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Cut the EU red tape

Besides the fact that anyone with some common sense would probably agree that excessive regulation hampers business and can be a drag on growth, the reactions toward the UK's Business Taskforce report, 'Cut EU red tape', have been mixed.

By: Date: October 18, 2013 Topic: European Macroeconomics & Governance

The UK government recently (October, 15) published a report from the Business Taskforce entitled Cut EU red tape; 30 priority recommendations of EU regulations “to ensure that the single market makes it easy for businesses in Europe to trade across borders, and to ensure that the EU regulatory framework is, and remains, competitive in the global market place”.

This is not a new initiative as the Red Tape Challenge was launched in April 2011 aiming to reduce the number of unnecessary and over-complicated regulation that harms the private sector in the UK along with a pledge by Prime Minister David Cameron to be remembered as “the first government in modern history to leave office having reduced the overall burden of regulation, rather than increasing it".

Besides the fact that anyone with some common sense would probably agree that excessive regulation hampers business and can be a drag on growth, and that there are current EU regulations and legislation proposals “that hold businesses back”, among a few others that are just ridiculous, the reactions toward the report have been mixed as the report is seen as part of David Cameron’s political push towards more decentralisation and a less powerful Brussels:

José Manuel Barroso (European Commission’s President) complained about the report stating that “In the last five years, the commission has slashed the cost of administrative burdens by €32.3bn and scrapped 5,590 legal acts. We are determined to go further”.

However, the recommendations made by the Business Taskforce report don’t seem to be incompatible with the Commission’s own initiative of cutting red tape.

Phillip Stephens writes in the FT that to liberalise, you must first regulate; if Britain wants an open Europe, it must admit this demands EU regulation. For companies operating across national boundaries it is much easier to adjust to one set of harmonised regulations and standards than to adapt their operations to accommodate multiple sets of national rules. That, after all, was the organising argument for the single market.

Conservative MEP Malcolm Harbour, praised the report: "I welcome this expert contribution which completely supports the EU reform agenda, where the UK is taking the lead… in June the European Parliament, supported by a huge majority my Committee’s resolution on boosting the digital single market, a key demand of the report. We have set out a clear agenda for creating jobs and growth, and I hope these proposals will be endorsed at next week’s European Council."

Incidentally, Bruegel just released a survey of German business here, in which German business considers that it would be significantly affected by the UK leaving the EU. So apparently, German business also values the single market with the UK. Germany and the UK could, for example, benefit from deeper integration in the services sector, which in turn would require more liberalization (as Guntram Wolff and John Springford suggest) but also common standards across borders, for example with a single market services directive.

What does the report say?

Barriers to overall competitiveness and trade across borders

Certain EU regulations can reduce the competitiveness of European firms in the global marketplace. Among those mentioned in the report, the non-existence of a single market for services in the EU is probably the most important; the report recommends to the Commission the full implementation of the Services Directive across the EU, something that has been praised by Bruegel fellows since the beginning of times. Last year the Commission published a first assessment following the implementation of the services directive where they estimated that full implementation of the Services Directive could boost intra-EU services trade by up to 14.7% and GDP by 2.6%.

The business taskforce report also pushes for the completion of the digital single market in the EU, as there are still barriers that inhibit the development of cross-border e-commerce; unnecessary national restrictions should be removed and more harmonization should be done. This topic has also been previously covered by Bruegel fellow Mario Mariniello.

Barriers to starting a company, employing people and expanding a business

In the aftermath of the global financial crisis and the EMU debt crisis, high unemployment is one of the most concerning economic challenges. The report emphasises that the current regulations of working time are neither flexible nor clear enough. Without going into the details of the proposed recommendations in the report, it must be acknowledge that any addition or amendment of EU labour markets’ regulation should aim towards liberalisation in order to make it easier, cheaper and less uncertain for employers to hire and maintain staff. Of course, labour market regulations are tricky and concern deep and justified interests and preferences; consequently, there is plenty of disagreement among experts on this topic. Oliver Blanchard has just published a nice review on labour market flexibility and the IMF prescriptions on the labour market at VOXeu.

In the same vein, current and proposed EU regulations that hinder growth from businesses by unnecessarily increased costs and bureaucracy without proven benefits for consumers should be abolished, changed or not passed forward.

What to take home?

Overall Cut EU red tape is a sensible report that recommends eliminating and simplifying unnecessary EU regulation that hampers growth, trade and employment in Europe. However, the analysis on each one of the 30 recommendations is rather short and bare. Detailed studies should be undertaken on each one of them to determine their pertinence.

Too much political hype has been given to the report as it was requested by David Cameron and it is associated with his party’s political push for less power in the hands of Brussels and the referendum for a UK exit of the EU; although lacking deep analysis, the report is focused on the economics of EU regulation and it pushes hard for the completion of the single market in services and e-commerce. 

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