, people’s attitudes and how they feel. However, there is no information, or very little information, on things such as the level of trade flows for the biggest part of the UK—England—or on many other economic indices. I realise that that is not your job. All that I am asking, notwithstanding the previous concerns that I mentioned, is whether you would be a voice to say to the ONS and others, such as the UK Government and other bodies—you have rightly said that there are many different bodies that collate that information—that, in the 21st century, we should have proper data that we can base decisions on. If we do not start from that basis, we are groping around in the dark.

We are not really grasping around in the dark. We have obtained a data set of firm-to-firm payments in different parts of the UK, which was published last year. In July 2023, the ONS published a helpful experimental methodology for the production of interregional trade estimates. That would give us a better understanding of the trade flows between the four nations. The ONS was very helpful, and we have also been helped by the business insights and conditions survey.

We have worked with other organisations, such as His Majesty’s Revenue and Customs, the Department for Transport and Ofcom, on gathering data—we have not tried to reinvent the wheel. Each devolved Government also publishes statistics, and that has been helpful.

We would agree completely with the point about the importance of data. Quite early on in our existence, we recognised that one thing that we could do for which there would probably be broad buy-in was to develop a data strategy, act as a convening power to try to bring together everybody who has a role in developing statistics that might illuminate questions of trade, and see what might be done to improve those things.

Just a few days ago, we published our data strategy update, which built on one that we published more or less a year ago. That does as clear a job as we can to set out what we think the problems are and what we think the road forward might be.

As Murdoch MacLennan has said, there are some initiatives that look quite promising, but they will be dependent on the underlying trade data—some of which is, I acknowledge, survey based—continuing to be produced. However, the ONS is fairly confident that, with those new techniques, we can develop a much better, more comprehensive and clearer view of trade on an interregional basis across the UK. That is a good starting point, if we can maintain that.

We have also tried to look at whether there are other sources of data that might not be that useful by themselves, taken individually, but which might build a richer picture when they are combined with other data sources. We have been looking at what we might be able to do with parcels data. A lot of things are sold online now. What can we do with data on parcels crossing borders, for example? Similarly, we are looking at freight data and whether we can use some of the freight statistics that are collected to illuminate questions around freight. There are other initiatives, such as the trade in value added initiative, which is run by the Organisation for Economic Co-operation and Development—it is not a UK initiative, but the UK participates in it. We are looking at whether that will allow us to get a handle on some of the issues that are illuminated there.

To be realistic, the best picture will emerge by bringing together a lot of different data sources and effectively cross-checking between them to try to get a better picture.

I go back to something that I said earlier. What we might call the high-level picture—the one that just deals with trade statistics and the total value of exports, and breaks those down by sector—is very important, and we need it, but we also need the more micro-level analysis that illuminates why we are seeing the changes, because it is when we understand why something is happening, not only what is happening, that we really empower ourselves to do something about it.

We will continue to need to supplement whatever we do through the data strategy and what I hope will be improved trade data with the sort of stuff that we have done with the case studies, which are expanding across an increasing number of areas. As well as peat, we have looked at deposit return schemes, single-use plastic, foods that are high in fat, salt and sugar, and precision-bred or gene-edited crops. Those relate to big sectors and by studying them we can start to learn things about quite large chunks of the economy and ask other, arguably more interesting, questions about how regulations might be interacting with other regulations, which businesses are very well positioned to advise us on.

I will finish with a statement; I am not looking for an answer. It seems that you are talking about reinventing the wheel, although that is not a bad idea. However, if there were to be a proper root and branch look at what economic data is required across the board, the Office for the Internal Market seems to be a key place to say, “We need to have this data in order to tell you whether the internal market is working properly.” If, through convenership or other means, the OIM could be in the forefront of the quest to get proper data, that would be a worthwhile objective. I will leave it at that, convener.

Good morning. I have a few small questions. First, are the regulations in the UK different from what we have in Scotland, in general? In your view, what are the barriers for businesses that want to trade in Scotland if the regulations are different?

At the moment, companies are trading quite well and there are no real issues. It was the same last year—we found that companies were managing to trade across borders without any great difficulty. As time goes on and more regulations come into play, as lawmakers, you might want to get the best advice that you can on the likely implications of any changes.

You asked whether there is anything different about the regulatory environment in Scotland compared with that in England, Wales and Northern Ireland. Obviously, each country will develop its own regulations, so there are differences at that level. We have not picked up any fundamental or systemic differences in the work that we have done so far.

Where the situation perhaps gets interesting is when you think about how regulations that might have been developed for a specific Scottish context start to interact with regulations that have been developed on a UK-wide basis. Businesses that are complying with those regulations have to triangulate that position with regulations that they might be complying with in their export markets, such as the EU or America.

It came through clearly from the precision breeding case study that the emphasis with regard to what drives business behaviour shifts from market to market—it is very fact specific. In that work, businesses were saying, “Well, actually, we’ve always got to have an eye on what is going on in the EU.” Some industries, such as the whisky industry, need to keep an eye on what is happening in America and Japan, because those are important markets for their end products. They need to be thinking all the time about how they are managing their supply chain in order to comply with regulations in those countries. That raises an important question for anyone who is involved in developing policy or, for that matter, anyone who is trying to pull together statistics: we always need to be thinking about the interplay between these things.

That is a rather long way of saying that the answer to your question is that it depends. It will vary from industry to industry, but we understand that we must keep the issue squarely within our view when we do our work.

At this stage, if I may, I will put in a word for the panel that has just been appointed by a committee from across the four nations. The panel members are outstanding people. They have expertise in economics, business, academia, the public sector, law and the civil service, and they have experience of working across the four nations. Some of you might be familiar with one of the panel members, Mike Neilson, who is also doing some work for the Scottish Government.

10:00  

In an advisory capacity, the panel members are extremely helpful to the OIM on its work and projects. They have already given very useful feedback on the annual report, albeit that they came in at the tail end of last year’s, and they will work from the beginning of the process this time. They have excellent contacts across the UK, and they have certainly supported the OIM team in widening the engagement process. That is part of it.

I do not want to go on the data, but do businesses understand the new regulatory development and how it might affect them?

A little over a year ago, we ran a survey, which we published in March 2023, that looked at what businesses understood of UKIMA. The knowledge of most businesses was very low. Many were not even aware of it, and those that were did not necessarily understand all of its provisions or how it works.

That picture needs to be contrasted with our experience in talking to industries that are experiencing regulatory change, especially regulatory change that might bring about different regulations in different parts of the UK. In those cases, across businesses large and small, we found that the level of understanding was much better—it was much higher. That is probably because trade associations do good work in making sure that their members understand the environment in which they operate and how new regulations might affect them. It is simply the case that that picture is not universal.

I suspect that, over time, that level of knowledge and understanding will increase. It will spread through word of mouth and through trade associations, for example. However, when we ran our survey a little over a year ago, the general picture was that knowledge of UKIMA was pretty low.

Does the Government need to improve messaging or engagement?

In any scenario in which there is a relatively low level of understanding, more could potentially be done. However, there is an organic process, whereby, as regulatory change that affects a particular industry or sector comes along, that industry or sector’s knowledge quickly comes up the learning curve. I suspect that that will ripple out across the economy over time as more regulations change and businesses have to adapt. Their knowledge of UKIMA will expand with that, as people try to understand what it means for them and their business.

Let us look at the case studies that we did relatively recently. For example, we had anticipated that, in relation to precision breeding, some of the smaller businesses might not have had a great deal of knowledge of things such as the market access principles, how those work in practice and what that would mean if they were to try to use them. However, we found the opposite—we found that even relatively small businesses had quite a good grasp of that and had already started to think those things through.

That shows that, when the time is right, knowledge is acquired pretty quickly. It is simply the case that, if the topic is not on people’s horizon, they will be busy running their business rather than necessarily tracking every regulatory development.

As members have no further questions, I will finish with one. I am sorry to return to the DRS, but I guess that it is the most controversial example that we have had. I appreciate that you were not involved in that.

Mr Macbeth, you said that part of the issue was that nations were going at different speeds in that regard. However, we are politicians in devolved legislatures, which should have competence in certain areas. I am trying to understand what would have happened if you had been involved.

If the Scottish Government had asked for advice, would you have looked purely at its proposals, or would you have looked at the wider context in the rest of the UK? I do not want to put words in your mouth, but, in that example, it seems from what you have said that the only advice that you would be able to provide would be cautionary and that, until the four nations have an idea of what they will do, it is a big risk for policy makers and business to go ahead when, in effect, we do not have an English devolved settlement but an English trump card, in the sense that that market will always trump what is happening in Wales, Scotland or Northern Ireland.

It is important to recognise what that would not be. It would not be a rerun of the Scottish Government’s impact assessment. That is a much broader-based exercise that looks at all the areas on which the policy might impact and tries to evaluate and quantify those things, and to trade them off against one another.

To address your question directly, our work is much more about comparative analysis. It is about asking what the differences are between nations A, B, C and D, and what those differences might do to the flow of goods and services, what changes we might expect to see and to what extent those are tied to specific features of policy design in any of those nations, not just in the one that is requesting the advice. Our work is always rooted in that bigger context.

To come back to what I said earlier, in order to do that work to the best standard that it can be done, it is better to do it at a time when there is clarity about what each of the four nations will do. That does not mean that it is impossible to do a piece of work when there might be much more clarity in one nation than in another. Let us face it—in many scenarios, we will be working in exactly those circumstances. However, it does mean that that necessarily conditions what we are probably going to be able to find out.

When we go to businesses, for example, and we ask them what they would do in a scenario in which a particular thing is going to happen, they might be able to respond to that on a hypothetical basis, but they will probably not be in a position to say, absolutely and categorically, “I’m going to do this particular thing. I’m going to do A, B and C.” Normally, they will say that they need to see what happens in the other nations first, and then they will take a view.

In an effort to address that difficulty, we tried to use the most recent annual report to extract some more generalised themes about how policy design and the shape of policy design might have variable effects on internal market things. For example, one of our findings, which we have already discussed today, was in relation to how readily and enthusiastically businesses might want to use the MAPs. We can see that, in certain types of market circumstances, they are unlikely to be businesses’ first choice as a way of addressing regulatory difference.

There were some other findings, one of which was that, if regulations can be designed in a way that allows businesses to move towards a highest common denominator standard, that can facilitate such a response. I will explain what I mean by that. Let us imagine that there is a regulation that bans a certain level of a toxic compound in a product. Let us say that nation A sets the standard at 5 per cent, nation B sets it at 4 per cent, nation C sets it at 3 per cent and so on. If a business wants to, it can go for the lowest component and then sell that product everywhere.

A much harder scenario would be one in which the regulation said that, in nation A, the product must have a blue label of a particular size that contains certain wording, but that, in nation B, it must have a label that is a different colour and a different size and that has different wording. In that scenario, it is not so easy to come up with a single product that serves all markets. Policy makers will have some choices—at the margins, I suggest—on things that have effect.

One of the other things that came through quite clearly from doing the analysis was that regulations that have their effects later in the supply chain—that is, closer to the final consumer rather than earlier on in the supply chain—seem to be easier for businesses to assimilate, adopt and work with. Again, that might, in some circumstances, give policy makers some choices about exactly how they design the regulation, such that it gets the primary policy benefit, but does so in a way that makes it easier for businesses to carry on trading using their existing supply chains, logistics and so on.

Those more general findings are the sorts of things that I can see that we might be able to use in a scenario in which we are asked to comment on a particular regulation, when the other elements that are important for that analysis might not yet be fully clear. It is not that you cannot do anything, but you have to use slightly different techniques to progress the analysis.

I have a final point, which arises from the convener’s question.

What you have just described sounds like the antithesis of a free market, because it involves introducing a level of uncertainty and bureaucracy before anything can be developed. There seems always to be an assumption that more regulation will be attempted and that we will have to respond to that.

This Parliament was set up with specific tax-raising powers, and it has grown many powers since then. In fact, it has been described, perhaps somewhat foolishly, as the most powerful devolved Parliament in the world. In my opinion, the internal market act completely cuts across that and drives a coach and horses through the devolved powers that we thought we had.

That is a political viewpoint, but, on a non-political basis, would it not be useful for your organisation to come up with ideas about the collision points between what we think our powers are and what the internal market act will allow? That would create an environment in which we would be able to move forward without the bureaucracy that you have just mentioned, and it would free things up because people would know what the boundaries were.

It is not for me to say so—although it might be for the convener or someone else to do so—but I think that Parliament would find it useful to have someone map out what those boundaries are, so that businesses and individuals who want to innovate or to do something different, with less regulation, could act in the knowledge that they could move forward without having to check with every Administration. I suggest that as a possible piece of work for the OIM. I am not looking for an answer.

I will return briefly to the issue of the DRS. Mr Macbeth, in effect, you are saying that it would not have been possible for the OIM to offer advice because, although the rules of a Scottish scheme were clear and were there in the regulations, there was no clarity on what an English DRS scheme would look like. That lack of clarity remains, so it would be difficult to go to businesses to ask what they think when the scheme does not exist and we do not know how it would interrelate with a Scottish DRS. Is that correct?

I would not go as far as to say that it would be impossible for us to offer advice, but we need to recognise that there would be some quite significant constraints on coming in at that particular point to develop something. The proof of the pudding would be in the eating; we would know when we spoke to the businesses. In the past, we have found that businesses find it difficult to engage with a hypothetical scenario, because they do not tend to plan hypothetically—they tend to work with what is actually happening. The more detail we have in hand, the better, but, for the reasons that I gave, I think you can do something.

So, if an English scheme came forward and the rules were clear, you could do some work on that.

The clearer the other schemes—not just the one in England, but those in Wales and Northern Ireland—are, and, in particular, the more the scheme in one nation diverges from what is happening in the other nations, the more important it is to have clarity around that divergence, including on questions about scope, interoperability and even the level of the deposit. All those things would matter, and that is where you would want to zero in when doing the analysis.

You need to have a certain level of detail in order to be able to do that. If you had no detail about what was going on in those other places—I appreciate that that was not strictly the case with the DRS; there was some detail—that would be quite challenging. Ultimately, it would come down to what businesses would tell us about how they were managing that scenario. One relevant question that we would want to answer is that, if a business is being asked to prepare for nation A’s scheme but does not know much about the schemes in nations B, C and D, except that they are coming along, what is the business going to do about that?

10:15  

We got a flavour of that when we spoke to businesses about precision breeding. They said, “Well, actually, we’re triangulating five points here—on top of what’s going to happen in Scotland, Wales, Northern Ireland and England, there is what’s going to happen in the EU. We will need a certain amount of clarity before we act.” That was in a scenario where, essentially, the regulations were creating an opportunity, rather than an obligation, so businesses could decide to wait a bit, so that things could play out. It is much less certain how things would play out in a scenario where there was an obligation to do something and how that would affect what was going on under the hood with regard to supply chain management.

We saw a little bit of that in the case study, which discussed three main ways in which businesses were dealing with the level of uncertainty. It was partly a matter of dealing with the Scottish DRS on its own terms and, when they knew more about what was happening in the rest of the UK, they could adapt accordingly. Only at that moment would they make their grand plan. That was one scenario.

Another scenario was that the scheme would start to make things different from how they were before in a way that encouraged businesses to reduce the complexity in their supply chain, perhaps through range reduction. However, we pressed businesses on that and said to them, “Okay, if you are going to reduce your ranges, can you tell us which specific products you would withdraw, and from which retailers?”, and nobody had gone as far as to go down to that level. That is out there, but even though the Scottish scheme was fairly close, businesses were not able to identify specific products in particular markets.

The third possibility, which I think is very much the nuclear option—nobody was able to say that they had made any firm plans to do this—is to withdraw from markets completely. It is important to recognise that that would not necessarily mean withdrawing from the Scottish market.

For example, we spoke to one Scotland-based business with very strong Scottish branding and marketing, which said, “Scotland is our mainstay—it’s where we produce our products, where we have all our staff and where we sell most of our products.” Although that business makes some sales outside of Scotland, predominantly in England and mostly through the hospitality trade in London, if push came to shove and it wanted to simplify things—possibly in the short run, just to get through this period—the market that it would withdraw from would be those sales that it is making in London. It said that it would simply double down on its core business in Scotland and work with that, and that it would take a view once it had a bit more detail on what the rest of the UK looked like.

Businesses have mechanisms, and we would probably have wound up doing a piece of work that concluded that, while we might not know everything that we would like to know about what is going to happen in England, Wales, and Northern Ireland, we know a little bit. We could do a piece of analysis examining how businesses are coping with the same level of uncertainty. If things are uncertain for us, they are uncertain for them. That is probably where the insights would have been.

I hope that that gives a sense of what I mean when I say that such work would be challenging. I do not mean to say that nothing can be done, but you need to tailor the output to the information that you have.

In evidence to the committee in March last year, the Institute for Government told us that UKIMA

“cut across the whole common frameworks programme in creating the market access principles that limit the scope for effective divergence”.—[Official Report, Constitution, Europe, External Affairs and Culture Committee, 16 March 2023; c 12.]

Do you agree, or do you see a pattern moving towards less regulatory divergence as a result of UKIMA?

An awful lot will depend on the specific circumstances, industry by industry. We have seen from some of the work that we have done so far that the anticipated effects of the MAPs have not always played out in the way that we might have anticipated.

It is hard to know how far one can go with that analysis, for the reasons that I gave earlier. If that were to be the view of many large businesses—particularly of many large retailers, many of which have significant buying power and can shape the nature of the products that they are being provided with, as they control what they stock and what they promote—that could mean that UKIMA functions differently and has quite different impacts in some sectors of the economy, both on businesses and on how policy makers think about UKIMA, compared with others.

We can speculate as to what the driving factors might be between those things. We have already talked a little bit about the size of businesses, the complexity of their supply chains, the importance of branding and their perceptions of what might happen in the future in other parts of the United Kingdom, which is very important. There may be other factors, too.

It is very difficult to address a question like that with an assumption that things are the same everywhere. I would not be at all surprised if the situation varied quite a lot from one industry to another and from one regulation to another.

James Macbeth always does this: he presents for the OIM in a very clear fashion and demonstrates the quality of the work that he and the team do. We have a very strong team in Edinburgh, and this is an important committee for us. We would welcome future invitations to come back and give evidence, and to help in any way that we can. James did an excellent pitch for us today. I thank the convener and the committee.

You are very welcome. I thank both of you very much.

10:21 Meeting suspended.  

10:25 On resuming—