Negotiating with government to do business is hard, especially when the rule of law is unclear

As two recent articles in the Financial Times identify, labour shortages in the hospitality, farming and health sectors are a challenge and causing major economic damage (UK hospitality sector loses nearly 200,000).   A novel challenge post-Brexit is that these and other sectors need to negotiate with the government to get visas to allow foreign workers to fill the labour shortage.  Pre-Brexit, workers from the EU would come into the UK and fill these roles according to supply and demand criteria - no paperwork required.  That market-based solution set the price for labour and ensured there was sufficient labour to meet the needs of farmers and others in the affected sectors.

Negotiating with government, for example, to obtain visas, improve market access through trade agreements, or amend regulations is a cost for business and has unwelcome effects.  For example, it is commonly remarked that the UK government has obtained improved access for the UK’s financial services sector to the Australian market, as a result of the Free Trade Agreement between the two countries.  It is also commonly remarked that farmers will be negatively impacted.  Whenever government takes decisions relating to business, some win and some lose.  The economic balancing act is complex and complicated.  As for the legal aspects, one issue raised is the lack of clarity of rights and obligations, as government seeks to operate using soft law, ministerial powers and delegated rule-making, rather than decisions clearly taken directly under legislation that has faced parliamentary scrutiny.  This legal environment can become even more uncertain, potentially economically hazardous, when government is openly negative to the rule of law and the role of the judiciary.

When the role of the State is small compared to the size of the economy, these legal concerns are acceptable in an imperfect world.  However, the more the State increases, the greater the concern. Brexit has created an enormous increase in the UK government’s relevance to the economy, as it must fill the vacuum created by the EU institutions and law-making machinery no longer being directly relevant.  Now, for example, questions as to what is and what is not unlawful State aid is a decision taken by the UK government, not EU civil servants.  The UK government has also expanded its role, for example, by creating a mandatory filing regime for thousands of transactions under the moniker of national security, with no insight as to the reasoning behind decisions taken.

The result is the greater need to negotiate with government.  Such negotiations can be influenced by who has the loudest voice, whether the business’s request fits with the governing party’s political agenda and many other factors.  A consequence is that business will need to be more politically engaged in the UK.  Business will also need to understand the consequences of the potential for greater legal uncertainty, as soft law increases. Pre-Brexit, important decisions taken by the UK government that affected business were potentially subject to legal scrutiny by the European Commission and the European Court of Justice.  Now, for the most part, businesses will only be able to resort to UK courts, who’s willingness to interfere in government actions pursuant to the judicial review standard is notoriously non-interventionist.  Working co-operatively with other businesses where there is common cause will likely need to increase, whether this be through ad hoc groupings or traditional forums such as trade associations.  For both, but particularly the former, care must be taken to ensure the group’s activities do not fall foul of competition rules.