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Thursday, April 01, 2010

Regulation: one more round

The Economist's Europe correspondent, Charlemagne, yesterday used his blog in order to launch a rather stinging attack on the state of the UK press' coverage of the EU. It seems to have been prompted by our latest report on the cost of regulation to the UK economy, and the proportion of that which comes from the EU.

It is not for us to defend the state of the UK press but we will use this opportunity to respond to some of Charlemagne's comments on the report.

Charlemagne argued the report's findings are “tendentious because the British government would have regulated in all sorts of areas even if we did not belong to the EU, and because not all regulation has benefits that can be directly costed.”

On Open Europe’s findings that, according to the Government’s own impact assessments, UK-derived laws on average produce a benefit roughly 2.5 higher than EU laws, Charlemagne argues “The EU and national governments regulate different things, because of the way legislative competences are divvied up by the EU treaties. So [Open Europe’s] comparison is between apples and oranges. It might well be that the EU regulates wastefully, but then again it might also be that the EU has powers to regulate in some expensive areas, like environmental law or health and safety law, where the main benefits are hard-to-cost public goods.”

Now, we need to be able to handle scrutiny just as we expect others to handle how we scrutinise them, so we appreciate constructive criticism. We don't claim to be disinterested, and we certainly make no excuses for highlighting where the EU goes wrong. The EU needs more, not less scrutiny by bodies not funded by the EU itself. But we do aim to produce material that is accurate. And we're trying to be critical but constructive - which we think our track record shows.

We note that Charlemagne makes no mention in his post of the 30 or so suggestions we make in our regulation report for how to improve regulation and EU scrutiny (working within the EU)...it would be interesting to see him engage with those points as well.

And to call our argument on the benefit-ratio "shocking" is a bit much, to put it mildly.

Again, when adding all the extracted data from Impact Assessments together, the fact is that the benefit/cost ratio of UK regulations is 2.35, while the benefit/cost of EU regulations is 1.02. In pure quantified terms, that gives UK regulation, roughly, a 2.5 times more favourable cost-benefit ratio. We did not make that up.

Note also that we excluded all the IAs which did not contain a quantified benefit (otherwise the discrepancy would've been vastly larger). Now, we can discuss what feasibly can be subject to quantification, the counterfactual and appropriate comparisons - we should be critiqued on all those points. But seriously, is it really 'intellectually insulting', as Charlemagne suggests, that we shed light on the fact that, according to the Government's own estimates, EU laws are more costly than UK laws relative to the benefits they generate? And given that it is the Government that includes such a ratio in its own impact assessments, surely this should be open to discussion?

Charlemagne's answer is that they regulate different parts of the economy. But this simply isn't true as a categorical statement. For one, the Lisbon treaty codifies a huge area of shared competencies. And therefore, there are a large number of comparative laws, i.e. UK
legislation: extending the scope of the right to request flexible working vs. EU legislation: preventing less favourable treatment for non-fixed employees. Quite apart from the merits of these laws, they are dealing with exactly the same parts of the economy and the labour market. Even in these areas we tend to see a similar benefit/cost ratio discrepancy, which led to our conclusion that is better, where possible, to regulate nationally.

Charlemagne also says that: "But without regulation, there would be no single market.
Some of that regulation will be designed to keep skittish, hygiene-obsessed German or Danish mothers (for example) calm about food safety, and ease their fears about dangerous salami being imported from the far corners of the EU to poison their blond-headed moppets. That may be expensive, but that fuss-potting gives political cover for the Danish and German governments to approve EU enlargement to countries like Romania or Slovakia, and that is really good for the long-term health of the EU. How do you possibly measure the costs and benefits of such things?"

Sure but, given that regulation is the principle means by which the EU is used to exercise power, if we do not debate the relative trade-offs between excessive EU health and safety regulation, for example, and what the UK gets in return through enlargement, for example, what is the point in debating EU issues at all? From a UK point of view, the question should surely be 'at what cost is the UK furthering its interests through the EU?' There is a sensible, if complex, argument to be had here.

In fact, in the report we acknowledge:

"However, there are also clear benefits stemming from EU regulations and, overall, the benefits of being part of the EU's regulatory regime - and therefore the Single Market - still outweigh the costs on pure economic grounds. Some regulations emanating from Brussels serve to free up markets, improve consumer protection, reduce costs and so forth."

We also acknowledge:

"There are EU regulations that would have been put into place anyway. However, clearly some laws would not have existed. And crucially, while the broad framework of many EU laws may have existed in the UK anyway, a whole range of prescriptive requirements contained within these laws certainly would not have [we give some examples]....And quite apart from the actual proportion, the source of regulation is vitally important both in terms of practically amending or changing it and in terms of political accountability."

The fact is that there are many more nuances to this debate - and indeed to Open Europe - than Charlemagne sets out in his blog post. And by simply dismissing our arguments without properly challenging them he risks being guilty of the same crime he accuses much of the rest of UK media of.

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