The EU's WTD is a spectacular failure - what will the Coalition do about it?

We have looked extensively at the EU's draconian Working Time Directive in the past (see here, here, here, here, here, and here for example) warning that it just won't go away. It is back in the headlines again, after a new survey has highlighted the negative impact it has on the NHS.

The survey of 500 senior surgeons for the Royal College of Surgeons warned that the rules were creating a generation of “clock-watchers” with a “lazy work ethic” who no longer felt personal responsibility for their patients. Among consultants who did comply with the 48 hour limit, 56 percent said they had only done so at the expense of patient safety.

And today we hear of further analysis by the RCS, showing that thousands more patients are now waiting longer than 18 weeks for surgery due to the EU rules. In fact, waiting times had been dropping since the 1990s but the WTD rules for junior doctors, which were implemented last August, has reversed the trend. The proportion of NHS patients having to wait longer than the 18-week target for non-emergency surgery such as hip replacements had almost doubled from 1.5 percent 18 months ago to nearly three percent in March this year.

As RCS President John Black put it, “To say the European Working Time Regulations has failed spectacularly would be a massive understatement.”

In total, the WTD costs the UK economy between £3.5 and £3.9 billion every year (at a time of austerity) - making this the costliest EU law on the UK statute book. This also makes it one of the more conspicuous examples of an EU regulation which continues to generate heavy costs year on year but that still remains unaddressed. It's also a blow to those who claim that EU social policy is effectively dead.

The combination of the rules for on-call time, compensatory rest and the 48-hour limit has for years imposed heavy burdens on public sectors and business across Europe (in Sweden, the Netherlands and Germany for example) - without sufficient benefits in return. Trying to centrally plan how the working week should be organised for 27 different countries (with different healthcare systems, labour market models etc.) was always bound to spell trouble.

And very few European governments particularly like the WTD (the European Parliament is a different story). At least 15 member states are currently using the opt-out from the 48 hour working week to get around the on-call time/rest rules. But because of the difficulties in changing EU laws once agreed, the WTD remains in place despite all the costs and evidence.

The question now is: what will the Coalition government do about this spectacular failure? We have argued before that the UK should seek a comprehensive opt-out from EU social and employment policy, along the lines of what the Tories envisioned in opposition.

There are a range of reasons why this would be a sensible policy. Although we won't repeat all the reasons here, it would, for example, be consistent with the Coalition's pledge to cut costs and bring decision-making powers closer to communities, business and families. It would also be the only way to ensure that the UK (and other countries) won't lose their opt-out from the 48-hour working week - which is continuously coming under attack from the European Parliament and narrow interests in Brussels.

Losing this derogation would increase the annual cost of the WTD to the UK economy to between £9.2 billion and £11.9 billion - a ridiculous amount at any time, but particularly now.

In 2007 - what now feels like a century ago - David Cameron said that

“It will be a top priority for the next Conservative government to restore social and employment legislation to national control."

The Tory election manifesto then toned down this rhetoric quite a bit:

"We want to restore national control over those parts of social and employment legislation which have proved most damaging to our businesses and public services. For instance the application of the Working Time Directive on the NHS."

This pledge, in turn, was dropped from the Coalition agreement, which merely states,

"We will examine the balance of the EU’s existing competences and will, in particular, work to limit the application of the Working Time Directive in the United Kingdom."

Quite an evolution...

A spokesman for the Department of Health was quoted in today's Telegraph, saying:

“On the European Working Time Directive, the Health Secretary will support the Business Secretary in future negotiations on its revision, including maintenance of the opt-out.”

Not exactly the toughest statement, but better than nothing. Having dropped its pledge for repatriation, the Coalition Government needs to make the renegotiation of the WTD an absolute priority; it would save an awful a lot money and be consistent with the Coalition's pledge to scrap unwanted laws. To fail to deliver in even this, the most obvious area of EU renegotiation, would leave a very bad taste.

And here there are allies to be found around Europe - it's just a matter of going to work.

MEPs response to the downturn: ban work on Sundays

MEPs are an interesting lot. As we reported in our press summary a couple of weeks ago, a third of all MEPs have signed a petition, urging the Commission to include requirements for 'work-free Sundays' in its upcoming review of the Working Time Directive. In their declaration, the MEPs stated that the Commission should “protect Sunday, as a weekly rest day, in forthcoming national and EU working-time legislation in order to enhance the protection of workers' health and the reconciliation of work and family life.”

German Christian Democrat MEP Martin Kastler has also launched an online petition, trailing the citiziens' initiative created by the Lisbon Treaty (whereby one million signatures will require the Commission to consider a request for a legislative initative in some cases), to call for Sunday to me made a work-free day across the EU. The campaign is called "Mum and dad belong to us on Sunday." The petition has received some 13,000 signatures so far.

Now, few people like to work on Sundays and it's hard to argue against the need for some good, quality time with the family at least once a week. But come on, is this really something for the EU? And is banning work on Sundays what we need right now given the economic climate?

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."

Is the opt-out safe?

The Hungarian nominee for EU Employment and Social Affairs Commissioner, Laszlo Andor, has had his European Parliament today, and it was not quite as dull as some other hearings - Mr Andor seemed willing to share his views on several issues and actually offer an opinion.

(For anyone who didn't read our briefing on the Spanish EU Presidency, they have pledged that it will be a "factory of rights", suggesting that the employment portfolio might be one to keep an eye on in the next 6 months.)

Andor said that there was a "compelling case to revisit" the Working Time Directive - negotiations on which collapsed last year.

UK Lib Dem MEP, and former member of the conciliation committee during negotiations on the Working Time Directive last year, Liz Lynne asked Mr Andor about the rights of workers to engage in overtime if they so choose, and about the opt-out more generally.

Mr Andor's response: "Since we have economic and monetary union, I think that opt-outs are, in general terms, never the best solution. We always have to think first about what rules can be or in principle could be applied in every country. But if there is some kind of fundamental obstacle to apply an overall regulation in an EU country, yes there is a possibility of opting out. Opting out, perhaps temporarily, we also have to bring in the time dimension when we think about these issues and face difficult negotiations."

"Concerning the voluntary overtime, this is really an issue that needs to be seen. I am not sure that a general conclusion could be reached. My approach would be that if it's voluntary in a certain period, within a broader context of working time regulations, we should still find ways to protect the workers, because it comes from the health and safety considerations. We should give room to voluntary arrangements that exceed regulations with certain conditions."

In her follow up question, Liz Lynne mentioned that the latest unpublished report from the Commission found that 14 states are using the opt-out, and asked him if he thought there was a possibility of bringing forward WTD negotiations on the health sector, separately from other sectors.

Mr Andor's response: "When we bring back the Working Time Directive [negotiations] we need to have a new approach and the sectoral approach can be one of the aspects. Obviously we have to learn from the difficulties of the previous attempt to review the Directive. The opt-out itself is not an abuse. I think the opt-out is a reflection of different realities in different member states and we have to take that into consideration when the discussion next comes up."

So...what conclusions can we draw, if any, on Mr Andor's stance on the Working Time Directive, and negotiations on the opt-out which is sure to come back onto the agenda this year? Well, he doesn't seem to be opposed to the opt-out itself, and recognises that different national characteristics in labour markets mean that certain adjustments need to be made in any EU approach within the field of social and employment policy.

However, he does indicate that he is against opt outs in general, suggesting they are not conducive to the smooth operation of the internal market - and they can only ever be temporary measures. This is surely not good news and would provide further support for our case that decision-making in social and employment policy should be repatriated altogether (since the opt-out has to go sooner or later with Andor's reasoning).

Additionally, the suggestion of a sectoral approach to working time negotiations spells a worrying turn. While there is much evidence that the Directive does not work well with the NHS, and other health services across the EU, the health sector is not the only one people should focus on in this respect.

It is not hard to imagine a scenario where some kind of deal is done on health workers, say by the European Parliament agreeing to a change in the definition of on-call time and rest periods, across the EU, in return for which a qualified majority could be reached within the Council to agree to an end to the opt-out altogether.

As Liz Lynne mentioned, 14 EU countries currently use the opt-out, but mostly out of necessity because the ECJ rulings on the Working Time Directive, with regards to on-call time and rest time, are not easily workable in health services.

But what about other workers that want the ability to take on voluntary overtime as and when they choose, and don't necessarily want a maximum cap on working hours handed down by their MEPs, most of whom they have probably never heard of. For more information on the kind of people that want to retain the opt-out for their industries, see our briefing on the Directive and opt-out.

All in all, there are definitely worse people we could see in the position of Employment and Social Affairs Commissioner than Laszlo Andor, but his appointment may not be good news all round.

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?

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.

A lesson in caution against unnecessary EU rules

Over the weekend John Black, President of the Royal College of Surgeons, called for the Government to have the courage to "step in and suspend" EU rules which will bring junior doctors' hours down to 48 a week from Saturday.

Matt Jameson Evans, chair of campaign group RemedyUK, said: "We already know most doctors are against EWTD [European Working Time Directive], we just need the leadership to do the right thing here."

Let this be a lesson to all those in Europe - UK Labour MEPs included - who voted at the end of last year to abolish the opt-out from the working time directive as it applies to the rest of the economy. That includes firefighters, police officers, ambulance workers - and plenty of other people whose dedication and flexible workings hours are central to the health of the country. The vote triggered a tense round of negotiations in Brussels from which the UK Government eventually emerged unscathed, albeit by the skin of its teeth - but the current Swedish Presidency of the EU is keen on relaunching the talks, and the fight will be back on before long.

It is several years since the UK lost in negotiations to end the opt-out for doctors - when it was impossible to foresee the situation in which the rules would begin to apply in the future (EU regulations take an average of 2 years to come into effect).

Presumably, no-one imagined we'd be smack in the middle of a pig flu pandemic, for example.