Policy paper

Services market access

Updated 17 November 2020

Services: market access - mutual recognition principle

What are we going to do?

The purpose of the Services part (Part 2) of the UK Internal Market Bill (the Bill) is to avoid barriers to trade services between Scotland, England, Wales and Northern Ireland. The Market Access Commitment provided by the mutual recognition and non-discrimination principles in the Bill will strengthen and add clarity to the existing regulatory framework. This will ensure the continued flow of services across the UK and limit the emergence of new regulatory barriers that would negatively impact a sector which accounts for 4 out of 5 jobs nationwide through the employment of 26.7 million people.

How are we going to do it?

The mutual recognition principle means that a service provider authorised in one part of the UK to provide a certain service can rely on that authorisation to provide that service in every part of the UK. Any separate local authorisation requirements will not apply to a service provider authorised elsewhere in the UK.

What is mutual recognition?

The principle of mutual recognition set out in Part 2 means that businesses authorised to provide services in one part of the UK (Northern Ireland, Scotland, Wales, England) will not need to satisfy further authorisation requirements to provide those services in the other parts of the UK. As such, they will be able to provide the service in all parts of the UK under that same authorisation.

How does the principle of mutual recognition differ from the current principle in the Provision of Services Regulations 2009?

A similar form of mutual recognition already operates as part of the existing UK-wide regulatory framework for services, under the Provision of Services Regulations 2009. Regulators already complying with that legislation will already be subject to the principle of mutual recognition through that legislation.

What services will be affected by this principle?

Services are in scope of the mutual recognition principle unless the sector is excluded under Part 1 or Part 3 of Schedule 2 (further detail on exclusions below). Mutual recognition will only apply where a service provider is subject to an authorisation requirement.

Which authorisation requirements are subject to the principle of mutual recognition?

The mutual recognition principle applies to authorisation requirements. An authorisation requirement means a legislative requirement that a service provider must have the permission of a regulator before they can provide a service. This means it does not cover non-mandatory membership of organisations which cannot prevent a service provider from offering a service, but which might be desirable to join for other reasons.

A legislative requirement means a requirement imposed by, or by virtue of, legislation.

The new principle of mutual recognition will apply to any new or substantively amended authorisation requirement in scope of the Bill and not excluded from it. It does not affect existing authorisation requirements.

In addition, if an authorisation requirement in one part of the UK is updated, then all corresponding authorisation requirements in other parts of the UK will also come into scope of the mutual recognition principle of the Bill, even if those other authorisation requirements have not been changed.

Does this principle apply to authorisations issued by a local authority?

Mutual recognition only applies to authorisations which relate to at least a whole of a part of the UK (England, Scotland, Wales, Northern Ireland). So, authorisations issued by a local authority to provide a service in the local authority’s area would not be subject to the mutual recognition principle.

Similarly, the mutual recognition principle does not apply to authorisations that are only issued in relation to a particular premises, place or piece of infrastructure. For example, this would mean that a licence to provide a certain service from a particular shop, would not permit that person to provide the service from any shop in the UK.

What is not covered?

This mutual recognition principle will not apply to an authorisation requirement, to the extent it can reasonably be justified as a response to a public health emergency. A public health emergency means an event or a situation that is considered to pose an extraordinary threat to human health.

What is excluded under Schedule 2?

Schedule 2 lists those services which are not in scope of either the mutual recognition or non-discrimination principles, or both, including significant areas in which competence is largely reserved such as Financial Services, Telecommunications and Broadcasting. These exclusions retain the effect of the Provision of Services Regulations 2009, in terms of their scope of application and sectoral coverage.

The list of excluded services is currently being considered. This may lead to some services being added or removed from Schedule 2 via regulations using the power in the Bill for the Secretary of State to amend the Schedule.

After the enactment of the UKIM Bill, regulators will need to apply the mutual recognition principle to any new or substantively amended authorisation requirement in scope of the Bill and not excluded as a result of Parts 1 and 3 of Schedule 2, unless the disapplication was a reasonable response to a public health emergency.

Services: market access - non-discrimination principle

What are we going to do?

The second principle of the Market Access Commitment is non-discrimination. It is also in Part 2 of the UK Internal Market Bill and helps ensure that the rules governing the provision of services in each part of the UK (Scotland, England, Wales and Northern Ireland) do not result in regulatory barriers that could potentially hinder services trading in the UK.

How are we going to do it?

The non-discrimination principle operates to disapply requirements that directly or indirectly discriminate against an incoming service provider from another part of the UK.

This Market Access Commitment will therefore reduce the negative impact of regulatory divergence and add clarity to the existing regulatory framework, ensuring the continued flow of services across the UK.

This policy statement will outline why the non-discrimination principle in Part 2 of the Bill is necessary to reduce the negative effects of regulatory barriers between each part of the UK.

What is non-discrimination?

The general principle of non-discrimination ensures that a regulatory requirement that directly or indirectly discriminates against a service provider has no effect. A regulatory requirement is defined as a requirement imposed by, or by virtue of legislation that would, if not satisfied, prevent a business from providing a service. The principle of non-discrimination in Part 2 of the UKIM Bill comprises both direct discrimination and indirect discrimination. See detailed explanations below.

Is this principle of non-discrimination a new principle for the UKIM Bill?

The non-discrimination principles in the Bill are different to the non-discrimination principle in the Provision of Services Regulations 2009. The principle in the Bill applies to service providers from different parts of the UK, whilst the Provision of Services Regulations 2009 prevented discrimination against service providers from other European Economic Area (EEA) states.

This means that regulators will need to check any new requirements they impose against different criteria than they used before. Businesses will have no change in obligation, but the rules applying to them may change in future as a result of this new non-discrimination principle.

The non-discrimination requirements in the Provision of Services Regulations 2009 will be revoked at the end of the Transition Period, as they will no longer be relevant to the UK’s situation.

It is only right that rules that prevented discrimination against businesses from the other EEA states should now be applied between parts of the UK, ensuring the continued flow of services across the UK.

This non-discrimination principle is therefore a fundamental safeguard for businesses, helping to ensure that there is equal opportunity for companies trading in the UK regardless of where in the UK the business is based or from where it provides services.

What is direct discrimination?

Direct discrimination means treating a service provider from one part of the UK less favourably than other service providers from another part of the UK explicitly because of their ‘connection’ or lack of connection to a part of the UK.

This connection can mean being based in another part of the UK, providing services from another part of the UK or having staff (including members, partners or officers) based in another part of the UK.

What is indirect discrimination?

A requirement is indirectly discriminatory if:

• it does not directly discriminate,
• nonetheless, it puts an incoming service provider at a disadvantage but does not put local service providers at that disadvantage
• and if it has a significant adverse effect on competition in the market for those services

What is not covered?

A regulatory requirement is not directly discriminatory to the extent that it can be reasonably justified in response to a public health emergency.

What are the legitimate aims?

A regulatory requirement will not indirectly discriminate if it can be reasonably considered a necessary means of achieving one of the following legitimate aims:

• the protection of the life or health of humans, animals or plants
• the protection of public safety or security
• the efficient administration of justice

Therefore, a regulator can impose requirements which would otherwise be considered indirectly discriminatory if it is necessary to meet one, or a contribution of, these legitimate aims.

Why are the legitimate aims necessary?

The list of legitimate aims covers a limited range of public interest objectives which would justify a requirement that may otherwise have an indirectly discriminatory effect. It is therefore necessary to have these aims because it is appreciated that sometimes it is required for the purposes of one of the reasons listed above.

Future types of services regulation may be required which might otherwise involve indirect discrimination, and therefore there is a power for the Secretary of State to add to, remove or vary the list of legitimate aims by regulations.

What is excluded under Schedule 2?

As with mutual recognition, there is also a list of excluded services and regulatory requirements in Schedule 2. The list of services and regulatory requirements excluded from the non-discrimination principle largely reflects the scope of the existing Provision of Services Regulations 2009.

What services will be affected by this principle?

Services are in scope of the non-discrimination principle unless the sector is excluded under Part 2 or Part 4 of Schedule 2. The non-discrimination principle will only apply where a service provider is subject to a regulatory requirement, which, if not satisfied, would prevent them from carrying out a service.

Does this apply to requirements in place before the end of 2020?

Existing requirements are excluded from scope, meaning that the principles will only apply to new requirements (excluding re-enactments of existing requirements), or existing requirements that have been substantively changed.

New licences issued in 2021 and after will be new regulatory requirements and, therefore, they will be subject to the new non-discrimination principle in Part 2 of the Bill.

Are there any interactions with other Parts of the Bill?

The non-discrimination principle, unlike the mutual recognition principle, can apply in parallel with the non-discrimination principle in Part 1 of the Bill.

The non-discrimination principle cannot apply where the provisions in Part 3 apply instead.