This is the third in a four-part series covering the UK Internal Market Bill. See Part 1 for the introduction to the series and Part 2 for an explanation of the mutual recognition principle.

The principle of non-discrimination would generally prohibit legislation in one part of the UK that would discriminate against goods from another part of the UK. It applies to (in summary) goods that:

  • are produced in that other part of the UK;
  • are produced by a business based in that part (i.e. regardless of where the goods are actually produced);
  • are imported into that part; or
  • contain components (including parts, ingredients and constituent materials) that were produced in, produced by a business based in, or imported into that part.

Legislation will be covered by the non-discrimination principle if it relates to the circumstances or manner in which goods are sold; their transportation, storage, handling or display; their inspection, assessment, registration, certification, approval, authorisation, etc.; and/or the conduct or regulation of businesses that engage in the sale of certain goods or types of goods. Again, this list can be modified by the Secretary of State after consulting the devolved authorities. The Bill makes the principle of non-discrimination secondary to the principle of mutual recognition, meaning that if a regulation is covered by the mutual recognition principle, the non-discrimination principle is not relevant.

The Government amended the Bill in the Commons to specify that price is an example of "the circumstances or manner in which goods are sold", and so price regulation is covered by the non-discrimination principle. This accords with the exclusion of price from the mutual recognition principle, which was driven at least in part by arguments over what the Bill might mean for Scotland's minimum alcohol pricing regime. See Part 2 of this series for more on that issue.

The Bill provides that legislation that contravenes the non-discrimination principle is "of no effect" (i.e. cannot be enforced, and could be struck down by a court).

The Bill prohibits both direct and indirect discrimination, subject to some limited exceptions (and with more scope to justify the latter than the former).

Direct discrimination occurs if a requirement in one part of the UK applies differently between goods from that part of the UK ("local goods") and materially identical goods from another part of the UK ("incoming goods"), and thus puts the latter at a disadvantage. The only exception to the prohibition on direct discrimination is a restriction that can reasonably be justified in response to a public health emergency.

Indirect discrimination covers requirements that do not directly discriminate against incoming goods in favour of comparable local goods but nevertheless put the former at a disadvantage compared to the latter (e.g. because the incoming goods incur higher compliance costs than the local goods). However, indirect discrimination will only be prohibited if it has an adverse market effect, meaning the disadvantage placed on incoming goods causes a "significant adverse effect on competition in the market for such goods in the United Kingdom".

Indirect discrimination will also be permitted if it can reasonably be considered a necessary means of achieving a legitimate aim, meaning the protection of the life or health of humans, animals or plants, or the protection of public safety or security (though the Secretary of State can add other legitimate aims to that list). This includes essentially the same public health exemption on which the UK Supreme Court relied to find that Scotland's minimum alcohol pricing regime was permitted under EU law.

The prohibition on indirect discrimination won't apply in specific circumstances. Those circumstances are that the statutory provision that applies in one part of the UK is contained in or made under an Act of Parliament and the same provision or a substantially identical provision also applies in the other part of the UK, again by virtue of an Act of Parliament (either the same Act or different Acts). This means that the UK Parliament can impose the same rules on multiple parts of the UK without falling foul of the prohibition on indirect discrimination, even if those rules would in fact discriminate against goods from one of those parts.

As with mutual recognition, the non-discrimination principles (direct and indirect) also do not apply to legislation that is reasonably necessary to control the movement of pests or disease, or to the imposition of taxes, rates, duties and the like.

The following hypothetical examples illustrate how the non-discrimination rules might apply to goods.

The Scottish Parliament passes an Act requiring that alcoholic drinks produced outside of Scotland can only be sold on licenced premises for consumption on those premises. 

    Scottish-produced alcoholic drinks can continue to be sold via off-sales. Because this is a manner of sale requirement, concerning where the goods may be sold, the mutual recognition principle does not apply. As the rule specifically limits where non-Scottish goods can be sold, and puts them at a disadvantage compared to materially identical Scottish goods, it is an example of direct discrimination. (If this seems like an unlikely example, that perhaps illustrates how rarely issues of direct discrimination might be likely to arise.)

    The UK Government makes an order requiring large retailers in England to charge a levy on dairy products based on the 'food miles' they travel to get to a retail outlet, in the interests of reducing carbon emissions in the food supply chain. 

        This is a requirement relating to the transportation of goods and the price at which they are sold, so is covered by non-discrimination rather than the mutual recognition principle. It is not directly discriminatory by reference to the part of the UK in which the dairy products are made – for example, cheese from the Borders would be subject to a lower levy in Newcastle stores than cheese from Cornwall. However, it would, on the whole, make cheese produced in Scotland likely to be more expensive in English stores than English cheese.

        It would therefore put the former at a disadvantage compared to the latter, in a way that would have a significant adverse effect on competition in the market for cheese in the UK, and so would be indirect discrimination. Because the order was not made by reference to health, public safety or security, it could not be justified. It would therefore be of no effect.

        The Scottish Parliament requires all food produced in Scotland to be produced in a particular way and, separately, imposes a minimum price on products by reference to the amount of sugar they contain – the more sugar per 100g, the higher the price above which they must be sold.

        The food production legislation increases standards but also substantially increases costs. The mutual recognition principle means that it is not possible to require that goods can only be sold in Scotland if they are produced in the same way, and so goods from the rest of the UK ("rUK") have a competitive advantage in Scotland due to their lower production costs.

        The sugar pricing legislation is advanced as a health measure but has the effect of removing that competitive advantage from rUK products, as the minimum price means they can no longer benefit from their lower production costs by undercutting equivalent Scottish products.

        As this legislation concerns pricing, it is a manner of sale requirement and so is covered by the non-discrimination principle. On its face it applies to all products equally, so it is not direct discrimination. However, as it disadvantages rUK products compared to Scottish products, and thereby causes a significant adverse effect on competition in the market for sugary products, it is indirect discrimination. It would therefore have to be justified on the basis that it could reasonably be considered a necessary means of achieving the aim of protecting health, which in particular would depend on whether it was likely to achieve its objective and whether that objective could be used via alternative means that did not put rUK products at such a disadvantage. Otherwise it would be of no effect.

        (This example is of course analogous to the challenge taken against the minimum pricing of alcohol legislation under Article 34 TFEU. The legislation imposing higher production costs on Scottish goods is part of the hypothetical because a price regulation is unlikely to be discriminatory unless it removes a competitive advantage arising from lower production costs.)

        The Bill also prohibits both direct and indirect discrimination in the regulation of service providers, subject to broadly the same tests as apply to goods. A service provider therefore should not be regulated differently, or put at a disadvantage by regulation, in any part of the UK as a result of it providing its services from a particular part of the UK, or of it (or its members, partners, officers or staff) having a registered office, place of business or residence in a particular part of the UK. Indirect discrimination again requires an adverse market effect, and will not apply to regulation reasonably necessary to achieve a legitimate aim (which for services includes the efficient administration of justice). As with the mutual recognition principle, certain types of service are exempt from the non-discrimination rules, including debt collection, healthcare, transport, waste and water supply and sewerage services.

        Read all the articles in this series: Part 1, Part 2, Part 4