The UK Internal Market Bill – a threat to the circular economy in Scotland?

Reading Time: 8 minutes

This blog explores implications of the UK Internal Market Bill for the development of a circular economy in Scotland, with particular discussion of Scotland’s forthcoming Deposit Return Scheme. More details on the Bill can be found in the SPICe briefing on the Bill.  

Devolution and the circular economy

The Scottish Government set out its ambition for Scotland to transition to a circular economy in its Making Things Last strategy.  

Policies required to transition to a circular economy are complex – requiring measures to increase circularity of resource use, design out waste, reduce consumption of resources, and increase recycling. A strong driver for change is the 2045 net zero target. Other policy goals include halting biodiversity loss, and opportunities to create ‘green’ jobs (more recently as part of a green recovery). 

One of the Scottish Government’s flagship circular economy policies is its development of a Deposit Return Scheme (DRS). The Scottish Parliament passed the Deposit and Return Scheme for Scotland Regulations 2020 in April. From July 2022, people in Scotland will be required to pay a returnable deposit when buying a drink in certain single-use drinks containers. Aims include to boost recycling, reduce litter and emissions. Scotland has been the first mover on DRS in the UK, with enabling powers introduced in the Climate Change (Scotland) Act 2009.   

More broadly, the Scottish Government has committed to ‘keep pace’ as far as possible with EU environmental standards which has implications for circular economy policy. The EU have an ambitious Circular Economy Package, including stretching 2030 targets and legislation. This includes the Single Use Plastics Directive which the Scottish Government has said it will set out a plan to incorporate into Scottish law by the end of 2020. Other commitments include to consult on a charge on single‑use cups and on banning problematic plastics.

There is also history of collaboration between the UK and devolved Governments on some aspects of waste management. Waste is generally a devolved area but there are intersections with reserved areas, notably product standards and import and export control. There are UK-wide producer responsibility schemes for four waste streams and ecodesign requirements for products apply across the UK by virtue of harmonised EU standards. It is likely that post EU exit, these areas will continue to operate UK-wide to a large extent, with associated benefits for businesses operating UK-wide in terms of harmonised standards (see SPICe briefing on the UK Environment Bill which sets out shared powers on  producer responsibility and resource efficiency).

The UK Internal Market Bill – will it impact on DRS and other measures?

The Bill sets out to regulate for a UK internal market post EU exit and introduces two principles of mutual recognition and non-discrimination.

The mutual recognition principle provides that goods that have been produced in, or imported into, one part of the UK and comply with relevant requirements there, can then be sold in any other part of the UK without adhering to different regulatory requirements in that part. The Explanatory Notes give an example – a packet of crisps made in one part of the UK that met requirements on packaging, could be sold across the UK without having to meet different requirements. The non-discrimination clauses set out if a regulatory requirement in a part of the UK is directly or indirectly discriminatory against incoming goods, it will have no effect to the extent that the effect is discriminatory.

This raises questions about whether circular economy policies could be challenged if they are not UK-wide and require businesses to adjust their practices in different parts of the UK. The UK Government’s White Paper on the Bill specifically references recycling of drinks containers, including DRS, as examples where future divergence could be problematic.

The Bill does allow for ‘existing divergences’ to continue, where they exist on the day before that clause comes into force. DRS Regulations do not come into force until 2022 – initially the Regulations provided to initiate the scheme in April 2021, but the implementation date was delayed to give businesses more time to prepare in light of the pandemic and calls from industry. The Bill also provides that this exclusion ceases where substantive changes are made to existing divergences – notable in respect of areas of environmental regulation where progressive changes could be made e.g. to targets or the range of products covered.

The provisions in the Bill would not prevent the Scottish Parliament from passing circular economy legislation or the enforcement of any requirements on goods produced in Scotland or imported directly into Scotland from outside the UK. Professor Nicola McEwen has said that while the rules would not prevent devolved parliaments from making laws within their areas of competence, “they are likely to affect the extent to which these laws could make a difference.”

It is too early to say what measures would be considered incompatible with the Bill under the mutual recognition or non-discrimination principle, and this could ultimately be for courts to decide. Taking DRS as an example however – Scottish regulations do not impose labelling requirements, but in practice, the functioning of the system will hinge on the ability to identify regulated containers in some way, via a label or barcode for example. Because there is no DRS in the rest of the UK, producers in those areas could argue that they are entitled to sell their products in Scotland without making such alterations. This could mean that DRS would only work as a UK-wide scheme unless an exemption was agreed. Under the Scottish scheme, producers will also be asked to pay a fee on every regulated item placed on the market in Scotland – which could also be called in question given those fees do not apply in other parts of the UK.

The UK Government did set out a (pre-pandemic) ambition to introduce DRS by 2023 – enabling powers are included in the UK Environment Bill. However, plans are significantly behind Scotland and there is no firm commitment.

In evidence on the DRS Regulations in 2019, many industry stakeholders expressed a preference for a UK-wide DRS. Others however emphasised the importance of Scotland acting as a leader and pushing the rest of the UK to follow. This ‘first mover then follow’ pattern can be seen in relation to other recent circular economy measures in the UK – notably carrier bag charging and the banning of plastic straws and cotton buds. The Environment, Climate Change and Land Reform Committee recognised concerns in reporting on the Regulations but concluded that the challenges of reaching Scotland’s climate targets exceed those across the rest of the UK, and require considerable change in the way we consume.

Other circular economy policy mechanisms to consider, in terms of their feasibility under the Bill, would include banning the sale of products in Scotland, something which is due to be considered for some single-use plastics, or charging measures such as are proposed for disposable cups.

How are the proposals in the Bill different to the EU Single Market?

The UK effectively already has an internal market until the end of the transition period via being part of the EU single market. However, rules governing the single market differ significantly from those proposed in the Bill:

  • Rules allow for derogations for non-economic public policy reasons. The Bill sets out only limited specific areas where derogations are permitted, such as to address threats to human, animal or plant health.
  • Mutual recognition and non-discrimination are not the only principles governing the single market. Principles of subsidiarity and proportionality also govern exercise of EU competences, with the aim to safeguard the ability of Member States to take individual decisions.  
  • The EU single market is underpinned by a ‘level playing field’ – whereby Member States implement mutually agreed Directives and Regulations, or a ‘common floor’ of environmental standards.

The Brexit & Environment group have said that EU governance allowed for ‘upward divergence’ in environmental policy across the UK.

The Finance and Constitution Committee have written to the UK Government stating:

“In particular, there is no discussion about how baseline standards or fundamental principles in relation to environmental policy can be achieved across the UK given that this is a devolved competence.”

Could this approach lead to a ‘race to the bottom’ of environmental standards?

Scottish Environment LINK have previously stated (prior to the introduction of the Bill) that a significant risk post EU exit is a ‘race to the bottom’ in the UK,  and new governance structures need to encourage a ‘race to the top’.

The Scottish Government is recommending that the Scottish Parliament does not support the Bill, stating that the proposals “encourage deregulation” by requiring standards to be adjusted to the lowest threshold, regardless of the views of each legislature within their areas of competence. They also raise concerns that there is no equivalent mechanism to impose higher standards.

The White Paper for the Bill does reference environmental standards:

“Our commitment to high standards within this will be unyielding, which allows us to protect those things most important to us, like our communities and our environment, while ensuring our future prosperity. A legal commitment to reach net zero carbon emissions by 2050 is just one example of this promise.”

However, the Bill itself does not make provision for minimum standards or allow for future divergence in pursuit of environmental goals. The example provided of the 2050 net zero target is notable from a Scottish perspective – given that Scotland’s net zero target is 2045, which may in itself act as a driver for regulatory divergence.

Where do common frameworks come in?

The UK and devolved governments have been developing common frameworks  – including on waste – to establish a ‘common floor’ in areas where devolved and reserved powers intersect, or to support an internal market, but none are yet agreed.

Both the Scottish and Welsh Governments have expressed concerns that this approach has been usurped by the Bill. The Legislative Consent Memorandum lodged by the Scottish Government states that common frameworks can be used to guarantee market access across the UK, while respecting devolved competence and avoiding competitive deregulation – meaning the Bill is not required.

However, the White Paper on the Bill suggests that common frameworks do remain the mechanism to ensure high standards, but frameworks on their own “cannot guarantee the integrity of the entire Internal Market.” It is perhaps possible that Common Frameworks, as well as ensuring common standards, may also provide agreement on areas where divergence is possible.

The Brexit & Environment group have highlighted the important role of common frameworks to prevent a ‘race to the bottom’, but raise risks of unequal influence:

“If the UK and its devolved governments are able to agree a unified position, their combined strength vis-à-vis businesses and potential polluters will make it easier to adopt ambitious standards across all four nations…

However, the greater size of the English economy and the greater familiarity with it in Whitehall may lead to decisions that fail to take account of the diverse needs of the different nations of the UK.”

Depending on how the UK and devolved governments proceed with negotiations following the discord caused by this Bill, it is possible that the common frameworks process could still foster agreement on areas of circular economy policy where divergence is supported for environmental reasons – or where minimum standards are agreed that push standards up. For example, an agreement could be reached that countries may take individual action to introduce DRS (although comments in the White Paper may suggest the UK Government will not take this view), or alternatively that all UK countries agree to implement DRS in a given timeframe.

Other areas of environmental policy to explore

Similar uncertainties apply to other areas of environmental policy. Other areas to explore in more detail could include climate policy aspects of energy efficiency, infrastructure and building standards, and implications for post EU exit public financial support for the environment such as agricultural support. The Bill also seeks to add state aid to the list of reserved matters in the Scotland Act (something which is disputed by the Scottish Government) and give UK Ministers powers to provide financial assistance in all parts of the UK for the purposes of specified areas including economic development and infrastructure. This raises questions of how Scottish devolved competence to, for example, develop its own land-use public support schemes, or allocate funding to low carbon infrastructure may be impacted.


The proposals in the UK Internal Market Bill appear to raise significant questions about the implications for circular economy measures in Scotland, in particular for DRS. Divergent approaches have proved possible under the EU single market but under the Bill proposals appear to be more restricted – subject to how common frameworks proceed in combination with the Bill.

Alexa Morrison, SPICe Research