Westminster, not Brussels, is to blame for UK over-regulation
Ispent part of last weekend mowing my lawn. The sun was shining and it was good exercise. However, being an economist who is very interested in the EU referendum debate, my thoughts turned to European regulation while I cut the grass. The lawnmowers we use in the UK are governed by European standards, after all.
EU regulation is a key issue in the current referendum debate. One of the main arguments from the Leave camp is that we could free ourselves from punitive European regulation. But what is the basis of this view of the world?
The regulations that affect consumers and businesses in the UK fall into three broad categories. The first is a set of regulations affecting products such as lawnmowers. They are designed to ensure that the products we buy are safe, fit for purpose and meet the right environmental standards.
We have seen some horror stories recently about unsafe products – such as hoverboards that catch fire. It is in the interests of both British businesses and consumers that the products for sale in our shops or online are safe, fit for purpose and environmentally friendly. Who can disagree with that?
A second area of regulation relates to social and environmental standards that need to be met by businesses. Nobody likes polluting businesses or dirty beaches. Most of the European legislation designed to raise environmental standards is positive for the UK economy and society.
Social and employment legislation is more contentious. John Major negotiated an “opt-out” from the European Social Chapter in the Maastricht Treaty. But then Tony Blair’s government decided to sign the Social Chapter in the late 1990s and accept European regulation in this area – including the Working Time Directive. This was a decision by the UK Parliament which was taken unilaterally. You may not agree with it, but it was implemented by the democratically elected government of the day.
There is, however, a third area of business regulation which has nothing to do with Europe. The UK Parliament and our local authorities set regulations on a wide range of issues, totally independently of the EU. Why can’t we build enough houses? That is down to national policy and the planning regimes of local authorities, who are reluctant to release land for housebuilding.
Why can’t we expand airport capacity in the London area, at Heathrow or Gatwick? That is down to our Government and our national Parliament. There are some contentious issues – such as the impact on local noise, air quality and local congestion. But these are predominantly issues we have under our own control, as a sovereign nation state.
Why is the tax system so complex for businesses and individuals? This is nothing to do with Europe. The EU requires that we set VAT within defined bands and in line with agreed rules. There are also some regulations affecting other specific excise duties on petrol, tobacco and alcohol. But the big taxes we pay – such as income tax and national insurance – have nothing to do with Europe. And the complexity of these taxes has increased because successive chancellors have muddled and meddled so much for so many years.
You get the drift. The government is the main culprit when it comes to the regulatory burden on business. The three areas I have cited already are those that hold back our economy most significantly – housing, planning and tax complexity. EU regulations on lawnmowers or anything else come a long way down the list. If there is a problem with EU regulation, it is because our Parliament makes it more onerous than it needs to be.
Another area where the UK government has been very keen to introduce new regulations recently is in setting minimum wages. We have had a national minimum wage since the late 1990s, but now George Osborne has introduced a national living wage. No European directive or regulation required him to do that. He did it off his own bat.
We have also seen the introduction of an apprenticeship levy, which will add to the national insurance burden for many businesses. That is purely driven by UK government policy – there is no requirement from Europe to impose this additional cost.
So, where is the big regulatory burden which Europe imposes on UK businesses and consumers? Frankly, it is very hard to identify. If we left the EU, it is not clear regulations could easily be reduced. Bananas may be more curved or straighter. We could change our lawnmower regulations, but we would still want safe and environmentally friendly products – much in line with current regulation.
The Leave campaign has not been able to identify any obvious regulatory burdens either. All UK households have recently received a document which summarises the positions of the two sides in the EU referendum debate. The Leave campaign statement contains no references to specific EU regulations which are holding back the UK economy.
Excessive business regulation from Europe is a not a big issue. There is a lot of regulation holding back UK business, but most of it comes from Westminster or local councils, not Brussels. It is not Angela Merkel or any other European leader who is preventing us expanding our housing supply or building new airport capacity. It is the actions of the UK government, voted for by the British people.
Business does feel that it faces a higher burden of regulation than it did in the 1980s or 1990s. But all the key decisions that have added to that regulatory burden have been supported by the UK Parliament. The UK promoted the single market, because it would be good for British business – and that means our product standards are now generally set at the European level. Tony Blair’s Labour government reversed John Major’s opt-out on the social chapter. And there has been a raft of other legislation and tax complexity introduced in Westminster since we joined the EU over which business has no control.
Voting Leave or Remain will not address the root cause of excessive regulation in the UK. It is Westminster and local councils, not Brussels, which are over-regulating the UK economy.
‘Why is the tax system so complex for business and individuals? This is nothing to do with Europe’