Deregulation: What Actions Need to Be Taken

Keith Boyfield picks up on the subject of regulation and how much the EU law is to blame for the significant legislation on British business. However, he explains why there is reason for optimism and how things could change for the better in terms of pulling back on excessive regulation.

My father was a trustee of the Lancashire miners’ convalescence home, located in Blackpool. Jo Gormley, the miners’ leader – who you may recall used to tip off MI5 about the activities of Arthur Scargill – appointed his own brother (a classic example of nepotism) to run this luxurious palace, which my father would regularly visit.

Bearing in mind these memories of my youth, it was alarming to discover the fuss earlier this month that centred around the regulation of the beach donkeys in Blackpool.

Inspired perhaps by the French, the local authority has imposed a strict regulatory regime on this non-unionised pack of donkeys, which currently numbers around 200. Henceforth, all donkeys must be licensed and their owners will be subject to spot checks by inspectors throughout the summer season. They will not be allowed to work more than 48 hours a week (the same limit that would apply to their two legged owners if the European Parliament gets its way which looks increasing likely as a majority of MEPs want to overrule the opt out the British government negotiated from the EU’s 1993 Working Time Directive) furthermore, these donkeys will also be entitled to a generous lunch break, again a concept cherished by our neighbours across the Channel. On top of all this they will also have each Friday to do as they please. It would be interesting to know whether former pit ponies will be allowed to compete against them for rides.

What is distinctive about this particular regulation is that it appears to draw its authority neither from our national legislature in Westminster, nor from an EU inspired directive or regulation.

It is European regulation that shall be centred on here. In our recent Deregulation report, as part of the Road Map To Reform project, we noted that the Treasury estimates that in value terms (that is to say the cost to business) approximately half of all new legislation, with a significant impact on business, now derives from EU law. However, in Tim Ambler’s latest evidence to a House of Lords select committee inquiry, he stated that ‘the EU may only be responsible for 34 per cent of the net regulatory burden on British business’. Nevertheless, this is still a significant proportion.

Last November, at the CBI annual conference, the euro enthusiast and new Trade Commissioner Peter Mandelson, admitted that the costs associated with regulation imposed by the Commission are roughly double the economic benefits generated by the single European market. In other words, regulatory costs account for around four per cent of the EU’s gross domestic product!

Cynics – or perhaps they should be termed realists – might argue that this burden will only get worse, given politicians’ keenness on regulation as a solution to a raft of political problems. But there are also reasons to be more optimistic when considering how the Brussels regulatory machine might be brought down a gear or two.

There have been two recent, significant developments. The first is the so–called ‘Six Presidency initiative’, originally suggested by Charlie McCreevy (until the end of last year Ireland’s Finance Minister) and now the Commissioner responsible for the Internal Market. Originally referred to as the Four-Presidency initiative, but now known as the Six Presidency initiative, since Austria and Finland have signed up to it as well, this action plan makes a joint commitment to carry forward a series of reform measures aimed at tackling EU red tape. These reforms include extending the use of regulatory impact assessments (RIAs) on Commission proposals, introducing new standards for public consultation, and moving forward with the important job of culling the acquis communautaire – that is to say the accumulated regulatory rulebook, which now runs to an incredible 16,000 pages.

Charlie McCreevy told a gathering of City luminaries earlier this year that he was quite prepared to axe any EU regulations that were shown to be counter productive. Mr McCreevy was quizzed at this meeting as to how he proposed to identify suitable regulations for the bin. Essentially, McCreevy’s answer boiled down to making greater use of the regulatory impact assessment procedure – a topic on which Tim Ambler has written extensively.

Impact assessments can be arbitrary, and tweaked to justify a new regulation once there is a political commitment to go ahead with it come what may. However, the Commission’s novel willingness to review the burden associated with excessive regulation is a welcome start. I believe we need to press on this opening door, which has only just moved ajar.

In another encouraging sign, Mr Barroso’s Commission has drastically slowed the pace of new legislative activity. From now on tougher impact assessment guidelines will mean that all important EU legislative proposals will be screened for potential significant negative impacts on competitiveness. As Graham Mather, a former MEP points out, “this will give business the chance to use quantified analysis to influence new legislation. Put bluntly, if the analysis can demonstrate significant quantified costs that outweigh estimated benefits, legislation is unlikely to proceed.”

It is particularly encouraging to see that several Commissioners, looked on as dangerous liberals by the French, are keen to axe existing regulations that can be demonstrated to be damaging to business. In eurospeak this is referred to as the ‘simplification’ process. Some 20 areas have already been examined but this initiative will be stepped up significantly during the British Presidency in the second half of this year.

Under the simplification process a review will be undertaken to look at alternatives to legislation, such as self–regulation or voluntary agreements. Regulations will also be tested in terms of their effectiveness in meeting their original objectives. The simplification process will also review the more vague directives that are open to legal dispute and look at what should be done where legislation has not been implemented.

In another encouraging move, the Commission has acknowledged that there is a problem with gold plating, or what it chooses to refer to as, “member state regulatory excess”, whereby member states, sometimes for protectionist reasons, over implement EU legislation. Henceforth, the Commission says that it will have no hesitation in launching infraction proceedings against member states who adopt these practices.

There are also welcome signs that some liberal–leaning MEPs are prepared to tackle the problem of excessive regulation. For instance, Gunnar Hokmark, a Swedish MEP recently wrote a letter to the Financial Times proposing that a task force should be established by the Parliament “to unpick and terminate problematic regulations.”

So the opportunity now presents itself for think tanks, business groups and trade associations to argue their case in Brussels. The opportunity needs to be seized with gusto.

Experience suggests that one of the biggest problems with the EU is the tendency for deals to be hammered out at the last minute in order to fix a range of intractable issues. Often this comes down to crude horse trading – ‘we’ll compromise on A if we can secure agreement on B and C.’ The French seem to be past masters at this dark art, but the Brits are catching up with them.

This observation leads to the second reason to be optimistic, namely the expansion of the EU. In this respect, the French have badly miscalculated: not only do Hungarians, Poles and Estonians show little sign of wanting to learn French, they are none too keen on being saddled with the anti-business regulations that strangle jobs and hamper economic growth throughout the EU. No wonder the French are concerned about the viability of their cherished social model. This certainly explains why a new book on the dangers of Anglo–Saxon inspired liberalism has sold more than 200,000 copies – and that’s in hardback – since it was published in France.

The ten accession states, many of whom were only relatively recently freed from the yoke of Soviet centralised planning, are already beginning to demonstrate ‘liberal’ tendencies when it comes to resisting EU imposed regulation and adopting flat tax fiscal strategies. Having only just liberated themselves from unwelcome state intrusion in their business and personal lives, the last thing that Poland, the Czech Republic, Hungary or Slovakia want is a raft of EU regulatory measures forced on them by Franco–German social democrat politicians.

In this context, it is ironic that the French will probably vote no to the new EU constitution on the grounds that it is too liberal and too Anglo–Saxon in its approach while the British, if they ever get the chance to express a view, will vote no on the grounds that it is overly dominated by the Franco German social model, which provides an extended rein to their political elites to interfere and regulate our daily lives.

In the next few years more individuals and firms will begin to exploit regulatory arbitrage within the EU. For example, if one wanted to establish a financial services business within the EU but one that was not closely inspected by the regulatory authorities, Malta would be an ideal place to start a business. One might term this an EU off shore strategy – while businesses can legitimately claim that they are trading within the EU’s jurisdiction, the regulation that exists there may not be too onerous. Malta has relatively few civil servants and those on its payroll already struggle to implement the EU’s existing labyrinthine regulatory regime. The latest EU scorecard reveals that Malta has failed to implement a total of 617 directives. The same scorecard shows that France has one of the worst records for implementing EU directives into national law. Indeed, France’s record has ‘gone from bad to worse’.

The following recommendations need to be made to those who are responsible for reforming the EU regulatory labyrinths.

ß The most effective way to tackle the phenomenon of gold plating – where implementation goes far beyond the minimum necessary to comply with a EU directive – is to scrap directives (or framework laws as envisaged under the new Constitution). The EU’s legislative institutions should be required to focus on issuing clearly drafted regulations, which can be applied without further interpretation by each of the 25 member states. In conducting our research, we realised that gold plating is the inevitable result of seeking to transpose EU directives into member states’ domestic statute books. In a properly functioning single market, a regulation should be clear from the outset. If it fails to meet this test, it should be scrapped.

ß If new EU regulations can be demonstrated to pass the regulatory impact assessment hurdle, sunset clauses should be built in to review whether these regulations have achieved their stated goals, three years after they were implemented.

ß Learning from what has worked well in the US, we should oblige the European Commission to report annually to the European Parliament on the total costs and benefits associated with EU regulation. The Office of Management & Budget has reported in a similar fashion to Congress on a yearly basis since 1997.

ß Europe should establish within the Commission a regulatory oversight unit to evaluate all significant regulatory proposals. If it is to exert any influence, such a body will need to have a real decision-making authority – as with the Regulatory Oversight Office in the US. It will also require sufficient funding to perform its role and be separate from the regulatory agencies it monitors.

If Europe is to succeed in reducing the regulatory burden, we need to ensure that fewer new regulations are passed, that existing ones are rationalised, and that enforcement does not become overzealous.