Mats Persson: Exposing the spiralling cost of EU regulations

Counted cumulatively, regulations introduced in the last ten years have cost the UK economy £148.2 billion – the equivalent of 10% of GDP, and enough to abolish income tax for a year, or cut the national debt by 24%.

This is in contradiction to the Government’s claim last month that the administrative cost of regulation is coming down.

Likewise, similar efforts at EU level have failed.  Our study finds that a staggering 72% of the total cost of regulation in the UK stems from EU legislation.  In other words, EU regulations introduced in the past ten years have cost the UK economy almost £107 billion.

The cost of EU legislation has gone up year-on-year over the past decade. In 2008 alone, EU legislation dating from 1998 cost the UK economy £18.5 billion – up from £12.2 billion in 2005.

If the current flow of regulation continues, by 2018, the cost of EU legislation introduced since 1998 will have risen to more than £356 billion.  This is around £14,300 per British household. For the same amount, the UK Government could pay off almost 60% of the national debt, or abolish income tax for 2 years and still leave the Treasury with a surplus.

Misdirected

All this tells a clear story. The fundamental problem is simply not being addressed – businesses, public sector workers and others continue to be subject to incessant Government interference.

We need a radical new approach to tackling overregulation. Because of the sheer enormity of the EU share of UK regulations, any efforts to reform which do not concentrate above all on bringing down the cost of EU legislation, will be doomed to fail. While the Government’s regulatory reform agenda is ambitious by comparison with similar efforts the world over, our results suggest it is fundamentally misdirected.

For instance, the Government has announced plans to introduce regulatory budgets for Whitehall departments, but these are unlikely to have much impact, given that the Government is effectively in control of less than 30% of the total cost of regulation.

And for some departments it is even worse than that – EU regulations account for a whopping 98.8% of the cost of regulations coming from the FSA, 96.5% of those coming from the Ministry of Justice, 94.2% of regulations from DEFRA, and 94.3% from the Health and Safety Executive.  What use can regulatory budgets be when it is the EU, not the Government itself, which is in control of the vast majority of costly regulations coming from these departments?

A failure to fight over-regulation in Brussels

The UK Government produces some of the most sophisticated Impact Assessments in the world. However, so far these have had very little influence on EU decision-making.

UK ministers have even been known to sign off on EU proposals despite the Impact Assessment showing the costs outweighing the benefits.

In 2007 the Minister of Transport Stephen Ladyman, for instance, approved an Impact Assessment which showed that the estimated costs of an EU Directive were £400 million a year, while the benefits were £18.5 million a year.

Worse, the Government sometimes does not produce Impact Assessments early enough for them to even have a theoretical impact on the decision-making process, and sometimes even produces them after regulations have already been passed.

For example, shockingly, the Government has still not produced an Impact Assessment for the loss of the UK’s opt-out from the EU’s maximum 48-hour week, despite the fact that the European Parliament has voted to end the opt-out and it is now in the final negotiation stage, known as ‘conciliation’, where Britain does not have a veto.

A Government official told Open Europe that the reason there was no IA was because “we did not expect it to come up for negotiation.”  An FOI request subsequently revealed that the Government does not plan to produce an assessment until after the ‘conciliation’ phase is finished – by which time the decision on whether or not the opt-out will remain will already have been taken.

Meanwhile, the EU Commission’s ‘Better Regulation Agenda’, launched in 2005, is paralysed by far too much tinkering at the margins – notwithstanding some noble efforts by reform-minded politicians such as Gunhter Verheugen.  While the Commission has simplified a handful of regulations over the past few years, these have been dwarfed by the continuing tide of expensive new regulations.

A tough new approach to EU negotiations

British politicians need a tough new approach to negotiations in Brussels in order to curb the flow of regulation.  They must push hard for a new commitment among EU partners to the idea of less regulation – the idea that state interference, at UK or EU level, can only be justified with conclusive evidence that the benefits of any such interference outweigh properly quantified costs.

A good place to start would be refusing to accept an end to the UK’s opt-out from the 48-hour week, which we have previously estimated could cost up the UK up to £66 billion by 2020.

Before it’s too late, the UK Government should produce a robust IA, while negotiations are still ongoing, and take it to Brussels, arguing that it simply cannot accept proposals for which there is little support at home, and for which the estimated costs are so high.

Such warnings, when based on robust evidence, will strengthen the UK’s negotiation position enormously. The idea is no more radical than other member states simply choosing not to implement EU law – such as the resistance to energy and services legislation in Germany, for example.

Our research shows that more than 20% of the total cost of regulations in the UK already comes from EU labour market regulations alone – let’s not make it worse.

The UK Government is in a strong position to draw up a new approach for reducing red tape. It should use its influence over EU budget negotiations to lever in concrete new measures to stop regulation – including a proposal to allow national parliaments to veto unnecessary laws.

It should introduce EU-Commission style audit trails to help businesses keep up.  There also needs to be real-time scrutiny of EU proposals at Westminster, with a bolstered new committee system which takes proper account of the fact that 72% of the cost of legislation is EU-derived.

Increase public awareness of EU legislation

A more aggressive approach to EU negotiations would in turn help to improve media attention to and public awareness of EU legislation – something which has for too long been severely lacking.

The current strikes over the impact of EU free movement rules – not to mention the widespread media confusion over what exactly the law says and means – are symptomatic of an endemic failure by the Government and the media to scrutinise, impact upon and communicate EU laws while they are still being negotiated, or as in this case, interpreted by the courts.

As a matter of urgency, an incoming Conservative government must heed this stark warning and promise a robust and committed new approach to bringing the flow of EU regulations under control. This is not an ideological point – it’s a practical one.

Our research shows that, perhaps surprisingly, only around 5% of all regulations relate to financial services. This means the real losers from over-regulation are small businesses, public sector workers and society as a whole. At a time when the economy is struggling through a recession, politicians need to urgently think about new ways to ease the burden of regulation.

By Mats Persson

Mats Persson is Research Director at Open Europe and author of its latest piece of research, Out of Control: Measuring a decade of EU regulation, which exposes exactly how much EU regulations are costing Britain. He summarises its findings here.