Briefing Influence

  • Building on previous original Open Europe research, Open Europe quantified the cost to the UK economy of the most important EU regulations, after analysing almost 2,500 Impact Assessments prepared by UK Government since 1998.
  • Several ideas set out by Open Europe have been adopted, including the Government “business taskforce”, a European Commissioner for cutting red tape and a new programme to streamline EU rules.
€27.4 bn

Cost of Top 100 EU Regulations to UK Economy

Open Europe estimates that the top 100 EU regulations cost the UK economy £27.4bn annually – and that costs outweigh benefits in a quarter of cases. Encouragingly, over a third of regulations identified by Open Europe are featured in the UK Government endorsed ‘Business Task Force’ report outlining ways to cut red-tape.Source: Open Europe, UK Government, Financial Conduct Authority.

21 October 2013

Costliest EU regulations

In 2013 prices, Open Europe estimates that the total cost to the UK economy of the top 100 most expensive EU regulations is £27.4 billion a year. The figure is based on data from the UK Government’s Impact Assessments (IAs) of these regulations. This includes the cost of EU laws that have already been passed, but have yet to come into force – such as the new capital rules for the insurance sector (Solvency II).

According to the Impact Assessments (IA), the top 100 EU regulations provide a total benefit of £57.1 billion a year. Of this, £45.1 billion stems from just three items (EU climate targets – £20.4 billion; rules on the capital held by banks – £15.3 billion; and rules on payments across the EU – £9.4 billion). However, these benefits are almost certainly vastly over-stated. For example, the estimated benefit of the EU’s climate targets 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 UK Government’s IA have failed to materialise.

Taking the regulations individually, the UK Government’s own IAs show that, for 24 of the top 100 EU laws, the estimated costs outweigh the estimated benefits. Therefore, these regulations clearly result in a net cost to the UK economy – which comes to a combined total of over £3 billion a year. These regulations include the Temporary Agency Workers Directive and the Energy Performance of Buildings Directive.

A further 33 of the costliest EU regulations present a ‘net cost’ simply because the benefits either haven’t been quantified or the benefits are intangible and therefore ‘non-quantifiable’ (such as a better work-life balance in the case of EU working time rules or stronger investor protection in the case of EU rules on hedge funds). For example, the Working Time Directive represents an estimated cost to the UK economy of £4.1 billion a year and the benefits are unknown.

EU regulation can come with benefits, particularly if it helps facilitate trade across the single market. It would also be wrong to assume that, if the UK were to leave the EU, the costs described above would disappear overnight. The reality is that the UK would be likely to keep a good number of these laws in part or in full, such as rules on anti-discrimination, some health and safety rules, food safety standards, and so forth. At the same time, the UK would no longer benefit from many of the EU rules that give British business access to European markets – such as ‘passporting rules’ for financial firms.

Recommendations

Open Europe recommends that the best option for now is for the UK to seek to change these rules from within the EU. To this end, initiatives such as the report on how to cut EU red tape, prepared by the UK Government’s ‘Business Task Force’, are welcome – but they need to be followed by concrete action to reduce the existing and future burden of EU regulation on European and British businesses.

In addition, Open Europe believes that serious thought must also be given to creating a mechanism for national parliaments to review and repeal EU laws that impose a net cost on the economy or do not, in practice, deliver the benefits promised.