In the latest instalment of Open Europe’s ongoing Brexit series, we look at the burden of EU regulation on the UK economy, and whether swapping full EU membership for EEA membership, i.e. the ‘Norway Option’, would be a better way to cut regulatory costs.
Based on an analysis of UK Government Impact Assessments (IAs), Open Europe estimates that the cost of the 100 most burdensome EU-derived regulations to the UK economy stands at £33.3bn a year in 2014 prices. This is more than the £27bn the UK Treasury expects to raise in revenue from Council Tax in the current (2014-15) financial year.
The top five costliest EU-derived regulations in force in the UK:
1) The UK Renewable Energy Strategy – Recurring cost: £4.7bn a year
2) The CRD IV package – Recurring cost: £4.6bn a year
3) The Working Time Directive – Recurring cost: £4.2bn a year
4) The EU Climate and Energy Package – Recurring cost: £3.4bn a year
5) The Temporary Agency Workers Directive – Recurring cost: £2.1bn a year
According to the IAs, these regulations also provide a total benefit of £58.6bn a year. However, £46bn of this benefit stems from just three items, which are vastly over-stated. For example, the stated benefit of the EU’s climate targets (£20.8bn) was dependent on a global deal to reduce carbon emissions that was never struck. In fact, Open Europe estimates that up to 95% of the benefits envisaged in the impact assessment have failed to materialise.
Taking the regulations individually, the impact assessments show that Ministers signed off at least 26 of the top 100 EU-derived regulations, despite the IAs explicitly stating that the costs outweigh the estimated benefits. These regulations include the UK Temporary Agency Workers Directive and the Energy Performance of Buildings Directive.
A further 31 of the costliest EU-derived regulations have not been quantified. Between the over-stated benefits, the regulations that come with a net cost and the ones with unquantified benefits, it remains unclear how many of these EU-derived rules actually come with a net benefit in reality, showing that there is plenty of scope to cut regulatory cost to business and the public sector.
Although the cost of EU regulation too high in proportion to the benefits it generates, it is important to note that these rules can bring benefits including by facilitating trade across the single market, for example in the case of financial services rules such as MiFID.
The ‘Norway option’ offers minimal scope for deregulation
If the UK were to leave the EU, the costs described above would not disappear overnight – much would depend on what path Britain took outside the EU. If the UK were to leave the EU and instead ‘become like Norway’ by joining the European Economic Area (EEA), 93 out of these 100 costliest EU-derived regulations would remain in place at a cost of £31.4bn (94.3% of the total cost). This is because under EEA, many EU policy areas would continue to apply to the UK including financial services, social and employments laws, energy and climate change policies, and this is where the bulk of the regulatory cost stems from.
Given that EEA membership comes without any formal voting powers in the EU institutions, the UK would lose its ability to both amend these regulations and shape new EU laws.
While the ‘Norway option’ does mean greater independence in certain areas – chiefly the repatriation of agricultural policy, regional policy, trade policy and justice and home affairs – overall, it would make little sense to leave one club only to join another with many of the same costly rules.
EU has finally made some progress on cutting red tape
Over the last two years, the EU has taken some welcome steps to relieve the pressure of EU regulation on businesses and adopted several of Open Europe’s ideas in this area. In particular, the appointment of Frans Timmermans as Vice-President of the European Commission with a responsibility for Better Regulation. Since his appointment, Timmermans has already proposed scrapping 80 out of 450 pending legislative proposals, however, there is still a long way to go, particularly in terms of addressing the existing stock of EU legislation.