Boris Johnson complains that “only 5% of UK firms do business with the rest of Europe, and yet they must obey 100% of EU legislation”. Vote Leave and Daniel Hannan, the Tory MEP, have made similar points.
It’s true that, if we quit the EU’s single market and were prepared to take the economic hit from doing so, we would be free to set our own rules. But there’s much misleading in the above quote.
First, the 5% figure doesn’t adjust for the size of the business exporting. It treats a one-person startup exactly the same as, say, BAE Systems with its 34,000 UK employees. Although companies exporting to the EU aren’t broken down by size, just 7,000 of the UK’s 5.4 million businesses account for 40% of private sector jobs. It would not be surprising if the 5% of firms exporting to the EU account were, on average, a lot bigger than those that don’t.
Second, it’s spurious to say that the UK “must apply 100% of EU regulations to 100% of its economy”, as Hannan does. Firms only have to obey those rules that apply to them. So a newsagent or a fish and chip shop wouldn’t have to worry about EU rules on olive growing – unless, of course, they wanted to branch out. What’s more, very small businesses have extensive exemptions from EU rules anyway, for example accounting rules
Third, some companies don’t sell directly to the EU, but supply parts to exporters. Their components would need to conform to EU rules if they were included in products shipped across the Channel.
Fourth, if we chose to have different rules from the EU, exporters would have to differentiate domestic and “single market” production – as, for example, carmakers already do with exports to South Korea. That would add to costs and hassle.
Finally, different rules would harm consumers. Suppliers from across the Channel wouldn’t be able to sell into our market without altering their products. In some cases, we would be stuck with inefficient domestic producers, ending up with less choice and higher prices. This wouldn’t just hurt Brits heading to the shops; firms using imported parts could be damaged too.
Given this, we might often be better off copying EU regulation even if we quit the single market. But that would be a step back for British sovereignty. We would end up following rules we didn’t vote on. At present, we have a big voice in determining what they are.
Edited by Hugo Dixon
This piece was updated on March 17 to add the point that very small businesses have extensive exemptions from EU rules