Small firms and the EU: Curate's Exports

It's good that Business for Britain is looking at the cost of regulation to small business, says Tim Ambler, but by focusing on devolution they push in precisely the wrong direction—more unified markets are lower regulation markets.

Only those firms who export to other parts of the EU should have to comply with EU regulations or so says Business for Britain (Daily Mail, 18th January).  Business for Britain claims that as 95% of UK firms do not trade with the rest of the EU, £7.5bn. could be saved for the UK. The knee-jerks in response were what could be expected from those pro and sceptical of the EU.  The proposal has had little considered analysis.

Business for Britain has re-ignited the debate about exempting small firms from most regulation.  Brussels has accepted this in principle but has done little or nothing about it.  Briefly the arguments are: • As a percent of turnover, the cost of regulation is far higher for small than large firms.  This is unfair and distorts the market. • Regulation is a barrier to entry and therefore reduces competition. Start-ups in a market are typically small and require a low regulatory threshold to facilitate entry. • Small companies are more regulated, in effect, by market competition than their oligopolist big brothers and therefore require less legal regulation.

The Business for Britain proposal is therefore welcome insofar as it brings pressure for the relief on small businesses.

On the other hand, their proposal is flawed in the following respects;

• Having a single market across the EU, albeit with standard reliefs for small firms, is such a fundamental principle of the EU that there is no chance Brussels, or the EU Court of Justice, would tolerate these concessions for domestic firms.  It would give domestic firms competitive advantage over importers from other EU member states.

• Business for Britain expect that other member states would reciprocate and that Brussels should therefore accept that the arrangements were even-handed.  However allowing all member states to make up their own rules for domestic businesses would put UK exporters, or those doing business in other member states, at a competitive disadvantage.  Since the rest of the EU is a great deal bigger than the UK, the net effect would be negative for the UK.

• The UK economy desperately needs more exports and overseas trade, notably in the EU.  Having to step up, as Business for Britain suggest, from no EU regulations to implementing them all the minute one sends a box to Calais would be a major disincentive to overseas trade. One of the EU’s great successes has been to make EU exports easy.  It would be a mistake to reverse that.

• A single market is defined by having a single set of regulations.  The EU is slowly, too slowly, moving in that direction.  Yet the last 20 years have seen far more UK business regulations than we have endured from Brussels.  Whitehall is happy to fan the flames towards Brussels but the fact of the matter is that all UK business regulation is “gold plate”. I am not referring to the relatively trivial matter of adding to EU Directives but to the much bigger matter of having a huge number of UK regulations in addition to the EU ones.

• In a single market, if the UK needs a regulation, then so does the rest of the EU.  If the rest of the EU does not require a regulation, then nor does the UK.  Yes, we should jettison much EU regulation but that needs negotiation.  Dumping UK business regulation does not.  A major reason why Brussels rejects pleas for deregulation is that Whitehall sets a bad example and then blames Brussels.  We need to put our own house in order first.

• It has been suggested that other large countries, such as the USA and China, are single markets which nonetheless have separate regulations in separate states.  Of course there are shades of grey in all this but the USA and China, and other large markets, are not single markets.  In the USA, for example, it is illegal to trade alcoholic products across state borders.  Each state is its own market.  The low regulation single market may be an impossible ideal but it is a clear goal towards which we should push.

• The UK is unpopular within the EU family not least because it is always demanding concessions for itself without regard for the community as a whole.  The Foreign Office and government ministers play to UK media headlines with calls for red lines and such like.  This may get a good UK press in the short term but it reduces Britain’s standing in the eyes of others.  It is poor EU negotiation. The French and the Germans get their own way, to a great extent, by framing their arguments as being good for the EU.  The more the issue is really for their sole advantage, the more they stress the EU perspective.  The only significant UK negotiating successes have been Thatcher’s Rebate and Major’s opt-out of the Social Chapter.  Unsurprisingly both were resented and Blair handed most of them back without any offsetting UK benefits. In presenting their case as an advantage for the UK, Business for Britain compromises Britain’s overall negotiating position.

• The Common Market is what the British public signed up for.  Prime Ministers Heath and Wilson knew perfectly well that the fine print included social and political integration but most of us only cottoned on many years later. We should now do all we can to promote the benefits of the Common Market for the EU as a whole to our fellow member states.  We are not alone in our concerns about political and social standardisation but we should accentuate the good rather than attack the dubious.

The Business for Britain are right to put the spotlight on regulatory relief for small businesses and it would be good to see that issue taken forward.