Missing the target: The Commission and TUC respond to our report on EU social policy

This is a long post, but for anyone with an interest in growth and jobs, labour market laws, and/or the repatriation of certain EU powers, we recommend you bear with us.

Following the publication of our report, "Repatriating EU social policy: the best choice for jobs and growth", both the TUC and the European Commission have issued responses.

We published this report in order to trigger debate, so we very much welcome the Commission's and the TUC's responses.

It does help, however, if the responses relate to claims or arguments that are actually in the report. Unfortunately, we struggle to see what the Commission's response was actually aimed at. A spokesman said:

"Open Europe's figures are highly misleading. All regulation has a cost, but weak laws in this field would have massive costs, through injury, illness and even death and through higher healthcare costs and welfare benefits."

Okay, well, the first paragraph of our report states:

"Social and employment law is necessary and clearly comes with benefits. However, on balance, it remains unclear that there is any significant merit to deciding these laws at the EU level rather than nationally or sometimes locally."

Elsewhere in the report we say:

"Well-targeted and effective regulation creates the necessary conditions for sustainable economic growth and employment, providing employers and employees alike with a level playing field on which to compete and create wealth. Ideally, where social law does impose burdens on businesses, these costs are transferred as benefits to employees, resulting in better conditions or pay, which may be viewed as wider benefits to society."

So, we're not sure what the Commission is trying to counter. We go on.

The Commission spokesman also said: "This body of law is decided by national ministers and MEPs - not `bureaucrats'."

Nowhere in the report do we mention the word 'bureaucrat'. We do, however, spend a great deal of time explaining the new voting dynamics in the Council of Ministers, so if anything we over-emphasise that the laws are decided by national ministers (hence the need for a 'double lock'). We'd also add to the Commission's response that the European Court of Justice has had a key role in EU social law.

Commission spokesman: EU social law "ensures a level playing field. It protects responsible companies in the UK from social dumping by less good employers elsewhere in Europe."

Okay, a bit better, since it at least addresses something that we bring up in the report. This is a valid debate that needs to be had - which is why we mention the Laval case for example (p. 14 in the report). Unfortunately, the Commission chooses not to go in to the substance of the arguments on 'social dumping'.

The Commission also picks out the specific example of the Working Time Directive which it says “protect[s] not only workers but public safety - for example from exhausted lorry drivers who could cause accidents or doctors who have not slept for days.”

Well, the Working Time Directive hasn't exactly improved working conditions for junior doctors for example, and the Royal College of Surgeons has also expressed its concerns about patients' safety. There is clearly a case for the WTD to be amended following several ECJ rulings - 14-15 member states are using the WTD's 48 hour working week opt-out to get around these rulings. Amending it is also a stated aim of the Coalition Agreement. Even Nick Clegg told MEPs last week that,

“There are questions we need to ask about certain employment laws. Is it really essential or desirable for the healthy functioning of a thriving Europe to have EU legislation insisting people work a 48 hour week, regardless of whether they want – or need - to work longer? Or European laws laying down how our builders should – or should not – use their ladders?”

But in any case, we do say in the report:

“Should the UK Government decide to, and succeed in, repatriating social policy, these laws – or the benefits and costs stemming from them – would not magically disappear overnight. The UK Government and Parliament would probably want to keep many of these laws in part or in full.”

So, again, the Commission fails to respond to the substance of the argument.

Commission spokesman: "EU social and employment legislation is an intrinsic part of the EU single market, which is worth up to GBP90 billion to the UK economy every year."

This is pretty ridiculous. To label EU social policy as an "intrinsic part of the EU Single Market" by quoting estimates of how many jobs have been created by the single market (estimates based on similar logic - reduced cost goes into increased productivity - that we use to estimate the benefits of deregulation, discussed below) but without drawing a consequential link or providing evidence of why the two go together, is simply arbitrary. If all these laws disappeared tomorrow, which again we're not advocating, it would not in any way reduce market access for businesses across Europe. Now, again, there is a political discussion to be had about EU social policy as a "sweetener" to push through single market measures. We discuss this on p. 17-18 of the report, which again the Commission omits.

To be honest, the Commission's response feels more like ideological ranting than a serious response that takes the debate forward. We're genuinely sorry to say so because we had hoped for a more high-level and grown-up discussion.

On the Touchstone blog, the TUC’s Owen Tudor, who clearly has at least made an effort to read the report, makes some specific and general criticisms. Leaving aside the somewhat hyperbolic tone, he makes some valid points. His first issue of contention is methodology. He argues,

“To calculate the cost of EU employment and social affairs regulation over the past 13 years, the researchers didn’t actually measure the effect, they simply added up the predictions of the costs published by the European Commission in advance of the introduction of the regulations. These regulatory impact assessments are notoriously little more than guesswork and there are many critiques of the process by which they are derived…”

This is clearly a fundamental point. We have indeed used impact assessments (from the UK Government not the Commission) to assess the cost of these regulations. The fact is this is the only comprehensive body of data available for measuring the cost (and benefits of regulation). Impact assessments are not an exact science - and having studied 2,300 of them we know that pretty well by now. But Mr. Tudor seems to hint at this meaning that the costs are over-estimates - this is far from certain. In fact, the opposite is probably true. For example, IAs do not assess the knock-on effects of regulation, merely the direct administrative or policy costs. They also do not capture potential future additional costs. For example, impact assessments on the WTD did not account for the ECJ’s future rulings on on-call time and rest periods, which are a huge source of cost.

But, revealingly, while the TUC has argued that impact assessments are not appropriate for assessing employment and health safety law, it is no stranger to using evidence in Government impact assessments when it suits. See for example this TUC press release on child tax credits which relies on a Government Equality Impact Assessment or this report on climate change policies produced for the TUC, which relies heavily on evidence from impact assessments.

Mr. Tudor also argues, "...Open Europe claim that all employment rights cost the British economy money, and create unemployment..."

Well, not quite. In fact, what we claim is that deregulating would lead to a boost in economic output (which we have modelled based on our £8.6bn figure for the cost of EU social and employment regulation using an economy multiplier). This boost in output has to come from one or a combination of three things: labour, capital or productivity. Since it is not going to come from increases in capital, we have offered two scenarios. This is how we reach our finding that a 50% cut to these regulations could generate a boost in output equivalent to 140,000 jobs or equivalent to 60,000 jobs and an additional £4.3bn in economic output through increased productivity.

Ultimately, it is difficult to prove exactly how this boost to output would be accounted for in terms of productivity and employment, but our figures illustrate the potential mix of outcomes.

Referring to an OECD study on workers' rights and economic growth, Mr Tudor also argues that there's no adverse relationship between workers' protection and growth, while confusingly citing what he considers the inaccurate claim that the EU's Services Directive would create 600,000 jobs around Europe. First, ironically, this is an estimate from the Commission - the same Commission that calls our estimates misleading (based on similar methodology that it uses when estimating positive effects of EU liberalising measures). Perhaps the TUC and the Commission should talk.

Secondly, the OECD findings could equally be used as an argument against EU-level intervention. Take Sweden, a country that combines high levels of workers' protection and union presence with economic growth (4.6% last year). There are a whole range of reasons why Sweden manages to pull this off: well-targeted regulations (though not without exceptions) and a moralist culture, but one clear reason is its labour market model of voluntary collective bargaining, without state intervention, which has served Sweden for decades. EU interference in the Swedish labour market is effectively messing with a well-functioning, pro-growth model. Both the Laval case on unions' right to strike (disliked by the left) and Agency Workers Directive (disliked by the right) now legislate in an area that was previously the domain of the social partners. Why not just allow Swedes to decide for themselves, as that has clearly led to both growth and workers' protection?

Lastly, he concludes with:

"There are differences of opinion in the labour movement about the benefits or otherwise of the European Union. But almost everyone agrees that if we have a European labour market, then we need European-level rules for that labour market. And the suggestion that because we are unhappy with the European Union’s current neo-liberal austerity drive, we would prefer our employment rights to be decided by a national Government committed to exactly the same policies stretches credulity."

This is clearly the political heart of the debate. Who decides? The answer to this argument is that, if one is confident of their case, surely it should be possible to win approval for it in a national democratic debate.