Why ripping up EU red tape may not help the British economy

Opinion piece (The Telegraph)
04 February 2016

Companies don't like regulations for an obvious reason - they cost them money. And as the regulatory empire of Brussels has spread, it shouldn't be surprising that many in the corporate world have become Eurosceptic. James Dyson, for example, wants to leave the EU over vacuum cleaner energy standards. Captains of industry tend to think that what is bad for them is bad for the economy as a whole, and this leads some to assume - mistakenly - that EU red tape drags Britain down. Here are four reasons why they are wrong.

First, Britain seems to be confused about why the EU regulates in the first place. Why can't we just have free trade? The answer is that a single market, unlike a bog-standard free trade agreement, tries to pull down trade barriers that arise out of a confusing thicket of national regulations. (Tariffs between EU members were abolished long ago.) Common standards mean that a lawnmower manufactured in Britain can be sold in Germany without falling foul of the German authorities, for instance. This means that if Britain votes to leave the EU, and decides to rip up EU rules, exporters to the continent will face higher, not lower, costs. They would have to make two sets of widgets in order to meet different UK and EU standards.

The second reason is that EU rules do not stop British markets from being among the freest in the developed world: the OECD ranks us second after the Netherlands, another EU member. Greece is at the other end of the scale: EU rules, then, do not appear to impose rigid harmonisation on the union as a whole. Under EU "directives", member-states are able to tighten regulation on their own firms if they wish, but must not discriminate against imports from more lightly regulated members of the club.

The same story holds true for Britain's flexible labour market. The costs of "social Europe" are small. Only 1.5 per cent of the British labour force work 48 hours a week, and thus can be said to be constrained by the EU's working time directive. Far more people work longer hours than the 48-hour limit, because of opt-outs that the UK has negotiated. Meanwhile, the EU's agency workers regulations - which provide agency temps with the same pay and working rights as regular employees - have not stopped the number of temps from growing quickly since the rules came into force.

Fourth, many in business complain that Brussels does not do enough to test whether its regulations impose unnecessary costs. But the OECD tested the European Commission's rule-making process alongside other countries, and found that it is of better quality than the OECD average - and similar to that of UK and Australia, which the OECD ranks highest. There can be little doubt that some proposals are forced through the EU's legislative machine without being properly scrutinised, but it is far from clear, on the basis of the OECD's index at least, that the EU does this more than the UK itself.


It appears, then, that a post-Brexit bonfire of EU rules would hardly provide enough heat to warm a pot of tea.


Read Brexit and EU regulation: A bonfire of vanities?


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