Surely the UK can only regulate Mastercard's fees to businesses within the UK? I guess they could ban UK consumers from buying from stores outside the UK that use Mastercard, maybe? Other than threatening to do that, how can they regulate what Mastercard charge businesses outside the UK?
I agree, Mastercard would rather have 0.3% fees on UK purchases from EU businesses than have the UK government enact such a ban. I just don't think the UK government would do that though. It'd be really hard to police too, do users even know the internal payment processor used by a store? It's probably labelled for marketing/trust but I doubt there's that much notice paid to it.
