Regulatory Excess

Liberate Europe from regulatory excess
By Keith Boyfield

Politicians across the European Union claim to be in favour of cutting red tape. Nevertheless, the regulatory burden on business and citizens alike continues to grow.

At the latest count, the acquis communautaire, the accumulated EU rule-book, ran to 16,000 pages.

In our new Adam Smith Institute study, we set out a "road map" which explains how policymakers can begin to cull the mounting stack of regulatory rules, both across the EU and within member states.

We identify three main sources of regulation that impinge on UK citizens, namely, the EU, Whitehall and regulatory agencies, such as the Financial Services Authority and Ofcom. A similar position applies in other EU member states.

If we are 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.
In terms of the cost to business, the Treasury estimates that over half of all new legislation with a significant financial impact on UK business now derives from EU law.

If we are to lift the regulatory burden we must tackle the main engine behind its recent growth. From our analysis of the regulatory labyrinth, we concluded that a series of radical reforms were required.

First, the most effective way to tackle the phenomenon of gold plating — when implementation goes far beyond the minimum necessary to comply with a 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. As we researched our report we soon 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 not be introduced.

Second, it is essential that we introduce regulatory impact assessments for all new EU regulations that impinge on business. Such scrutiny aims to establish whether the net benefits from a new regulation exceed the compliance costs.

Our suspicion is that many do not pass this straightforward test. Indeed, Peter Mandelson, the EU's trade commissioner, told last year's Confederation of British Industry annual conference that the cost of EU-generated red tape was roughly double the economic benefits generated by the single European market.

Third, 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.

Fourth, we can reflect on the US experience and 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.

Fifth, we 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.

Sixth, we need to radically prune the acquis communautaire. The UK government has set out some ideas on how this could be achieved. In financial services, the EU's Financial Services Action Plan has attracted considerable criticism. In this context, the crucial regulations that need to be simplified are the first investment directive, the capital adequacy directive and the money laundering directive.

The Six Presidency Initiative — which sets EU priorities for the next three years — claims it will seek to cull outmoded Union rules. Charlie McCreevy, the internal market commissioner, said that he was prepared to abolish legislation that had proved to be damaging.

We have offered to submit a list of suitable candidates for Mr McCreevy's attention.

The initiative should be welcome news to the 10 new accession states. Many of them were only recently freed from the yoke of Soviet central planning. Having liberated themselves from unwelcome state intrusion, the last thing they desire is a raft of EU regulatory measures imposed on them by overzealous bureaucrats.

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The writer, Keith Boyfield, is the co-author with Tim Ambler of Road Map to Reform: Deregulation (Adam Smith Institute)