Mats Persson is Research Director at Open Europe and author of its latest piece of research, Out of Control: Measuring a decade of EU regulation, which exposes exactly how much EU regulations are costing Britain. He summarises its findings here.
Over at Open Europe we’ve spent a tense six months trying to do what many told us was impossible – to track down and analyse more than 2,000 Government Impact Assessments in order to get a picture of the cost and flow of regulations.
Because while fiscal policy is subject to continuous scrutiny and media attention – with daily and lively debate over tax rates – regulatory policy remains shrouded in mystery. As a report by the OECD once said:
“Regulatory costs are the least controlled and least accountable amongst government costs. Many governments have no idea how much of their national wealth they are spending through regulation.”
Ten years ago, Tony Blair’s Government introduced a system of analysing costs and benefits for all the most significant pieces of legislation, recognising the clear need to get a grip on the flow of regulation.
And in 2005, the Government introduced its ‘Regulatory Reform Agenda’, hoping to bring down the cost of red-tape affecting businesses.
Out of control: the cost of regulation is increasing all the time
But our research, which uses the Government’s own figures for the cost of legislation, reveals that instead of decreasing, both the flow of regulations and their cost impact have in fact skyrocketed. Since the launch of the reform agenda in 2005, the annual cost of regulation in this country has gone from £16.5 billion to £28.7 billion – an enormous increase of 74%.
Counted cumulatively, regulations introduced in the last ten years
have cost the UK economy £148.2 billion – the equivalent of 10% of GDP,
and enough to abolish income tax for a year, or cut the national debt
This is in contradiction to the Government’s claim last month that the administrative cost of regulation is coming down.
Likewise, similar efforts at EU level have failed. Our study finds
that a staggering 72% of the total cost of regulation in the UK stems
from EU legislation. In other words, EU regulations introduced in the
past ten years have cost the UK economy almost £107 billion.
The cost of EU legislation has gone up year-on-year over the past
decade. In 2008 alone, EU legislation dating from 1998 cost the UK
economy £18.5 billion – up from £12.2 billion in 2005.
If the current flow of regulation continues, by 2018, the cost of EU
legislation introduced since 1998 will have risen to more than £356
billion. This is around £14,300 per British household. For the same
amount, the UK Government could pay off almost 60% of the national
debt, or abolish income tax for 2 years and still leave the Treasury
with a surplus.
All this tells a clear story. The fundamental problem is simply not
being addressed – businesses, public sector workers and others continue
to be subject to incessant Government interference.
We need a radical new approach to tackling overregulation. Because
of the sheer enormity of the EU share of UK regulations, any efforts to
reform which do not concentrate above all on bringing down the cost of
EU legislation, will be doomed to fail. While the Government’s
regulatory reform agenda is ambitious by comparison with similar
efforts the world over, our results suggest it is fundamentally
For instance, the Government has announced plans to introduce
regulatory budgets for Whitehall departments, but these are unlikely to
have much impact, given that the Government is effectively in control
of less than 30% of the total cost of regulation.
And for some departments it is even worse than that – EU regulations
account for a whopping 98.8% of the cost of regulations coming from the
FSA, 96.5% of those coming from the Ministry of Justice, 94.2% of
regulations from DEFRA, and 94.3% from the Health and Safety
Executive. What use can regulatory budgets be when it is the EU, not
the Government itself, which is in control of the vast majority of
costly regulations coming from these departments?
A failure to fight over-regulation in Brussels
The UK Government produces some of the most sophisticated Impact
Assessments in the world. However, so far these have had very little
influence on EU decision-making.
UK ministers have even been known to sign off on EU proposals
despite the Impact Assessment showing the costs outweighing the
In 2007 the Minister of Transport Stephen Ladyman, for instance,
approved an Impact Assessment which showed that the estimated costs of
an EU Directive were £400 million a year, while the benefits were £18.5
million a year.
Worse, the Government sometimes does not produce Impact Assessments
early enough for them to even have a theoretical impact on the
decision-making process, and sometimes even produces them after
regulations have already been passed.
For example, shockingly, the Government has still not produced an
Impact Assessment for the loss of the UK’s opt-out from the EU’s
maximum 48-hour week, despite the fact that the European Parliament has
voted to end the opt-out and it is now in the final negotiation stage,
known as ‘conciliation’, where Britain does not have a veto.
A Government official told Open Europe that the reason there was no
IA was because "we did not expect it to come up for negotiation." An
FOI request subsequently revealed that the Government does not plan to
produce an assessment until after the ‘conciliation’ phase is finished
– by which time the decision on whether or not the opt-out will remain
will already have been taken.
Meanwhile, the EU Commission’s ‘Better Regulation Agenda’, launched
in 2005, is paralysed by far too much tinkering at the margins –
notwithstanding some noble efforts by reform-minded politicians such as
Gunhter Verheugen. While the Commission has simplified a handful of
regulations over the past few years, these have been dwarfed by the
continuing tide of expensive new regulations.
A tough new approach to EU negotiations
British politicians need a tough new approach to negotiations in
Brussels in order to curb the flow of regulation. They must push hard
for a new commitment among EU partners to the idea of less regulation –
the idea that state interference, at UK or EU level, can only be
justified with conclusive evidence that the benefits of any such
interference outweigh properly quantified costs.
A good place to start would be refusing to accept an end to the UK’s
opt-out from the 48-hour week, which we have previously estimated could
cost up the UK up to £66 billion by 2020.
Before it’s too late, the UK Government should produce a robust IA,
while negotiations are still ongoing, and take it to Brussels, arguing
that it simply cannot accept proposals for which there is little
support at home, and for which the estimated costs are so high.
Such warnings, when based on robust evidence, will strengthen the
UK’s negotiation position enormously. The idea is no more radical than
other member states simply choosing not to implement EU law – such as
the resistance to energy and services legislation in Germany, for
Our research shows that more than 20% of the total cost of
regulations in the UK already comes from EU labour market regulations
alone – let’s not make it worse.
The UK Government is in a strong position to draw up a new approach
for reducing red tape. It should use its influence over EU budget
negotiations to lever in concrete new measures to stop regulation –
including a proposal to allow national parliaments to veto unnecessary
It should introduce EU-Commission style audit trails to help
businesses keep up. There also needs to be real-time scrutiny of EU
proposals at Westminster, with a bolstered new committee system which
takes proper account of the fact that 72% of the cost of legislation is
Increase public awareness of EU legislation
A more aggressive approach to EU negotiations would in turn help to
improve media attention to and public awareness of EU legislation –
something which has for too long been severely lacking.
The current strikes over the impact of EU free movement rules – not
to mention the widespread media confusion over what exactly the law
says and means – are symptomatic of an endemic failure by the
Government and the media to scrutinise, impact upon and communicate EU
laws while they are still being negotiated, or as in this case,
interpreted by the courts.
As a matter of urgency, an incoming Conservative government must
heed this stark warning and promise a robust and committed new approach
to bringing the flow of EU regulations under control. This is not an
ideological point – it’s a practical one.
Our research shows that, perhaps surprisingly, only around 5% of all
regulations relate to financial services. This means the real losers
from over-regulation are small businesses, public sector workers and
society as a whole. At a time when the economy is struggling through a
recession, politicians need to urgently think about new ways to ease
the burden of regulation.