Britannia Radio

CONSERVATIVE HOME Blog    5.2.09
  Exposing the spiralling cost of EU regulations
    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.

Over at Open Europe we’ve spent a tense six months trying to do what 
many told us was impossible – to track down and analyse more than 
2,000 Government Impact Assessments in order to get a picture of the 
cost and flow of regulations.

Because while fiscal policy is subject to continuous scrutiny and 
media attention – with daily and lively debate over tax rates – 
regulatory policy remains shrouded in mystery.  As a report by the 
OECD once said:
“Regulatory costs are the least controlled and least accountable 
amongst government costs. Many governments have no idea how much of 
their national wealth they are spending through regulation.”

Ten years ago, Tony Blair’s Government introduced a system of 
analysing costs and benefits for all the most significant pieces of 
legislation, recognising the clear need to get a grip on the flow of 
regulation.

And in 2005, the Government introduced its ‘Regulatory Reform 
Agenda’, hoping to bring down the cost of red-tape affecting businesses.

Out of control: the cost of regulation is increasing all the time
But our research, which uses the Government’s own figures for the 
cost of legislation, reveals that instead of decreasing, both the 
flow of regulations and their cost impact have in fact skyrocketed.   
Since the launch of the reform agenda in 2005, the annual cost of 
regulation in this country has gone from £16.5 billion to £28.7 
billion – an enormous increase of 74%.

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.