Brexit divergence: Drifting apart | Law Gazette

There were those who assumed that when the UK left the EU, Nigel Farage and his fellow travellers would be out of a job. Instead, the Reform leader found a way to channel some of the inchoate grievances that propelled the leave campaign to success at the polls.

But perhaps some Reform voters were motivated by the fact that much has remained recognisably similar in the years since Brexit. In particular, there was practical continuity for UK laws.

But are we at a potential inflexion point for post-Brexit divergence?. Of the nine years that have elapsed since the Leave vote in 2016, the UK spent nearly four negotiating a suitable exit, eventually leaving the EU through the European Union (Withdrawal Agreement) Act on 31 January 2020. A transition period followed, in which a legal status quo obtained while the UK and EU debated the nature of their future relationship. To further complicate matters, 2020 was marked by the pandemic, which created the sense of the world before Covid – of which the Brexit vote was a part – and the world after.

After much deliberation over how to handle the mass of EU law transposed into UK legislation, the Retained EU Law (Revocation and Reform) Act (REUL) was passed in 2023, setting a critical marker. The controversial sunset clause revoking most retained EU law was removed from the final draft, to be replaced by a schedule of legislation to be revoked. REUL took a snapshot of retained EU law (‘assimilated law’), while allowing for its revocation or replacement.

This legislation has a long tail. ‘The timing and accrual of legal rights remain significant, particularly in cases with long time horizons such as pensions or social security,’ says 39 Essex Court’s Katherine Apps KC. ‘Rights may have accrued under the old EU framework, but the claims will arise in the future.’ An example of this in action is the 2021 Lipton case (see box, below).

The change of government in 2024 has affected the speed of policymaking and legislative change, as Labour had to reacquaint itself with the reins of power after an absence of 14 years.  

‘The UK’s approach on post-Brexit divergence until now has been largely to keep everything the same, other than in very limited circumstances,’ says Charles Brasted, partner in the global regulatory team at Hogan Lovells. ‘Implementation work has been ongoing, but we have now entered the phase where divergence is on the table. This raises political and trade questions over whether this is what we want.’

Post-Brexit divergence takes different forms, steered by legal, policy and political considerations. It can be deliberate, or incidental. Lawyers have reported instances of incidental divergence affecting financial services clients that can be challenging to resolve. Passive divergence is also an avenue of change, as the EU brings in new legislation that the UK chooses not to apply.

Procurement and subsidies

An example of conscious divergence is the Procurement Act. This came into force in February and embodies a very different legal instrument and framework from EU procurement law. ‘The Procurement Act is similar to EU law in that it establishes a process-driven regime designed to find the most economically advantageous bids for government contracts,’ says Brasted. ‘But the differences are intentional and clear, and a product of a piece of primary legislation.’

The act introduces a single, streamlined procedure, in contrast with the complexities of the EU process. It also considers social value, sustainability and innovation when awarding contracts, in addition to price.

‘There remain significant constraints on what the UK can do under the EU-UK Trade and Cooperation Agreement’

Charles Brasted, Hogan Lovells

It was reported last month that to protect UK business from president Trump’s tariffs, Keir Starmer was considering changing the procurement rules to give an advantage to UK firms bidding for government contracts. This would be very different both legally and politically from the common market concept upon which the EU procurement regime was based. And the change of direction would not be straightforward.

Brasted says: ‘Although the government is flying policy kites over its intentions, in practice there remain significant constraints on what the UK can do under the EU-UK Trade and Cooperation Agreement.’ This free trade agreement was reached in December 2020 after eight months of negotiations and implemented through the European Union (Future Relationship) Act 2020. Since Brexit, the UK has also completed deals with Australia, New Zealand, and now India, as well as joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Another example of deliberate divergence is the UK’s Subsidy Control Act 2022. Establishing a less onerous and more flexible regime than the EU’s state aid system which it replaces, the act has an emphasis on permission rather than prohibition. This allows the UK government to award subsidies under its own legislation, using a principles-based approach similar to that in the EU-UK Trade and Cooperation Agreement.

Internet, AI and tech

In the highly charged arena of online safety, the UK has also chosen a politically driven policy of divergence. The UK’s Online Safety Act, enacted in 2023, has a narrower scope than the EU’s Digital Safety Act, focusing on illegal content and content harmful to children. But it excludes IP, trading and product safety laws. The UK act is also more flexible about how compliance by providers is achieved. The DSA, by contrast, targets a wider range of online intermediaries and platforms.

Both the UK and EU have diverged from the US, as social media companies dilute content moderation measures in response to Trump’s election. Ahead of the US/UK trade deal announced this week, suggestions that the UK would amend its online safety laws to secure an agreement was resisted by ministers.

In the sphere of artificial intelligence, the EU AI Act, which will regulate AI in the EU by 2026, establishes a comprehensive framework, creating tiers subject to different levels of regulation, with the highest risk (‘unacceptable’) prohibited. A new AI Office will serve as regulator, overseeing implementation, responding to complaints and evaluating compliance. This is the first comprehensive AI legal framework in the world, which has the potential to set the standard globally in the same way as the General Data Protection Regulation (GDPR).

‘When the GDPR was announced, everyone thought it was too stringent, and would never work,’ says Iain Connor, a commercial and regulatory disputes partner at south-west-headquartered firm Michelmores. ‘But now it is the data protection template for the rest of the world. It is possible that we will see the same with the EU AI Act.’

By contrast, the UK has deliberately opted for ‘light-touch’ AI regulation, prioritising innovation and relying on guidance and principles rather than a rigid framework. There is no overarching regulator; rather, existing sector regulators are supported to police their own fields.

Both the EU and UK are playing catch-up with US tech giants: ‘The way the tech sector works is to seek forgiveness rather than ask for permission,’ says Connor. ‘There is also a pervasive mentality that if something is OK in Silicon Valley, then it is OK in the rest of the world, which creates complications.’

Brexit also created a divergence in copyright law between the EU and UK, an issue made more pressing by the growing use of AI to mine text and data for the purpose of training its models. The UK chose not to implement the EU’s 2019 Copyright Directive – part of its Digital Single Market project – as the deadline for implementation fell after the transition period.

‘The EU’s Copyright Directive allows text and data mining exceptions, that is, the use of text and data which is lawfully available, unless you opt out for commercial purposes,’ explains Connor. ‘In the UK, it is the opposite – you can only make a copy of work for a non-commercial purpose.’ This is enforced through section 29A of the Copyright, Designs and Patents Act 1988.

Copyright and AI were the subject of a recent consultation in which the government proposed permitting a wider use of copyright materials to train AI, similar to that in the EU, with an opt-out for content owners. While we await the result, its premise indicates the Labour government’s desire for closer cooperation with the bloc.

Trade and sanctions

Western sanctions are only an effective tool to elicit behaviour change if they are as homogeneous as possible. Since Brexit, the UK has taken the opportunity to partially diverge from the EU sanctions regime, while explicitly pursuing the same objectives to curtail bad actors, such as Russia, by targeting key banks, state-owned corporations and individuals. The UK Sanctions Act sets broader criteria for designation than the EU – for example, allowing that designation can be by description rather than (as in the EU) just name. A single Russia sanctions regulation has taken the place of both the EU’s Russia sectoral sanctions regulation and the EU’s Russia asset-freeze sanctions regulation.  

Roger Matthews, an international trade and sanctions partner at global law firm Dentons, notes: ‘On leaving the EU, the UK’s stated intention was to replicate the same sanctions that it had previously applied as an EU member. However, it was clear that the UK would have its own sanctions policy. As the Russia situation has evolved, the UK has coordinated with the EU, US and others, but has taken its own path both on points of operational detail, the sectoral sanctions imposed, and the designations made. This has created for international businesses a complex compliance environment with similar but differing sanctions laws applying at the same time.’

‘We are now operating in a very different world, one in which the UK could potentially implement its own independent trade and policy framework’

Aline Doussin, Hogan Lovells

The Trump administration’s desire to disengage the US from its longstanding bankrolling of European security is dynamically reframing traditional allegiances – and marks a step away from the certainties of the post-war settlement. The US’s recent bilateral peace talks with Russia over its occupation of Ukraine – and talk of renormalising trade relations between the two countries – could mean the end or downgrading of US sanctions against Russia. How would the UK and EU respond? Post-Brexit, the UK sought to position itself between the EU and US, where there has been a clear policy divergence on Russia. Arguably, the absence of any US corresponding measures might render EU/UK sanctions largely ineffective.

In the trade arena, there are recent examples of the use of the UK’s post-Brexit discretion. Aline Doussin, a global and regulatory partner at Hogan Lovells in London and Paris, says: ‘You can see that, post-Brexit, the UK was able to respond completely differently to the prospect of Trump’s tariffs, and instead of threatening retaliation like the EU it could take much more of a conciliatory approach. We are now operating in a very different world, one in which the UK could potentially implement its own independent trade and policy framework.’

Lawyers must help clients with a global footprint understand the reality of trading in a new era of sustained volatility rather than relying on the certainties of globalised trade. Highlighting the differences between operating in the EU and UK, and predicting how this gap could evolve with global events, is crucial.

Future divergence

What is coming down the track? The UK government is working on a carbon border adjustment mechanism (CBAM) regime, which differs substantially in implementation and scope from the EU CBAM. Both schemes address carbon leakage and incentivise global decarbonisation by imposing the same carbon costs on imports as domestic goods. The UK regime – due to be implemented in 2027 – will operate as a levy on imported goods, paid by the importer. The EU CBAM, which is in transition but will be effective in 2026, instead utilises a market-based mechanism similar to the EU Emissions Trading System, based on the purchase and surrender of CBAM certificates.

In intellectual property, meanwhile, the EU is introducing new design rights that may lead to further divergence if the UK does not respond with its own changes. A new EU pharmaceutical package that constitutes a comprehensive set of reforms also requires monitoring. Patents is another area to watch.

‘Wait and see’ seems to be the mantra. Recent UK legislation – in procurement, subsidies, technology and more – has attempted to introduce flexibility and streamline the EU’s processes, while sowing the seeds for future divergence should the political will be there.

The pace of current events means predictions require a high-grade crystal ball, however. National security and defence are suddenly at the top of the agenda, with a likely reallocation of resources from net zero to defence. ‘The shift in priorities of the EU/UK relationship towards defence may lead to greater overarching cooperation, as we can see with the recent talk about a UK/EU defence pact,’ says Doussin. ‘But nothing is certain.’

The present morass is a boon to firms with a strong regulatory focus – but less beneficial for transactional firms with deals to close.

Katharine Freeland is a freelance journalist