The Stoiber report: a milestone in the fight against EU red tape?

Edmund Stoiber presents his report

Today saw the publication of the final report of the "High Level Group on Administrative Burdens", i.e. an EU taskforce charged with cutting red tape and easing its impact on businesses. The group - chaired by former CSU leader and state Premier of Bavaria, Edmund Stoiber, was put together back in 2007, so its final report has been a long time coming.

As we have been going on about the costs of EU regulation long before it became fashionable - compiling the first ever overall cost figure for EU regulation based on UK government impact assessments in 2009 - this has been a report we have been eagerly anticipating.

The report contains a number of recommendations, some at the EU level and some at the national level. The key EU level recommendations include:

• Adopting a new EU Action programme and strengthening existing EU programmes for reducing overall regulatory costs such as REFIT, as well as setting a net target for reducing regulatory costs and publishing annual statements of the total net cost or benefit of new legislative proposals,
• Setting a net target for reducing EU regulatory costs,
• Introducing a system of offsetting new burdens on businesses stemming from EU legislation by removing existing burdens from elsewhere in the acquis,
• Rigorously applying the “Think Small First” principle and competitiveness test to all proposals, with SMEs and micro-businesses be exempted from EU obligations as far as possible,
• Developing a common EU methodology to measure regulatory costs and benefits and making the evaluation of all EU legislation compulsory on the basis of this in order to measure actual outcomes against original objectives before any proposals for revision or new legislation are made,
• Declaring a political commitment to focus only on those interventions which are indispensable at the EU level and which add the greatest value compared with national or regional action,
• Empowering an independent body to scrutinise the Commission´s impact assessments before the legislative proposal is adopted by the Commission and to assess the evidence base and costs and benefits supporting legislative amendments by the European Parliament and Council before the legislation is adopted.

The report estimates that were all these to be adopted, businesses in the EU could save up to €41bn per year on top of proposals already adopted by the Commission and European Parliament with an "annual reduction potential" of €33.4bn.

Overall, the recommendations are very welcome and reflect many of the proposals that we have been championing for some time - for example, we first proposed an independent impact assessment board with "real teeth" back in 2009. The report also overlaps with David Cameron's business taskforce report published last year, albeit the Stoiber report does not explicitly call for the adoption of a 'one in, one out' principle when it comes to new regulation. Also, the report does not address big questions like the extent to which the EU should be involved in social and employment policy and the impact of the European Court of Justice in increasing the costs of EU regulation via the back-door as has happened most notably in the case of the Working Time Directive (which the report does not mention). 

Nonetheless the report - together with the nomination of Frans Timmermans as Commissioner for better regulation in a generally reform-orientated Commission - is indicative of a cultural shift within the Commission away from regulation as a process in of itself towards securing concrete outcomes and addressing business concerns. It is certainly, among other things, a nod to concerns raised around the EU and the UK in particular about the EU's tendency to over-regulate and impose excessive costs on businesses and consumers. 

In fact yesterday's Guardian reported that Stoiber explicitly referenced the need to keep the UK on board, and in presenting the report he argued - as passionately as it is possible to when discussing EU regulation - in favour of an EU that is less obtrusive, heavy-handed and opaque. He also admitted that in the past, many politicians and EU officials had seen any EU-level regulation - regardless of its desirability or suitability - as a means to advance the 'EU cause', but that such thinking was now history (although we would say it hasn't completely gone away).  

Overall, it is clear there is a real opportunity to create a more enterprise and business-friendly single market. However, as ever with EU reform the challenge for the new Commission and for national governments will be to translate the rhetoric into concrete action. The fact that the Commission President Barroso has seemingly rejected one of the proposals already - for an independent impact assessment board is concerning.

.@BarrosoEU doesn't support idea of independent body to control impact assessments. "Commission is sufficiently independent & strong."
— Jarno Hartikainen (@JarnoHa) October 14, 2014

This suggests the Commission is nervous about independent scrutiny of its cost estimates for new EU regulation. An independent IA board would be better at catching out harmful proposals - such as the infamous olive oil jug ban - and delivering more measured verdicts on politically contentious issies such as the proposed FTT, where major problems with the Commission’s proposal emerged after it had been tabled and undergone an internal impact assessment. The Commission's resistance suggests that despite much progress, there is still some way to go.

Timmermans comes out fighting for EU Reform

Vice-President Commissioner Designate for Better Regulation Frans Timmerman's hearing at the European Parliament Conference of Presidents has just wrapped up, and the man who we've hailed as a  thought leader for EU Reform came out pushing many of the reforms we have long been arguing for

Seamlessly switching between five languages, he had some rather important things to say.

On regulation, he said that the EU needs a fundamental 'culture change' in the way in which it regulates to adopt a more "common sense" approach. Impact Assessments will have to be overhauled, and existing legislation needs to be assessed for its effectiveness. Regulations that doesn't make sense should be scrapped, so that business can feel an "immediate relief".

#Timmermans: Commission's impact assessment board has to be composed of ppl who can act w/out vested interests #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

#Timmermans: What I am proposing is to change culture of the way in which we regulate in a more common sense manner (cites oil-jug gate)
— Open Europe (@OpenEurope) October 7, 2014

#Timmermans: I will present a better regulation review proposing regulations that shld be withdrawn within a year #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

Consistent with his - and the Dutch government's - motto "National where possible, European where necessary," Timmermans had some strong things to say on respecting national parliaments:

#Timmermans: "This European Union will not be built against the will of the national parliaments nor the member states." MEPs need to engage
— Open Europe (@OpenEurope) October 7, 2014

#Timmermans: My principle of subsidiarity is you'll only take action on higher level if that's only way to achieve goals you want to attain.
— Open Europe (@OpenEurope) October 7, 2014

#Timmermans: If confirmed I will take debates directly to national parliaments #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

On the need for more transparency and scrutiny, Timmermans said there will be increased scrutiny on behind the scenes deal-making and lobbying.

#Timmermans, we will make sure that there is a Mandatory transparency lobby list - currently only voluntary. #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

On the institutional divide between euro-ins and euro outs:

#Timmermans reiterates that he does not support separate institutions for the #eurozone #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

There was some stuff that may not go down as well in No 10, such as Timmerman's insistence on the importance of the European Convention of Human Rights (see here), and his description of the European Arrest Warrant as a "great success."

#Timmermans defends European Arrest Warrant, "a great success". We desperately need EAW. #EPhearings2014
— Open Europe (@OpenEurope) October 7, 2014

#Timmermans agrees that UK objections to application of #ECHR justified, but that opting out EU court rulings sets dangerous precedent.
— Open Europe (@OpenEurope) October 7, 2014

All in all, this was a strong performance that has already received good reviews on twitter and beyond. The response of the EP will be interesting to gauge and may give an indication as to how hard he will find it to push through some of these reform efforts in the coming years.

Open Europe Chairman Lord Leach: The single market must be the EU's primary mission

Open Europe Chairman Lord Leach of Fairford writes in the Sunday Times: 

In the 1990s, the process of eliminating trade barriers between Europe’s member states was hijacked by an ideologically driven elite bent on nation-building; on giving flesh to the postwar dream of ending conflict by abolishing Europe’s patchwork quilt of selfish national states.

In constructing this project, the ends always justified the means, even if this meant ignoring the electorate. Those in this country who opposed the UK joining what was to be the crowning glory of European integration, the single currency, were vilified as Little Englanders.

Now the game is up. Elected parliaments have become the sole accepted seal of legitimacy. A new generation is saying that the EU is in desperate need of both democratic and economic reform. The Dutch government has called time on “ever closer union”, the German chancellor Angela Merkel says we should “consider whether we can give something back” to member states, and the Italian prime minister Enrico Letta talks of treaty changes in the “very near future”.

The latest sign of the changing times is an unprecedented joint call from German, Swedish and UK business leaders — from the head of the world’s largest bank down to the Mittelstand, between them guiding companies employing about 1m people — in favour of sweeping change. Germany’s leading business magazine, Wirtschaftswoche, wrote: “Now business leaders have spoken up — some of them for the first time. This is not only good, but it is long overdue.”

Britain needs to be attuned to the changing mood. Its current shouting match between polarised camps doesn’t help. I have lost count of the number of times I’ve been asked by the BBC to take part in or stage a debate between “europhile” and “eurosceptic” business leaders. Spurious facts and figures are thrown around — “3m jobs will be lost if we leave the EU” or, “if we withdrew, the UK would instantly be freed from all EU regulatory costs”.

The reality is that business tends to be neither die-hard europhiles nor convinced “outers” — with exceptions, most are in between. Business values access to European markets but doesn’t see why it has to come with a political union. On balance, business still likes the EU’s combined weight in trade talks but worries about protectionist tendencies and the dampening effect of Brussels regulation on firms competing in global markets. As the economic climate hardens, more business people on the Continent make the same analysis, concluding that we have to lay grand ideological projects to rest and focus on where the EU can add value.

The objective is therefore simple. The EU’s defining purpose must be the single market — it doesn’t have to be the only thing the EU does, but it is the primary mission. The task at hand is equally simple: maximise trade — including in the hugely underdeveloped EU services market — and minimise non-trade costs. Once we have tested the limits of reform, we can see if it still makes sense to remain an EU member.

So it’s time for business to make its voice heard. It won’t be easy to achieve the reforms we need if we are to reverse Europe’s economic decline and win back the support of our electorates. If Europe’s wealth and job creators throw their weight behind this agenda, not even the most detached politician or eurocrat will be able to resist.

UK government's business taskforce launches push to cut EU red tape

Today sees the release of the Business Taskforce report on cutting EU red tape in an effort to boost competitiveness. As our previous work on EU regulation suggests - the Taskforce is picking up on many of our suggestions - this is a push we are very much in favour of, particularly at a time when squeezing out every bit of economic growth possible is vital for economies across the EU.

The report proposes 30 wide ranging reforms to cut EU red tape.We're still working our way through the detailed suggestions but we've included some initial reaction below, which we'll update as we go.

• The task force backs the full implementation of the EU’s Services Directive. This could deliver up to a €230bn boost to EU GDP, according Open Europe estimates. However, we have suggested the EU should go even further and push for the introduction of the ‘country of origin principle’ which could increase further gains to closer to €300bn (2.3% of EU GDP).

• Open Europe welcomes the push to exempt small businesses from burdensome legislation, although more needs to be done to address existing issues with social and employment law.

• In a report from 2011, Open Europe estimated that EU social policy (i.e. EU social and employment legislation and EU health and safety rules) cost the UK economy £8.6 billion a year. The figure is heavily driven by a few very costly EU Directives – most importantly the Working Time Directive and the Temporary Agency Workers Directive. However, some health and safety laws stemming from the EU also represent a net cost to the UK economy. This is the case, for instance, for the Control of Vibration at Work Regulations 2005 and the Control of Noise at Work Regulations 2005.

• The task force has adopted Open Europe’s recommendation that low-risk firms be exempted from the obligation to regularly update their health and safety risk assessments.

• Looking for ways to improve EU-wide competitiveness and the European business environment, as the report recommends, rather than looking for specific UK opt-outs is likely to increase the chance of support from like-minded EU countries.

• Creation of a digital single market could be vital, particularly from the UK perspective with over 70% of UK citizens having bought products or services online but only around 10% having done so across borders.

• Open Europe recommended adopting a ‘one in, one out’ rule for EU regulation back in 2010 and continues to support such a move as suggested by the task force’s report.

• On-going assessment of the impact of regulation is vital. For example, the benefits of many regulations are based on assumptions or forecasts and while probable or viable at the time, these do not always come to pass. EU regulations on environment and climate change are a prime example of this. With circumstances shifting it is important that regulation is flexible.

• The Taskforce also adopts out proposal that Commission proposals which don't come with a robust Impact Assessment, clearly showing the need for and benefit of the law, should be dropped. We agree that more effective use of Impact Assessments is vital and giving the EU’s so-called Impact Assessment Board (IAB) more teeth (which we has long advocated) and the power to ‘red flag’ harmful EU proposals (e.g. the ban on olive oil jugs) would be a positive start. The focus of the IAB must be to ensure high methodological standards so that approval of a regulation depends on its merits, not political motives (for example, major problems with the Commission’s proposal for a financial transaction tax emerged after it had been tabled and undergone a Commission impact assessment).

These ideas deserve the support of like-minded EU member states at a time when policymakers are desperately seeking ways to improve Europe’s growth and competitiveness. It is essential that these good ideas are followed by concrete action to reduce the existing and future burden of EU law on European and British businesses.

Is the UK winning the argument on EU regulation?

Yesterday afternoon Open Europe hosted Business and Energy Minister, Michael Fallon MP, the man responsible for pushing the UK's 'smarter regulation' agenda in Brussels. This is a subject close to Open Europe's heart as we have produced a number of highly detailed reports on the cost of EU regulation - £124bn gross between 1998 and 2010.

In his speech, Fallon argued that while the single market had the potential to be the "greatest platform for economic growth", overly burdensome regulation coming from the EU was choking off potential jobs, growth and competitiveness, and as argued by David Cameron in his EU speech, Europe could not afford this in the global context. "The burden of unnecessary costs" was carried more heavily by Europe than by its competitors, he said.

He argued that this burden falls particularly hard on SMEs, citing a consultation which found that many had to employ a dedicated member of staff simply to process the workload stemming from the EU's REACH (Registration, Evaluation, Authorisation and Restriction of Chemical substances) Directive. Other areas of EU legislation identified as particularly onerous were the Working Time Directive, the Agency Worker's Directive and other social and environmental rules.

During the Q&A session he pointed out that leaving the EU was not a panacea - as UK companies exporting to the EU would still have to comply with many of these regulations without having any say over them, something currently vexing the Norwegians (see here for a more detailed look at this issue).

Fallon argued that progress had already been made on over-regulation on both the UK and EU fronts, pointing to strong support from other member states including Germany, which resulted in the recent letter signed by twelve member states calling for a reduction in the overall EU regulatory burden. Fallon pointed out that as a result of the crisis, many member states had become a lot more receptive to UK-style reforms, with France and Poland adopting a 'one in, one out' approach to regulation based on the UK model. He was also hopeful that Mediterranean countries would become allies in this fight given their need to restructure their economies and said he was disappointed they had not done so already.

On the UK front, Fallon claimed that the coalition's six-point transposition plan for EU laws had resulted in the elimination of costs associated with gold-plating, i.e. that when adopting new EU laws, the UK would only impose the minimum standards necessary to comply.

However, as Fallon acknowledged, there is still more to be done, arguing for example that EU impact assessments ought to be independently verified, and that a "cultural shift" needed to take place in Brussels.

Credit where its due: EU Patent office is a good deal for British and EU businesses

The creation of an EU patent office, somewhat overshadowed by the latest twist on the eurozone crisis rollercoaster, was one positive piece of news to emerge from the recent EU summit. As we have noted previously, this is not before time.

It has taken ages to agree a patent and it has now finally passed through the European Parliament via the use of the novel ‘enhanced cooperation procedure’ in order to overcome the objections of Spain and Italy, who are upset that not all EU languages are to be used (something that would have lumped a higher cost on users).

If they manage to sort out the outstanding issues (which unfortunately is a big if) for the first time a British inventor will only need to register a patent once to protect their work throughout the EU. If done right this should reduce costs and increase protection for the UK’s important knowledge based scientific and creative industries. In other words, good news for UK business. But as well as being good for UK and EU business, this is also interesting as it breaks two EU taboos:

• Firstly it's another example of a 'two speed' EU, (with the UK in the fast lane) implicitly acknowledging once again that the one size fits all EU Commission dogma no longer work as overarching basis for European cooperation.
• Secondly, if David Cameron’s statement is correct, it will exclude the costly involvement of the European Court of Justice, something two UK Parliamentary reports here, and here concluded would increase cost and give jurisdiction to a court with no expertise. 

We have long been a critic of the way the ECJ works so an acceptance that it cannot be the final arbiter of everything is good news and sets an important principle. Unfortunately, this is not a done deal yet. Unsurprisingly, the ECJ has already ruled that it must have jurisdiction, in a move that reflects poorly on the Luxembourg court.

Still credit to David Cameron and other EU leaders for taking a positive step to boost innovation and business growth. Sometimes "more Europe" can help.

Cable gets it 100% right on EU regulation (almost)

Vince Cable: Unimpressed by the Working Time Directive

In a nice contrast to the doom, gloom and cynicism which all too often characterise the European debate, here's some much needed can-do spirit from UK Business Secretary Vince Cable. The topic - how to cut down on EU regulation - is a favourite of ours (sad, we know). In a piece for the Telegraph, Vince described a recent meeting in Vilnius, where, apparently, 15 member states, going under the catchy name of the "Like Minded Group", agreed to work towards less cumbersome and more business friendly EU regulation.

Cable attacks the "dreadful economics" and "illiberal" nature of the Working Time Directive in particular and EU social and employment laws in general (at least by implication). But he concludes "the tide is turning":

"Beyond the Like Minded Group, Spain and Italy want the EU to focus more single-mindedly on a growth agenda, including deregulation. Last November the European Commission agreed to attack the regulatory burden with exemptions for micro businesses. And earlier this year, following sustained UK lobbying, we achieved agreement in Brussels to exempt around 1.4 million UK small businesses from burdensome EU accounting rules...I discovered in Vilnius that we are not on our own. We are part of a new progressive European majority replacing the dinosaurs of the past."

This is good stuff, and as we have argued repeatedly, exactly the type of measures that the UK Government should push for (nicely tying in with our piece, also in today's Telegraph, on how the UK should be actively courting Germany in a bid to put free trade at the heart of what the EU does).

However, Cable also rules out a scenario is which the UK "could carve out a comprehensive opt-out of all EU employment legislation", saying that "in practice it is difficult to see how Britain could on the one hand continue to enjoy the benefits of the Single Market, worth £3,500 a year per UK household, while on the other refusing to engage on difficult issues."

It's of course true that it would be politically very difficult to get a carve-out from EU employment law. It's also true that EU employment law acts as a 'subscription fee' for the UK's participation in the single market. But as we set out in our recent paper on EU employment law, where does that argument take you? Should the UK then accept other sub-optimal policies such as the CAP and CFP as that, after all, is part of the 'package deal'.

This position also assumes that EU membership for the UK (and other member states) is "Pareto optimal" i.e. there's no other possible outcome of European cooperation that makes every member state at least as well off and at least one member states strictly better off. Looking at how well Europe is working at the moment (ehum), that is clearly not the case. It's therefore right for the UK to consider the division of labour between member states and the EU in employment law - and other policy areas as well.

But in any case, it's a positive that Cable and the UK government are active in this area. Lets hope they keep up the good work...

Who were the naughtiest Europeans of 2011?

No, this is not another one of those taxpayer funded EU awards. This is about what takes place beyond the rhetoric, political horse-trading and posturing amongst ministers and diplomats in Brussels. This about the tiny matter of actually implementing the measures that you've agreed and signed up to. Surely, that must constitute a key qualification for being a good European?

The European Court of Justice (ECJ) has just released its annual report of activities for 2011, and a specific graph caught our attention:

The graph illustrates the number of "Judgements concerning failure of a member state to fulfil its obligations" - in plain English, the number of times a country either broke or refused to implement EU law. We note that ten member states, including countries as diverse as the UK, Bulgaria, Denmark, Latvia and Slovakia, ended 2011 with a clean sheet. Gold stars to them.

In contrast, Belgium was the naughtiest EU member state of last year, with the ECJ ruling against the country for failing to implement EU law no less than nine times. Various southern European countries were pretty naughty too: Italy and Portugal were slapped with eight rulings each, and Spain seven. France and Germany were both pretty naughty Europeans as well, losing six and five cases respectively, while Greece lost four.

Taking the longer view, the picture looks worryingly similar. Between 2007 and 2011, the UK lost 14 court cases for failing to implement EU law, while Germany lost 25, France 36, Spain 56 and Italy 66. It is also noteworthy that the newest member states are much better at implementing EU law than the EU's founding members.

We cannot help but to flag up the irony at play here. Countries that have traditionally put themselves forward as champions of European integration have a pretty appalling record in abiding by EU law. While this is nothing new, it should nonetheless challenge lazy assumptions and labels such as being "good" and "bad" Europeans.

A bit like the "good citizen" being defined as someone who is excellent at dreaming up new laws but with a terrible habit of then breaking them.

Isn't a good European someone who wants the EU to regulate far less but far better and with far better and pointed implementation of the laws that are agreed? Someone who wants a slimmed-down EU based on substance rather than one based on rhetoric?

We know the answer, do you?

'Can't touch this': Vince's MC Hammer moment

Business Secretary Vince Cable today announced a plan to ease the burden of regulation on small businesses in a bid to boost the economy. The plans would include a three-year break for small businesses from new regulation in addition to scrapping plans for extending parents' right to request flexible working and scrapping new rights for time off to train. The government has also vowed to review some 22,000 existing government regulations on business, with ministers forced to justify maintaining any that are challenged.

Now this is all welcome stuff, but the government has managed to completely ignore the regulation factory numero uno - that is Brussels - instead opting for a "can't touch this" approach.

When it comes to business, the EU is the main driver of regulatory cost in the UK. EU regulations do come with benefits, we don't deny that. But a lot of it is unnecessary or overly burdensome.

We can argue about the counterfactual (i.e. would the regulations have existed in the UK anyway), but what becomes clear during exercises like these is the extent to which the UK (and other member states) have lost control over their own regulatory reform agendas, as a huge number of laws are now locked in at the EU level. Changing an EU law requires re-negotiation and agreement amongst 27 different member states and the regulation-obsessed bunch that is the European Parliament.

Despite the fact that scrapping or amending unnecessary EU regulations could save the UK billions of pounds each year, and generate billions more in various dynamic effects, the Coalition has chosen to look the other way.

The problem with this approach is the familiar dilemma: you can leave EU regulation alone, but EU regulation will never leave you alone. The recent extension of the Gender Equality Directive by the ECJ to ban price differentiation between men and women should serve to illustrate this point (a ruling expected to cost the UK insurance industry an additional £1 billion).

We've been looking at the cost, proportion and impact of EU regulation in greater detail than most (see here, here, here, here, here, here for example). Just a reminder of our latest report on the topic: based on 2,300 of the Government's own regulatory impact assessments we've estimated that in 2009, 59% - or £19.3 billion - of the total cost of economic regulation (introduced since 1998) in this country stems from EU legislation. Cumulatively since 1998, EU laws account for £124 billion, or 71%, of the total cost.

And here are a few graphs showing the regulatory cost stemming from the EU to the main departments dealing with business regulation:

It's hard to better illustrate why any attempt to tackle regulation that doesn't focus on the EU level simply isn't credible. We would be lying if we said that the Coalition's refusal to engage with EU regulation doesn't frustrate us. In fact, we'll soon publish a list of EU laws that the Coalition must seek to re-negotiate. So do watch this space.

" A step backwards for transparency"

The bulk of the cost of regulations in both the UK and Europe stem from the European Union, as we've showed in our extensive research on the subject. But this isn't even the end of the story.

Many key decisions on the actual substance of EU laws and regulations are being taken during an uber-opaque process called “Comitology”. As we've noted before, Comitology involves special committees consisting of Commission and national experts deciding on how EU legislation should be implemented - usually behind closed doors - after the proposal has been agreed by national governments and the European Parliament.

The Lisbon Treaty - the document, if you remember, that would lead to more transparency in Europe - is introducing new rules for the Comitology procedure, effective from 1 March 2011. The new rules were meant to improve and simplify the system, but are now universally acknowledged to have made the situation even worse (we explain why here).

Political consultant Daniel Guégen, who is one of the foremost experts on this topic, makes the slightly worrying observation that as a result of the reform, power in Brussels “is shifting from the political level to the bureaucratic level.”

Even the European Commission concurs. Mario-Paulo Tenreiro, who is responsible for institutional questions at the Secretariat General of the European Commission (exciting job), says:

I must admit that for the general public the new rules are a step back for transparency...Hundreds of thousands of decisions will be taken by these Treaty articles every year.

Apart from the complexity and opaqueness of the new rules, Euractiv reports that the reforms are also causing legal uncertainty. According to Wolfgang Heusel, director of the Academy of European Law (ERA), this means that "courts will have to have the last word" on how EU legislation should be implemented.

Does this matter? Absolutely! As much as 50% of the actual substance of all EU rules is decided during the comitology stage after the law has already been agreed by Ministers and MEPs, according to Dutch academic research. So we're not talking about fixing little details.

Are the Coalition and other governments around Europe keeping up? We fear not.

Ahead of the last General Election, Ken Clarke (then Shadow Business Minister, now Justice Secretary) managed to give an entire key note speech on regulation and how to improve it, without mentioning the EU once.

Il faut le faire, as the French say.

Setting the record straight on regulation

In case anyone has yet to see it, Open Europe has today published a new report detailing the cost and benefits of regulation introduced in the UK since 1998. Since last year's study on the same topic we have analysed an additional 320 of the Government's impact assessments, bringing the number of IAs analysed in total above 2,300.


It's not the easiest subject to traverse for those unfamiliar with the inner workings on regulation and deregulation initiatives, which is perhaps why it seems to have led to confusion in some quarters over what the report actually is.

The European Commission, for one, gave their response to our study in the Telegraph saying:

"The Open Europe study lacks rigour and is intentionally misleading. The headline figures suffer from a methodological bias. It confuses stocks and flows, it suffers from double-counting, it does not consider what repealing EU regulations would imply either in terms of foregone benefits or alternative regulatory costs."


An intriguing response. The Commission appears to have read only the first sentence of our press release and nothing of the actual report. That's a shame because:

• We presented three sets of figures, the cumulative cost of regulation, the annual cost of regulation and benefit/cost ratio of regulation. The Commission only responds to the first figure.
  

• The cumulative cost, or a cost of the 'stock' of regulation, measures the entire cost to the economy since 1998, which is £176 billion. The EU is responsible for 71%, or £124 billion of that cost. We explained that £176 billion is equivalent to 12.6% of the UK's annual GDP, and roughly equivalent to the country's budget deficit. This does not mean that the £176 billion cost of regulation occurs in one year, as we make clear, and the comparison to the budget deficit and GDP is illustrative and designed to relate a large figure to something most people are familiar with. In particular it's a useful reminder that regulatory policy deserves as much scrutiny as budgetary policy, as both have a significant impact on the economy. We can see why the Commission doesn't like that thought. We're note sure what the Commission's remark about 'double-counting' refers to.
  

• In the report, we do address the counterfactual , i.e. the costs that would have occured in absence of EU regulation. This is indeed an interesting discussion - one that the Commission would do well in seriously engaging with. We accept that many regulations - but certainly not all - would exist in national law also in the absence of the EU. However, and this is crucial, while the framework of laws may still exist at the national level, a whole range of prescriptive requirements that go with it would not. We give examples in our report.
  

• Additionally, knowing the source of regulation is vitalling important, both in terms of practically amending the law if so desired, and in terms of political accountability. Not knowing the source of the laws massively undercuts citizens' ability to hold policymakers to account. I.e. if I'm not happy with my energy bills rising as a result of regulation, who should I blame? The answer is far from straightforward.
  

• The annual cost of regulation measures the cost to business and the pulic sector arising from red tape in any given year (from existing and new regulation). We consider this to be a more useful measure than the cumulative cost as it allows us to look at trends. The Commission doesn't seem to address this figure, which is surprising. Particularly as it shows that the EU proportion of the total cost has gone down over the last three years (at 59% in 2009, compared to a 72% average), which could be a sign of the EU's 'better regulation agenda' beginning to pay off...

• But the most interesting figure is the benefit/cost ratio, showing the benefits of EU and UK regulations relative to each other. This figure is not being addressed by the Commission either. The ratio makes clear that for both EU regulations and UK regulations the benefits outweigh the costs, but UK regulations areo n average 2.5 times more cost-efficient than EU laws. This is also true in the areas where the EU and UK regulate the same parts of the economy (for example, social policy and environment legislation). This is what the Commission really should be trying to respond to if they’re concerned with relative benefits.

Additionally, a spokesman from the Department for Business said:

"The figures presented in this report are out of context as they take little or no account of the wider economic benefits that regulation can deliver. European regulation has helped open up new markets for UK business across Europe and provided important new rights and protections."

Again, we acknowledge that regulations come with benefits, and that EU laws, for example on public procurament or energy 'unbundling', can have a positive impact on the economy. The problem is that EU regulations too often are mistargeted, overly burdensome and decided at the wrong level of policy-making in the first place. That's what we're addressing.

The Department for Business added that its "Forward Programme", which details the regulations planned for next year, shows that EU regulation will only make up 31% of the total cost. The discrepency is explained by the fact that the forward programme doesn't take into account any of the existing regulations generating costs to businesses and the public sector - our estimate does.

And closer inspection of the Government's "Forward Programme" reveals that the economic impact of many of the EU regulations due to come into force next year have yet to be quantified (24 to be exact). Some are also very important, such as the proposed establishment of the EU's three new financial regulators - which could have a massive impact on the City of London. True, there are also many domestic regulations yet to be quantified but, as we have seen in previous years, a high EU proportional cost can just as easily be attributed to just a few extremely costly regulations as several put together. So, essentially, it is too early to tell until all the costs are quantified.

Interestingly, former Dutch EU Commissioner Frits Bolkstein today reaches some similar conclusions to those we spell out in our report. Writing in Belgian daily De Standaard he calls for the size of the Commission to be reduced to 12. He explains his reasoning:

"A proposal to grant independent women the right to pregnancy leave. Both in the Netherlands and Bulgaria, shouldn't we decide on that ourselves? The European Commission has apparently learned nothing from the Nos in France and the Netherlands...Under Barroso the Commission has become a presidential system. Now there are 27 Commissioners. Power is with the President and his Chief de Cabinet. The Chief of Cabinet has more power than many Commissioners. Discussions within the Commission don't mean anything any more."

"What do Commissioners want? They want to get into the picture with initiatives, smart or not...The only way to stop the stream of useless initiatives is to reduce the number of Commissioners to what is necessary to steer the EU. I think a Commission of twelve capable people is enough."

The top 100 most costly EU regulations

Open Europe has today published a list of the top 100 most costly EU regulations, detailing the annual cost of the laws, the cumulative cost of them by 2020, and the article base in the Lisbon Treaty for each regulation . We estimate that these laws will in total cost the UK economy a staggering £184 billion by 2020. To put that figure in context: for the same amount, the UK Government could abolish the country's entire budget deficit and still leave the Exchequer with some £6 bn. All cost estimates are based on the UK Government's own impact assessments so the figures are instructive.

The top four items on the list account for almost £97 billion - or 53% - of the total cost of the 100 regulations by 2020. Looking at these four laws clearly illustrates the enormous, and often overlooked, potential for the UK economy to save money by making a few key regulations less burdensome. Notably, cutting down the costs of these regulations could happen without any of the stated benefits being lost in the process.

1) The Working Time Directive, to cost the UK economy £32.8 bn by 2020: This Directive has been widely criticised for being overprescriptive, impractical and generally out of touch with reality - particularly as it applies to the NHS. Merely changing the on-call time and compensatory rest rules entailed in the WTD could save the UK's public sector millions - if not billions - of punds every year.

2) The EU's Climate Action and Renewable Energy Package, to cost the UK economy £28.2 bn by 2020: As we've argued before, the EU could find a much more cost-effective way to achieve carbon emission reduction by setting overall targets, and then allowing for individual member states to decide for themselves how best to reach them (as opposed to the current micromanaging approach). This would hurt the economy less and provide a more credible alternative to follow for countries outside Europe.

3) Energy Perfomance Certificates for buildings, a.k.a Home Information Packs, to cost the UK economy £20.2 bn by 2020. Again, this cannot possibly be described as the most cost-effective way to achieve reductions in carbon emissions from the residential sector.

4) The Temporary Agencey Workers Directive, to be implemented in 2011 and set to cost the UK economy £15.6 bn by 2020: When he was Business Secretary, John Hutton warned that this Directive could consign "literally thousands of people to benefit dependency" (this was in 2007, before Gordon Brown was outnegotiated in a horsetrading deal involving the UK's opt-out from the EU's 48 hour working week. The Government is now trying to defend the Directive).

Making these laws less burdensome or tailor them to better fit the UK is not easy - but it certainly isn't impossible. Neither is avoiding repeats of these laws. But this does require a far tougher and smarter approach to EU regulations/negotiations than that employed by the current government. See here for our ideas on what such an approach should entail (chapter 5).

An excellent place to start would be for an incoming UK government to opt out altogether from the articles in the EU treaties which give rise to EU's social legislation (articles 151 to 161 as amended by the Lisbon Treaty). With correspondng domestic reforms, this could instantly reduce much of the cost stemming from, for instance, the Working Time Directive and the Temporary Workers Directive.

At a time when every penny is needed to close a massive public deficit, surely cutting the cost of regulation should be a top priority for the next government?

Showdown over alternative investment

In HFM Week, we're today setting out our thoughts on one of this year's most contentious EU proposals: the Directive on Alternative Investment Fund Managers (i.e. stricter rules for hedge fund and private equity managers and various other more or less obscure managers with alternative investment styles). The proposal is up for discussion and amendment in the European Parliament and the Council this autumn.

It's clear that there will be a Directive, but exactly what it will look like is a completely different story. In a nutshell: The Directive will - quite literally - force more transparency on fund managers, while giving them the opportunity to market their products across the EU once they've been authorisied to do so. Within reason and market practice, these are no bad things.

However, overall, the Directive is in danger of becoming a prime example of bad business law - especially when viewed through the prism of the Commission's own 'better regulation' principles. As we argue in the article, the Directive's objectives and benefits are unclear, it is riddled with legal uncertainty, and it is inconsistent with both existing regulations and prevailing market practices. Perhaps most critically, the Directive is protectionist to its very core.

The battle will primarily take place over the Directive's protectionism and the provisions which seek to overturn how managers are stuctured and how they go about their business (which could seriously harm the industry, restrict investor choice, etc.).

In the absence of a proper Impact Assessment on the proposal from the UK Government, Open Europe will soon publish a report on the possible impact of the Directive on the industry, investors and the wider economy. Watch this space.