Complaints about British industry being strangled by red tape are exaggerated. The UK’s product market regulations are less restrictive than those of almost all other EU countries, according to the OECD. They are also less restrictive than those of other Anglo-Saxon countries such as Canada, Australia and New Zealand and on a par with America’s. Meanwhile, our labour markets are more liberal than those of other EU countries and on a par with other Anglo-Saxon countries. Despite being in the EU, we haven’t had to follow many continental European practices for protecting permanent workers from dismissal.
The UK ranked tenth out of 140 countries in the World Economic Forum’s 2015/16 Global Competitiveness Index. Four other EU countries – Germany, Finland, Sweden and the Netherlands – were in the top 10 too. So being in the EU does not automatically tie a country’s industry in knots.
What’s more, not all the red tape can be blamed on Brussels. For a start, the UK has occasionally “gold-plated” EU legislation. This means we sometimes take an EU law and embellish it when we turn it into a British one. This is a problem entirely of our own making. See our briefing on the Working Time Directive for an example.
That said, not all of the rules adopted to promote the single market are necessary or good. Sometimes the EU has taken a heavy-handed approach of harmonising standards. The biggest problems are in social, environmental and health and safety legislation.
The Commission used to come up with silly ideas like its plan in mid-2013 to ban olive oil jugs in restaurants and instead require them to provide oil in individually sealed containers. This scheme, which seemed to be driven by a desire to promote the interests of olive oil producers rather than consumers, was fortunately withdrawn after a public outcry.
But momentum is building up to cut red tape – with Britain and other countries arguing that doing so is necessary to boost growth. Since the Commission launched a plan nicknamed Refit designed to simplify EU rules 2013, it has scrapped a notorious ban on “curvy cucumbers” and abandoned a “health and safety” measure to stop hairdressers wearing high-heel shoes.
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One of the most important elements of Cameron’s deal with the EU is to energise this deregulation process. It calls for the bloc to repeal unnecessary legislation, cut the burden of regulation on business (especially small and medium enterprises) and establish targets for reducing red tape. The Commission has promised an annual review of its success in simplifying legislation.
An assessment of the burden from the EU’s top 100 regulations by Open Europe concluded in 2015 that they “cost” the UK economy £33.3 billion a year. It got this figure by totting up all the costs in “cost/benefit analyses” of EU rules conducted by our government.
It is important to realise that this £33.3 billion figure is only the “cost” part of the cost/benefit analysis. Regulations have benefits too. If you tell a company not to pollute the air, that’s a cost to it; but cleaner air means people are less likely to get asthma. If you tell banks to hold more capital, that’s a cost to them; but it means the financial system is less likely to blow up. And so on. The government’s same cost-benefit analyses concluded that the top 100 rules had a combined benefit of £58.6 billion.
These figures suggest that the net benefit to Britain from all this regulation is £25 billion a year. But this should be taken with a pinch of salt for several reasons. First, some of the benefits may be over-estimated. For example, the government thought the EU’s climate and energy package would have a benefit of £20.8 billion a year but this was based on the assumption that there would be a global deal to curb climate change, which hasn’t yet materialised. On the other hand, some of the cost-benefit analyses don’t quantify the benefits – so some of the positives are under-estimated.
Overall, it seems clear that the benefits exceed the costs. But that doesn’t mean we should be happy. After all, the average obscures many sins. In a quarter of cases, the estimated costs exceeded the benefits. One example is the Temporary Agency Workers Directive, which guarantees those who work via employment agencies the same pay and conditions as people who work as employees.
The estimated annual costs of £2.1 billion were more than the £1.6 billion of benefits. A pair of costly regulations are the Bulding and Approved Inspectors Regulations and the Energy Performance of Buildings Directive, for which annual costs of £1.5 billion exceeded benefits of £371 million.
But we shouldn’t assume we could cut that much of the red tape if we left the EU. We would certainly be able to amend some of the rules if we didn’t have to negotiate everything via Brussels. But it is unrealistic to suppose that we could consign most of them to the bonfire. We’d still need rules to prevent banks blowing up, measures to stop companies discriminating against workers on the basis of sex, age and race, food safety standards, anti-pollution regulations and so on.
This is an excerpt from “The In/Out Question: Why Britain should stay in the EU and fight to make it better” by Hugo Dixon.
Factchecking by Sam Ashworth-Hayes
This piece was updated on Feb. 27 to take account of Cameron’s renegotiation deal