Like others running businesses across the UK, I welcomed the recent promise by José Manuel Barroso, European Commission president, to build a “bonfire of regulations”. However, so far we seem to have seen a lot of smoke but little fire.

The European Union is not the only source of over-regulation in the UK – domestic legislation and Whitehall’s gold-plating of EU regulations (a
peculiarly British disease) are also to blame. But a study released today by Open Europe, a think-tank, finds that the EU is the key driver of regulation: 77 per cent of the most important regulations passed in the UK since 1998 were wholly or partly driven by EU legislation.

According to the government’s own regulatory impact assessments, these EU regulations have cost UK businesses £30bn. This is only the direct cost. Knock-on effects on productivity and growth are likely to be far higher.

Europe’s production of new regulations has been increasing. Of the 22,000 pieces of legislation on the EU statute book, about 12,000 have been introduced in the eight years since 1997. Look closely at what the Commission’s “war on red tape” really means and the sad answer is: not very much.

In September it announced the withdrawal of 68 proposals for legislation. That got good headlines. However, it turned out that most of the bills were already obsolete or had been pending for years – 27 were more than five years old and 22 concerned the association agreements that became defunct when the 10 new member countries joined the EU last year. Le Figaro wisely described the initiative as “largely cosmetic”.

In October the Commission had another go, saying it would “repeal, codify, recast or modify” 220 pieces of legislation. Again, it sounded good but didn’t stack up. Only eight regulations will actually be repealed. The rest are to be rewritten, as the Commission says, “without changing the substance of these provisions”. Even the regulations that are to be ditched will have no economic impact: one is an obscure 1960s directive on measuring knots in bits of wood.

Given Europe’s slow growth, high unemployment and future demographic problems, this kind of tinkering around the edges is not a proportionate response. We cannot afford to go
on like this. As Sir Digby Jones, CBI director-general, has pointed out, India and China will eat Europe for lunch if we don’t do something soon. I propose four ways to start making a real impact.

First, abandon the idea of “better” regulation and focus on less regulation. Codification of the existing law is all very well but will have no impact on business. In its most recent deregulation drive, the Commission stated that the handful of regulations it planned to repeal were “irrelevant or obsolete”. Any meaningful deregulation will be controversial and will mean axing the rules that do bind business.

Second, the EU should adopt the Dutch deregulation system. The Netherlands is conducting a proper economic audit of the whole body of existing legislation and has a target to reduce administrative costs by 25 per cent. The EU could create a unit like the US Regulatory Oversight Office to drive through such a programme.

Third, MPs at Westminster need far greater powers to raise the alarm about upcoming EU regulations at an early stage. The current EU scrutiny committee is seriously underpowered to deal with the flood of EU legislation. On top of this the government makes a mockery of MPs’ attempts to get a grip on what is going on in the EU.

Even where MPs explicitly ask the government not to sign up to a proposal until it has been discussed at Westminster (the so-called “scrutiny reserve”), the government frequently overrides this to avoid losing face in EU council meetings. Westminster could learn from the Danish parliament, where MPs grill ministers every Friday and go through the agenda for the following week’s EU meetings.

Fourth, make it compulsory for the EU to carry out proper regulatory impact assessments before legislating. According to a study by the British Chambers of Commerce, less than 1 per cent of EU legislation is given an impact assessment. As Thomas Hopkins, the American economist, argued when calling for a similar system in the US: “If we want to continue shooting ourselves in the feet, collectively, I think it only fair that we have a count of the bullet holes.”

Sir John Egan is non-executive chairman of Inchcape and Severn Trent and a supporter of Open Europe
www.openeurope.org.uk/research/regs.pdf

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