Some common sense from the Commission

Here's an encouraging proposal:

As we reported in our press summary yesterday, the European Commission has announced plans to revise its Byzantine state aid rules, potentially making life a bit easier for local and regional authorities. Currently, local bodies have to comply with the EU's jungle of rules, designed to ensure fair competition on the Single Market, even when subsidising or contracting out small projects such as swimming pools, playgrounds or crèches - which is just silly (and which adds unnecessary costs for taxpayers).

But, under the new rules, the Commission would lower the threshold on public procurement rules which - or so we hope - would let local authorities off the hook for public tenders for small-scale public services. As the competent EU Commissioner for Competition, Joaquin Almunia, put it.

"Our state aid rules currently apply also to local services organised by very small municipalities. It seems quite obvious to me that among these services, there are some that will have little impact on trade between member states and little potential to distort competition. I think that we need to adjust our scrutiny here and focus it on the cases that have a clear impact on the single market."

That makes sense. An official quoted over on Euractiv was even blunter:

"Most people [in DG Competition], they are not happy having to deal with a state aid complaint against a Dresden swimming pool. To be honest, it's more a pain in the ass than anything else, because they know very well that these matters should not be dealt with in Brussels."

The Commission says it wants to revise the regime in November (which it can do without asking member states or MEPs, since the EU has exclusive powers over this area). This is exactly the type of common sense that we want to see from Brussels.

But we need more of it - much, much more.

Incidentally, Open Europe will soon publish a list of examples of EU laws and measures that we feel should be revised on similar grounds. So watch this space.)

'Can't touch this': Vince's MC Hammer moment

Business Secretary Vince Cable today announced a plan to ease the burden of regulation on small businesses in a bid to boost the economy. The plans would include a three-year break for small businesses from new regulation in addition to scrapping plans for extending parents' right to request flexible working and scrapping new rights for time off to train. The government has also vowed to review some 22,000 existing government regulations on business, with ministers forced to justify maintaining any that are challenged.

Now this is all welcome stuff, but the government has managed to completely ignore the regulation factory numero uno - that is Brussels - instead opting for a "can't touch this" approach.

When it comes to business, the EU is the main driver of regulatory cost in the UK. EU regulations do come with benefits, we don't deny that. But a lot of it is unnecessary or overly burdensome.

We can argue about the counterfactual (i.e. would the regulations have existed in the UK anyway), but what becomes clear during exercises like these is the extent to which the UK (and other member states) have lost control over their own regulatory reform agendas, as a huge number of laws are now locked in at the EU level. Changing an EU law requires re-negotiation and agreement amongst 27 different member states and the regulation-obsessed bunch that is the European Parliament.

Despite the fact that scrapping or amending unnecessary EU regulations could save the UK billions of pounds each year, and generate billions more in various dynamic effects, the Coalition has chosen to look the other way.

The problem with this approach is the familiar dilemma: you can leave EU regulation alone, but EU regulation will never leave you alone. The recent extension of the Gender Equality Directive by the ECJ to ban price differentiation between men and women should serve to illustrate this point (a ruling expected to cost the UK insurance industry an additional £1 billion).

We've been looking at the cost, proportion and impact of EU regulation in greater detail than most (see here, here, here, here, here, here for example). Just a reminder of our latest report on the topic: based on 2,300 of the Government's own regulatory impact assessments we've estimated that in 2009, 59% - or £19.3 billion - of the total cost of economic regulation (introduced since 1998) in this country stems from EU legislation. Cumulatively since 1998, EU laws account for £124 billion, or 71%, of the total cost.

And here are a few graphs showing the regulatory cost stemming from the EU to the main departments dealing with business regulation:

It's hard to better illustrate why any attempt to tackle regulation that doesn't focus on the EU level simply isn't credible. We would be lying if we said that the Coalition's refusal to engage with EU regulation doesn't frustrate us. In fact, we'll soon publish a list of EU laws that the Coalition must seek to re-negotiate. So do watch this space.

" A step backwards for transparency"

The bulk of the cost of regulations in both the UK and Europe stem from the European Union, as we've showed in our extensive research on the subject. But this isn't even the end of the story.

Many key decisions on the actual substance of EU laws and regulations are being taken during an uber-opaque process called “Comitology”. As we've noted before, Comitology involves special committees consisting of Commission and national experts deciding on how EU legislation should be implemented - usually behind closed doors - after the proposal has been agreed by national governments and the European Parliament.

The Lisbon Treaty - the document, if you remember, that would lead to more transparency in Europe - is introducing new rules for the Comitology procedure, effective from 1 March 2011. The new rules were meant to improve and simplify the system, but are now universally acknowledged to have made the situation even worse (we explain why here).

Political consultant Daniel Guégen, who is one of the foremost experts on this topic, makes the slightly worrying observation that as a result of the reform, power in Brussels “is shifting from the political level to the bureaucratic level.”

Even the European Commission concurs. Mario-Paulo Tenreiro, who is responsible for institutional questions at the Secretariat General of the European Commission (exciting job), says:

I must admit that for the general public the new rules are a step back for transparency...Hundreds of thousands of decisions will be taken by these Treaty articles every year.

Apart from the complexity and opaqueness of the new rules, Euractiv reports that the reforms are also causing legal uncertainty. According to Wolfgang Heusel, director of the Academy of European Law (ERA), this means that "courts will have to have the last word" on how EU legislation should be implemented.

Does this matter? Absolutely! As much as 50% of the actual substance of all EU rules is decided during the comitology stage after the law has already been agreed by Ministers and MEPs, according to Dutch academic research. So we're not talking about fixing little details.

Are the Coalition and other governments around Europe keeping up? We fear not.

Ahead of the last General Election, Ken Clarke (then Shadow Business Minister, now Justice Secretary) managed to give an entire key note speech on regulation and how to improve it, without mentioning the EU once.

Il faut le faire, as the French say.

"One-in, One-out" for UK laws but EU're welcome anytime

The Government has today announced that it is to introduce a one-in, one-out system of regulation whereby "When Ministers seek to introduce new regulations which impose costs on business or the third sector, they will have to identify current regulations with an equivalent value that can be removed."

This is clearly a welcome initiative, as it will make regulatory costs (which are too often overlooked in austerity discussions) similar to spending, in that ministers would have to prioritise amongst different pieces of regulation just as they have to prioritise what to spend money on.

But what about rules and regulations coming from Brussels? Our research, based on the Government's own Impact Assessments, shows that in 2009, 59 percent of the annual cost arising from all regulation introduced since 1998, £32.8 billion, stemmed from EU legislation. So that's around £19bn. (Note that this includes all regulations introduced since 1998 - when the government started to produce IAs - which gave rise to a cost in 2009, as opposed to the government's figures which only include new regulations introduced last year).

Unfortunately, the Government has decided to duck the uncomfortable question and not include regulations from the EU in the scheme.

This could prove problematic for several reasons.

Firstly, it will limit the impact of the scheme, as it will not cover the bulk of the cost of regulation. As a point of comparison, imagine the Coalition having a series of proposals for how to get the country’s public finances in order, but only having full control of 40% (or less) of the actual budget.

Secondly, ignoring the impact of EU legislation leads to unrealistic expectations of delivery. This, in turn, could undermine the credibility and legitimacy of the Coalition government's entire regulatory reform drive.

Thirdly, and perhaps most importantly, the point of the budgets is to ensure regulatory prioritisation within departments. If so much of the annual regulatory cost originates in the EU – then how much of a real “prioritisation” can actually take place? This is particularly true for departments/agencies such as the DfT, FSA, HSE and DEFRA whose regulatory output is almost completely dominated by EU laws - in come cases over 90% of the cost (see table).


In addition, the Conservative party has been – rightly – a critic of ‘EU overregulation’ in the past. In a speech in May 2009, launching the party’s European election campaign, David Cameron said:

“Our next task is to fight the EU's culture of centralisation and over-regulation. Brussels can be a force for economic dynamism - but too often it acts like an economic millstone.”

Starting off with launching a flagship proposal which doesn't address EU regulation doesn't look too good, and gives the impression that the Coalition Government is in denial over how much impact laws stemming from Brussels has on the UK economy.

But there is another way.

According to negotiation theory, in the interaction between domestic and international (EU) politics, governments strengthen their bargaining power if they can convince their negotiation partners that their mandate from voters and business at home is very restricted – and that they are ready to stick to that mandate.

That is how the Coalition Government should use the one-in one-out scheme.

EU legislation should have to meet the same stringent criteria as domestic legislation (including being signed off by the Coalition's "Regulatory Policy Committee") . At a very early stage in EU negotiations, the UK Government should give its negotiators the authority to reject proposals that do not meet its priorities and threaten to break its own regulatory budget. UK ministers must make clear to their EU partners that they simply do not have the mandate to sign up to a proposal that will break their departmental regulatory budget. This would strengthen the UK's negotiating hand massively.

It would be radical but not more radical than other member states simply choosing not to implement EU laws properly or resisting CAP reform, for example.

An oldie, but a goodie

As readers are hopefully aware, EU regulation has been on our minds for the last few months as we put together our latest research on the ever increasing cost it has placed on the UK economy over the last eleven years. Old habits die hard and we were therefore (rather worrying) excited to come across this remark by the then President of the German Bundesbank, Prof. Hans Tietmeyer, from a speech in London in December 1997:

“Admittedly, the European ideal is sometimes used to mask nonsense. The anecdotes about pointless regulations planned by bureaucrats would fill volumes.”

Considering that EU regulation introduced in the UK since 1998 has cost the economy £124 billion, we can only wonder what Prof. Tietmeyer would say in 2010.

The first sentence is, however, perhaps more significant. This was a remark given in a speech about the introduction of the euro and, in hindsight, may prove to be very prescient.

No one should take pleasure in witnessing the current difficulties in the eurozone, because, after all, they have the potential for much wider repercussions across Europe and the globe, but maybe eurozone leaders could do well to heed the Professor's message: European ideals are not sufficient to paper over fundamental economic realities.

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.

Setting the record straight on regulation

In case anyone has yet to see it, Open Europe has today published a new report detailing the cost and benefits of regulation introduced in the UK since 1998. Since last year's study on the same topic we have analysed an additional 320 of the Government's impact assessments, bringing the number of IAs analysed in total above 2,300.


It's not the easiest subject to traverse for those unfamiliar with the inner workings on regulation and deregulation initiatives, which is perhaps why it seems to have led to confusion in some quarters over what the report actually is.

The European Commission, for one, gave their response to our study in the Telegraph saying:

"The Open Europe study lacks rigour and is intentionally misleading. The headline figures suffer from a methodological bias. It confuses stocks and flows, it suffers from double-counting, it does not consider what repealing EU regulations would imply either in terms of foregone benefits or alternative regulatory costs."


An intriguing response. The Commission appears to have read only the first sentence of our press release and nothing of the actual report. That's a shame because:

• We presented three sets of figures, the cumulative cost of regulation, the annual cost of regulation and benefit/cost ratio of regulation. The Commission only responds to the first figure.
  

• The cumulative cost, or a cost of the 'stock' of regulation, measures the entire cost to the economy since 1998, which is £176 billion. The EU is responsible for 71%, or £124 billion of that cost. We explained that £176 billion is equivalent to 12.6% of the UK's annual GDP, and roughly equivalent to the country's budget deficit. This does not mean that the £176 billion cost of regulation occurs in one year, as we make clear, and the comparison to the budget deficit and GDP is illustrative and designed to relate a large figure to something most people are familiar with. In particular it's a useful reminder that regulatory policy deserves as much scrutiny as budgetary policy, as both have a significant impact on the economy. We can see why the Commission doesn't like that thought. We're note sure what the Commission's remark about 'double-counting' refers to.
  

• In the report, we do address the counterfactual , i.e. the costs that would have occured in absence of EU regulation. This is indeed an interesting discussion - one that the Commission would do well in seriously engaging with. We accept that many regulations - but certainly not all - would exist in national law also in the absence of the EU. However, and this is crucial, while the framework of laws may still exist at the national level, a whole range of prescriptive requirements that go with it would not. We give examples in our report.
  

• Additionally, knowing the source of regulation is vitalling important, both in terms of practically amending the law if so desired, and in terms of political accountability. Not knowing the source of the laws massively undercuts citizens' ability to hold policymakers to account. I.e. if I'm not happy with my energy bills rising as a result of regulation, who should I blame? The answer is far from straightforward.
  

• The annual cost of regulation measures the cost to business and the pulic sector arising from red tape in any given year (from existing and new regulation). We consider this to be a more useful measure than the cumulative cost as it allows us to look at trends. The Commission doesn't seem to address this figure, which is surprising. Particularly as it shows that the EU proportion of the total cost has gone down over the last three years (at 59% in 2009, compared to a 72% average), which could be a sign of the EU's 'better regulation agenda' beginning to pay off...

• But the most interesting figure is the benefit/cost ratio, showing the benefits of EU and UK regulations relative to each other. This figure is not being addressed by the Commission either. The ratio makes clear that for both EU regulations and UK regulations the benefits outweigh the costs, but UK regulations areo n average 2.5 times more cost-efficient than EU laws. This is also true in the areas where the EU and UK regulate the same parts of the economy (for example, social policy and environment legislation). This is what the Commission really should be trying to respond to if they’re concerned with relative benefits.

Additionally, a spokesman from the Department for Business said:

"The figures presented in this report are out of context as they take little or no account of the wider economic benefits that regulation can deliver. European regulation has helped open up new markets for UK business across Europe and provided important new rights and protections."

Again, we acknowledge that regulations come with benefits, and that EU laws, for example on public procurament or energy 'unbundling', can have a positive impact on the economy. The problem is that EU regulations too often are mistargeted, overly burdensome and decided at the wrong level of policy-making in the first place. That's what we're addressing.

The Department for Business added that its "Forward Programme", which details the regulations planned for next year, shows that EU regulation will only make up 31% of the total cost. The discrepency is explained by the fact that the forward programme doesn't take into account any of the existing regulations generating costs to businesses and the public sector - our estimate does.

And closer inspection of the Government's "Forward Programme" reveals that the economic impact of many of the EU regulations due to come into force next year have yet to be quantified (24 to be exact). Some are also very important, such as the proposed establishment of the EU's three new financial regulators - which could have a massive impact on the City of London. True, there are also many domestic regulations yet to be quantified but, as we have seen in previous years, a high EU proportional cost can just as easily be attributed to just a few extremely costly regulations as several put together. So, essentially, it is too early to tell until all the costs are quantified.

Interestingly, former Dutch EU Commissioner Frits Bolkstein today reaches some similar conclusions to those we spell out in our report. Writing in Belgian daily De Standaard he calls for the size of the Commission to be reduced to 12. He explains his reasoning:

"A proposal to grant independent women the right to pregnancy leave. Both in the Netherlands and Bulgaria, shouldn't we decide on that ourselves? The European Commission has apparently learned nothing from the Nos in France and the Netherlands...Under Barroso the Commission has become a presidential system. Now there are 27 Commissioners. Power is with the President and his Chief de Cabinet. The Chief of Cabinet has more power than many Commissioners. Discussions within the Commission don't mean anything any more."

"What do Commissioners want? They want to get into the picture with initiatives, smart or not...The only way to stop the stream of useless initiatives is to reduce the number of Commissioners to what is necessary to steer the EU. I think a Commission of twelve capable people is enough."

We've been here before

The Spanish EU Presidency yesterday decided to shelve a vote on the proposed AIFM Directive on hedge funds and private equity due to "a last-minute intervention by Gordon Brown", according to the FT. The talks apparently stalled on British concerns over the protectionist elements of the Directive, which could see barriers put up to non-EU funds trading in the EU.

We have estimated that the industry contributed €6.1 billion in tax revenues in the UK alone and €9.2bn overall - an amount that could be under threat if a flawed directive is passed. We have also consistently warned that the protectionist provisions entailed in the proposal would cut off offshore managers and funds from the EU market. This will have at least two negative consequences: less choice and value for money for EU investors (including pension funds and charities) and less capital for European firms struggling to rebalance their books in the wake of the economic downturn. Therefore, the British Government's focus on the protectionist dimension is in principle welcome.

The FT reports that Paris "agreed to defer a vote" in order to avoid appearing to inflict "a defeat on Britain". A vote could have been forced on the UK because this Directive will eventually be decided by qualified majority voting. The question is will anything have changed when ministers next look at the Directive in either May or June.

There are also worrying parallels with what happened with the Temporary Agency Workers Directive in 2007. Then, as today, the FT reported that Brown had "personally intervened to defend Britain’s flexible labour market" and delay agreement on the Directive when it looked as though the UK would be outvoted. However, within a year the UK had been out-foxed and was forced to accept the Directive with only minor concessions. In addition, the UK almost lost its separate opt-out from the EU's 48 hour cap on the working week, entailed in the Working Time Directive, as a horsetrading deal involving the two Directives came dangerously close to backfiring at the hands of the European Parliament.

The Government will no doubt portray yesterday as a victory. And although the postponement of the finance ministers' vote on the proposal leaves UK negotiators, the industry, investors and others with some extra room to find allies and bolster the case for a radically amended Directive, today's developments provide no guarantee that this is going to be straightforward. A vote in the Council is now expected at the finance ministers' meeting on May 18th, meaning that for the time being all eyes will be on the European Parliament (whose economic committee will vote on a draft proposal on April 22nd). The key for MEPs is now to resist protectionist urges.

The postponement of the Council vote also adds another dimension to what already is a very complex amendment process. The British general elections will take place on May 6th, meaning that should the Conservatives win, they will be faced with a major showdown in Brussels after less than two weeks in office.

Whether this is a good or a bad thing for the fate of the AIFM Directive depends on a number of factors, including how much energy and political capital a Conservative government considers it can spend on this (the Tory treasury team is not short of challenges as it is); and how willing European partners are to give concessions to a Conservative government early on, in order to secure its future constructive engagement in EU affairs. This, in turn, depends on what a Conservative government is willing to concede in return, i.e. future concessions on agricultural spending, social legislation and so forth. In Brussels, as ever, nothing is free.

One thing is for certain, this is not a good time for the UK government to let its guard down on the AIFM Directive. Indeed, we've been here before.

Great clunking fist

A BBC documentary has revealed that Londoners will not benefit from a "pre-sale" of tickets for the Olympic games thanks to EU competition law, which prevents discrimination in favour of the host country. Despite having swallowed the increases on their council tax since 2006 in order to fund the games, Londoners will apparently have to battle it out with 500 million Europeans for coveted games tickets.

International Olympic Committee President Jacques Rogge has said he is powerless to intervene, but helpfully suggested that the UK's European neighbours, especially France and Germany, would snap up the tickets, ensuring seats were filled.

As London Assembly Member Dee Doocey put it, "it's called European law and there's nothing you can do about it".

Favouring the host nation/side in ticket allocations is a long established principle in all manner of sporting fixtures, but is evidently not a principle that escapes the application of the great clunking fist that is EU competition policy.

EU Competition policy out of control?

A leader in this week's Economist looks at one of the areas where the EU is rarely criticised: its competition policy.

EU Competition policy can broadly be divided into two main areas.

The first area deals with state aid - it is the job of the EU to prevent member states from subsidising their favorite industries. This task has proven particularly challenging in the crisis , as the Opel-Vauxhall case illustrates.

But that is not what the paper is criticising.

The article deals with the second area of EU Competition policy: fighting cartels, monopolies, and abuses of dominant market positions; and controlling proposed mergers, acquisitions and joint ventures. This area deals with firms rather than states.

The leader argues that “by acting simultaneously as investigator, prosecutor, jury and sentencing judge, the commission is denying defendant firms the basic right to be heard by an impartial tribunal”, adding that “In no other area of law would it be thought acceptable for the outcome of such important cases to be determined by a bunch of politicians.”

Another article notes that the EU’s antitrust case against Microsoft, which resulted in a €1bn fine, revealed that investigators failed to keep record of a meeting with an executive from Dell, raising suspicions that Commission staff overlook potentially exculpatory evidence.

This is indeed extraordinary: Politicians in the European Commission have the power to impose a €1.06 billion fine on a company without proper due process. €1 billion is a lot of money. It is more than the annual net contributions to the EU of countries such as Austria and Denmark.

What's more - and what isn't mentioned in the article - the EU can "hoard" the money it raises in fines by lining its own pockets, as Ashley Fox MEP recently pointed out. He said Competition Commissioner Joaquín Almunia had told him that the fines would be held by the Commission and used as part of the EU budget - and that Almunia had no plans to reform the practice. Fox proposed - quite sensibly - that instead: "Monies raised from anti-competition fines should ideally be returned to those consumers who have paid over the odds for products and services. However, as this would be virtually impossible to implement the best alternative is to return the money to the member states."

Apart from the EU's heavy regulatory burden, if unreformed, EU competition policy might become another factor deterring business from coming to, and staying in, the EU.

Kick-start

Open Europe has a short article in this month's edition of Parliament Magazine, detailing how the Spanish EU Presidency could contribute to getting Europe's economy back on track. We argue:

Instead of trying to make economic underperformance illegal and centralise more powers in Brussels, the Spanish Presidency should kick-start the new Lisbon agenda by empowering Europe’s businesses to create real jobs and growth....The threat to Europe’s overall competiveness arises not from a lack of binding targets or Commission powers, but from over-intervention and rules that de-incentivise growth, innovation and job-creation. Growth cannot be legislated – it receives its thrust from individuals, businesses and communities. Designing the right environment for these actors is therefore absolutely vital to unleash Europe’s potential and talent. And here the Spanish Presidency can help by resisting the temptation to pursue activist and mis-targeted regulatory policies.

The top 100 most costly EU regulations

Open Europe has today published a list of the top 100 most costly EU regulations, detailing the annual cost of the laws, the cumulative cost of them by 2020, and the article base in the Lisbon Treaty for each regulation . We estimate that these laws will in total cost the UK economy a staggering £184 billion by 2020. To put that figure in context: for the same amount, the UK Government could abolish the country's entire budget deficit and still leave the Exchequer with some £6 bn. All cost estimates are based on the UK Government's own impact assessments so the figures are instructive.

The top four items on the list account for almost £97 billion - or 53% - of the total cost of the 100 regulations by 2020. Looking at these four laws clearly illustrates the enormous, and often overlooked, potential for the UK economy to save money by making a few key regulations less burdensome. Notably, cutting down the costs of these regulations could happen without any of the stated benefits being lost in the process.

1) The Working Time Directive, to cost the UK economy £32.8 bn by 2020: This Directive has been widely criticised for being overprescriptive, impractical and generally out of touch with reality - particularly as it applies to the NHS. Merely changing the on-call time and compensatory rest rules entailed in the WTD could save the UK's public sector millions - if not billions - of punds every year.

2) The EU's Climate Action and Renewable Energy Package, to cost the UK economy £28.2 bn by 2020: As we've argued before, the EU could find a much more cost-effective way to achieve carbon emission reduction by setting overall targets, and then allowing for individual member states to decide for themselves how best to reach them (as opposed to the current micromanaging approach). This would hurt the economy less and provide a more credible alternative to follow for countries outside Europe.

3) Energy Perfomance Certificates for buildings, a.k.a Home Information Packs, to cost the UK economy £20.2 bn by 2020. Again, this cannot possibly be described as the most cost-effective way to achieve reductions in carbon emissions from the residential sector.

4) The Temporary Agencey Workers Directive, to be implemented in 2011 and set to cost the UK economy £15.6 bn by 2020: When he was Business Secretary, John Hutton warned that this Directive could consign "literally thousands of people to benefit dependency" (this was in 2007, before Gordon Brown was outnegotiated in a horsetrading deal involving the UK's opt-out from the EU's 48 hour working week. The Government is now trying to defend the Directive).

Making these laws less burdensome or tailor them to better fit the UK is not easy - but it certainly isn't impossible. Neither is avoiding repeats of these laws. But this does require a far tougher and smarter approach to EU regulations/negotiations than that employed by the current government. See here for our ideas on what such an approach should entail (chapter 5).

An excellent place to start would be for an incoming UK government to opt out altogether from the articles in the EU treaties which give rise to EU's social legislation (articles 151 to 161 as amended by the Lisbon Treaty). With correspondng domestic reforms, this could instantly reduce much of the cost stemming from, for instance, the Working Time Directive and the Temporary Workers Directive.

At a time when every penny is needed to close a massive public deficit, surely cutting the cost of regulation should be a top priority for the next government?

It's going to get a whole lot worse

In a speech yesterday David Cameron cited Open Europe's recent report which showed that the UK has spent more than £35 billion complying with EU employment, health and safety law in the last decade.

What he didn't mention, is the report's even more important findings that if the problem of EU regulation isn't tackled, EU social and employment laws will cost a further £71 billion over the next decade, even in the highly unlikely event that no more regulations are added to the rulebook in this time.

In our view, the Conservatives should negotiate a blanket opt-out from all the social and employment related articles in the EU treaties, and bring control over these laws back to the UK, where we can scrap, amend or fine tune them to the needs of our own economy.

The ECJ strikes again

We've just come across another hugely significant ruling by the European Court of Justice on the EU's Working Time Directive (WTD), which slipped largely under the radar last week. HR magazine People Management has the story.

Essentially, in the latest Pereda v Madrid Movilidad case, the EU judges' ruling opens up the possibility of employees 'reallocating' their annual leave if they are struck down by 'illness' while on holiday.

The employee in the case, Vicente Pereda, was injured shortly before his annual leave was due to start but his employer refused a request to move his holiday. The Court ruled that this was illegal under the WTD. Lawyers have warned that there is now no reason in principle why an employee whose holiday had already started could not claim the right to reallocate leave, if they were entitled to sick leave at the same time.

To call this a can of worms would be a gross understatement. How would employers be expected to police this in practice? Fly 'compliance officers' to the Costa Del Sol to verify a bout of food poisoning at the hands of a dodgy paella?

But there is a wider and more serious point about EU law here - that at the hands of the ECJ judges it can take on a life of its own.

Since the WTD was agreed in 1993 the ECJ has continuously extended the Directive's reach, ruling against national governments and increasing employment costs to both the private and public sector.

In November 1996, the EU's judges in Luxembourg ruled against the UK Government by determining that the WTD's legal base fell under health and safety rather than social policy, meaning the UK no longer retained its veto (which existed at the time).

In October 2000, in the 'SiMAP' ruling, the ECJ decided that time spent resident on call in a hospital or other place of work should count as working time, even if the worker is asleep for some of that on-call time. This has had a huge impact on the NHS, for example, as resident on-call doctors' hours were slashed.

In June 2001, the ECJ ruled that the UK was in violation of the WTD’s provision on annual leave.

In April 2003, in the 'Jaeger' ruling, the ECJ ruled that rest periods entailed in the WTD have to be taken immediately rather than within a “reasonable time” if the minimum rest period has been interrupted by an emergency. This causes huge problems for the rota system at British hospitals and the British Medical Association estimates that the effect would be tantamount to losing between 4,300 and 9,900 junior doctors.

In March 2006, the ECJ ruled that British firms that pay workers in place of their holiday entitlements – so-called rolled up holiday pay – were violating the WTD.

In September 2006, an ECJ ruling found that UK Government guidance on rest entitlement was incompatible with the WTD.

In January 2009, European judges ruled that employees on long term sick leave must remain entitled to annual statutory holiday pay upon their return to work. This means that staff can take their annual holiday built up while at home as soon as they return to work.

For more of our thoughts on the WTD, see here.

Now, one can debate the merits of each of these individual rulings but what is surely not in doubt is the immense power vested in the unelected ECJ to extend and interpret EU law as it sees fit. The ECJ is able to drive policy almost at will and yet it answers to no-one .

If only UK ministers had known that by signing the WTD all those years ago, they were creating their very own Frankenstein.

Rasmussen v. Lord Myners (and the rest of the City)

In case you missed it, Open Europe last week organised a debate on the EU's proposed new rules for hedge funds, private equity firms, and various other funds currently not regulated by EU law. In good-old Brussels fashion the proposal goes under the acronym AIFMD (Alternative Investment Fund Managers Directive), and has been recieved with some scepticism in the City of London - to put it mildly.

In a Guildhall filled to the brink with angry pin-striped suited City people, the AIFM Directive's key proponent, Poul Nuryp Rasmussen, fearlessly explained why he didn't think the proposal goes far enough. The arguments aside, you have to give Rasmussen credit for his dedication, courage and willingness to walk into what can only be described as a lion's den. And he certainly stood his ground. During the course of the debate, it became evident that Rasmussen knows more about the alternative investment industry than the industry itself perhaps feels comfortable admitting. It would be a mistake to underestimate him, particularly as he still - despite no longer being an MEP - has much input into what kind of amendments the socialists in the EP will put down on the draft Directive.

Rasmussen carries a lot of respect around Europe. During the 90s he took on the unions in Denmark in a bid to get the Danish economy up and running again - a point he was keen to make at the end of the debate. This, he said, highlights that he's a "pragmatic Scandinavian" and a "pro-growth guy" (in addition to being an economist). He's not out to get the City of London. A Scandianvian economist with pragmatist credentials is the nightmare opponent for the alternative investment industry, insofar as he'll draw a lot of sympathy from around Europe (and hedge fund managers aren't exactly the most popular kids on the block). However, notwithstanding his courage and the rest of it, the arguments are against Rasmussen on this issue - as we've outlined here.

The main counter-blast to Rasmussen's arguments did not come from any of the industry representatives, but from City Minister Lord Myners, who used surprisingly strong rethoric - no doubt mindful of his audience. In particular Lord Myners hit out at "the lamentable lack of consultation" which preceded the Directive, and said that the proposal amounted to "protectionism hiding as if it were protection".

One of the most interesting admissions from Rasmussen was that the Directive was designed to keep fund managers from the rest of the world out of the single market, unless they "pay a price". "No one can have my Danish passport", Rasmussen said. As we've argued many times before, this type of protectionist thinking remains one of the EU's greatest flaws. Whether it's raising barriers to global capital flows and investment, or free trade in products and agricultural commodities, this kind of approach leaves everyone worse off.

This flaw is more than enough reason to oppose the draft Directive in its current form.