The UK government is always on the lookout for EU opportunities, namely how to improve and remake the country’s regulations outside of the EU.
This was indicative of the political culture that Boris Johnson’s Government had cultivated, which treated Brexit as a game with no winners or losers. The “best-regulated” economy was synonymous with leaving the EU. The basic (but now abandon) assumption of the flagship retained EU bill, which was designed to sweep away an extensive swath EU-era regulation that is not suitable for the UK, was that the inherited EU regulations are intrinsically unsuitable to the UK – unwanted barnacles on the British ship.
Where the Johnson government saw many opportunities, business saw mainly costs. It is widely believed that regulatory alignment is better than divergence, as it facilitates cross-border trading. A coalition of business and political figures is now urging the UK systematically to align with the EU in order to minimise these costs.
It appears, however, that a new mindset is emerging under Prime Minister Rishi Sunder. There is a third option between divergence and alignment — treating the UK and EU more as competitors than adversaries. It seeks to find ways of managing the negative impacts and amplifying the positive. We call our latest tracking of regulatory changes after Brexit managed diversification.
This is achieved through the creation of new structures of co-operation. The UK and EU signed memorandums of understanding last month on financial services. Although the UK still seeks to diverge from the EU in certain areas, like insurance they are now working to avoid unintended effects and to address other challenges. For instance, if there are technical differences between two agendas that have similar goals but differ in their details on sustainable finance, this could cause trade to suffer. If these wrinkles are ironed out, the UK and EU could coordinate and exercise joint leadership at international level.
Plans are underway for a similar cooperation on competition policy. There are also key differences in approach. The UK did not approve of Microsoft’s acquisition by Activision. Dialog could prevent future ruptures.
But managed divergence may also bring mutual benefits. The UK and EU, for example, have similar ambitions in order to curb Big Tech’s dominance on digital markets and crack down on “greenwashing. The dialogue could help both sides improve their regimes and even implement coordinated investigations or remedies.
This is an indication of a maturing UK/EU relationship. Petulant arguments dominated the first two years after divorce. Divergence in the UK was used to show how much easier single life can be. (Look at the shiny crown on my glass!) Both sides seem to be accepting divergence more and more as a fact of life. Both sides have their own priorities, and while there will be technical differences, mature partners are able to work through them, as was demonstrated at the UK-EU Partnership Council meeting in March.
In this way, the UK and EU relationship is similar to that of the EU and the US. The US is both an important partner and a rival for the EU. They share similar values but differ in their philosophy. Although formal obligations are limited, the two countries work closely together on shared causes. A new EU-US Data Partnership has been finalised just this month.
This model is not a solution to the post-Brexit barriers to trade. They require active and ongoing alignment to EU regulations. There is also a growing and separate relationship that focuses on issues ranging from energy and security policy to youth mobility and artificial intelligence. Managed divergence can be an effective model of co-operation in these areas.