IoD consultation response Office for the Internal Market

Context of this consultation:

The UK Internal Market refers to the trading relationship between the four nations of the UK. In December 2020, the government passed the UK Internal Market Act, which will govern the UK’s internal trading relations, based on two central principles:

1. Mutual Recognition – any goods originating in one nation are automatically acceptable for sale in the others, removing barriers, and respecting each of the devolved competencies.
2. Non-discrimination – goods will not face discriminatory trade barriers.

The Office for the Internal Market (OIM) will sit within the Competition and Markets Authority (CMA) and will be formally established at the end of September 2021. It will act on behalf of the government to regulate, monitor, and offer independent advice on how the UK Internal Market is functioning.

As part of its regulatory, monitoring, and advisory functions, under section 41 of the UK Internal Market Act 2020, the OIM will have the power to gather information from businesses or other parties. Under section 42, if an organisation fails to comply with an information notice, the OIM can issue financial penalties where necessary.

Section 43 of the Act outlines how the OIM may impose penalties. It states that the maximum penalty issued can be a fixed amount, a daily rate, or a combination of the two. The maximum rate for a fixed amount must not exceed £30,000; that for a daily rate must not exceed £15,000, and that for a combination of a fixed amount and daily rate must not exceed £30,000 and £15,000 respectively.

The IoD’s view:

From an SME perspective, this maximum penalty is excessively punitive, and only suitable for larger firms. Many smaller firms will have limited understanding of their legal obligations under the UK Internal Market Act 2020 and the role of the Office for Internal Market (OIM). It would therefore be inappropriate to levy excessive financial penalties on them until awareness of the new legal requirements has been increased.

The IoD would encourage the government to raise awareness of the information gathering powers of the OIM, but also its general purpose, so that organisations of any size can avoid non-compliance, and actively work together with the OIM where necessary.

Businesses would benefit from an awareness campaign about the benefits of the UK Internal Market in general, which would firstly outline the benefits of mutual recognition to traders, but also help to place the functions of the OIM into context, thus broadening understanding of the new regulation for businesses across the UK.

We recommend a grace period of two years is introduced at the beginning of the implementation period. This would allow the Government to cement the awareness campaign, alongside which non-financial notices of non-compliance would be issued instead of financial penalties. This would allow businesses enough time to ready themselves in line with the OIM and deter non-compliance in the long run.

Section 2 of the Act, relating to enforcement, states ‘where the CMA considers that a person has, without reasonable excuse, failed to comply with any requirement of a notice under section 41, it may impose a penalty in accordance with section 43’. In our view, the concept of ‘reasonable excuse’ needs more clarification and guidance. It would be detrimental to SMEs if they were subject to a penalty as a result of accidental non-compliance. Deterring non-compliance will only be effective if businesses understand the nature of their legal obligations and the rationale behind them.

In the case of intentional obstruction or delay when the OIM has requested an information notice, we believe it would be sensible to penalise on a tiered basis. This would be calibrated relative to the size of the organisation and the seriousness of the offence. Instead of a fixed maximum amount, the penalty should be proportionate to annual revenue, and taking into consideration the impact of the non-compliance on the functioning of the Internal Market as a whole.

However, financial sanctions should in any case be very much a last resort – a consultative approach with business should be the initial approach.