UK-EU Regulatory Divergence Minimal Since Brexit, Report Reveals
A comprehensive new analysis from the UK in a Changing Europe think tank reveals that Britain has "done little to diverge" from European Union regulations since leaving the bloc, despite having the legal freedom to chart its own regulatory course. The report, published on Tuesday 24 February 2026, indicates that while active divergence has been minimal, passive regulatory separation has grown as the EU updates its rulebook without UK participation.
Regulatory Status Quo Across Multiple Sectors
Researchers found that across environmental standards, product regulations, and labor laws, EU-era legislation has seen barely any substantive reform in the UK. This maintenance of existing frameworks comes despite these areas being major targets for Brexit proponents who advocated for regulatory independence. The report specifically notes that rules governing habitat protections, vacuum cleaner power levels, and working hour limitations have remained largely unchanged.
Analysts suggest this regulatory continuity stems from multiple factors, including a desire to avoid imposing additional administrative burdens on businesses that would need to comply with two separate regulatory systems. Furthermore, the think tank identified limited political appetite for significant deregulation in employment or environmental protections, contributing to the maintenance of EU-aligned standards.
Passive Divergence and Trade Consequences
While the UK has not actively pursued regulatory separation, "passive divergence" has emerged as the European Union implements new legislation that Britain does not adopt. Recent EU regulatory packages addressing harmful substances in products like toys, along with requirements for Digital Product Passports documenting materials and environmental impacts, have created regulatory gaps between the jurisdictions.
This passive divergence, combined with non-tariff barriers established in the 2021 Trade and Cooperation Agreement, has significantly impacted UK goods exports to the EU. According to the report, goods exports to the EU in 2024 stood 18 percent below their 2019 levels in real terms, with some sectors experiencing even more severe declines. A separate analysis of HMRC data by the National Farmers' Union revealed that UK agricultural exports to the EU have plummeted by 37.4 percent over the five years since 2019.
In contrast, services exports have demonstrated greater resilience, with their value 19 percent above 2019 levels in real terms, highlighting the uneven impact of post-Brexit arrangements across different economic sectors.
Political Responses and Business Perspectives
The government has signaled intentions to pursue a "reset" in relations with the European Union, potentially including dynamic alignment in areas such as electricity markets and food safety standards. Prime Minister Keir Starmer emphasized in January that "if it's in our national interest to have even closer alignment with the single market, then we should consider that."
Business leaders have generally welcomed efforts to strengthen UK-EU relations, though many advocate for more ambitious approaches. Emma Rowland, trade policy advisor at the Institute of Directors, told CNBC that business leaders would "overwhelmingly choose closer alignment with the EU over the US" given current economic realities.
Financial Services as Exception to Rule
The report identifies financial services as a "rare area" where the UK has successfully pursued regulatory divergence with industry support. Both Conservative and Labour governments have sought competitive advantages by easing regulatory requirements on financial firms, recognizing that the UK's substantial financial sector can compete effectively with EU counterparts.
Specific examples include the Prudential Regulation Authority's decision to delay implementation of Basel 3.1 rules by one year and the Financial Conduct Authority eliminating requirements for major short sellers to disclose their identities—both measures aligning the UK more closely with US practices than EU standards.
City figures have actively lobbied to exclude financial services from any future agreements that might bring the UK into closer regulatory alignment with the EU. Steven Fine, chief executive of Peel Hunt, emphasized to the Financial Times that "the UK has made substantial progress on financial services reform" and warned against creating uncertainty just as London's financial sector regains momentum.
The comprehensive analysis underscores the complex reality of post-Brexit regulatory dynamics, revealing minimal active divergence alongside growing passive separation as the EU continues to evolve its regulatory framework without UK participation.
