Cutting down on barmy business regulation

Written by Chris Huhne MEP and published in the Evening Standard on Sun 24th Mar 2002

Could business regulation be more rational? This is a key question for Brussels, since the EU now sets many of the rules that affect businesses in what they can sell, how they sell it, and what safeguards must be incorporated to protect consumers or investors. Yet there are still far too many examples of loopy, over the top regulation.

For a start, regulations are often based more on the perceived threat than the reality. There are tough regulations in every member state on lifts and escalator manufacturers and on installations, yet far more people die falling down stairs every year.

Among EU regulations, some horror stories are home-grown. Our own Ministry of Agriculture (as it was) insisted on applying the EU directive on regular veterinary inspections of abattoirs with officious force, and the Treasury said that each abattoir should meet the full cost of visits. The result was that small abattoirs without the scale to justify continuous veterinary attendance just collapsed.

Yet no such phenomenon occurred in other member states, where a flat veterinary charge is often levied per head. Small abattoirs happily continue to thrive. Far from helping promote health, this UK gold-plating of an EU directive lengthened the times that animals are transported before they are killed, providing a new means for BSE to spread rapidly across the country. In regulation, the law of unintended consequences is alive and well.

But Brussels is also quite capable of offending against common sense. Last week's vote in the European Parliament on the directive on vitamins was a classic case. The pharmaceutical industry successfully lobbied to have vitamin supplements (and other such health food products) undergo the same sort of testing regime as medicines. Never mind that the chances of problems arising from ginseng tablets are about as great as problems from eating Broccoli. 'Safety first' is a powerful political argument, particularly when the costs are on someone else's budget.

In another case, the European Parliament required offshore oil rig operators to apply the same emission control equipment on their turbines as is applied to onshore power plants. The cost of modifying 150 turbines on 100 North Sea oil platforms is estimated by the industry at €430 million. At no point did the Parliament's amendments undergo an impact assessment scrutinising their compliance costs, which could have been pitted against benefits.

This sort of attitude applies with knobs on if foreign suppliers are involved. In France, there is often a rigorous insistence on national consumer protection laws, rather than recognising that suppliers from other member states already meet acceptable standards at home. The application of an additional layer of such national law inhibits many businesses from cross-border selling (by internet, for example). And by reducing competition and choice, is the consumer really better off?

Not for the first time, the Commission is now attempting to grapple with these issues. This week it published the results of a Business Impact Assessment pilot project that shows why the current system goes wrong. Officials mainly treat the regulatory impact assessment as a pro forma exercise in estimating costs, rather than an opportunity to re-assess the need for a proposal. As a result, they do not test their own objectives properly. Data on which judgements are based are often kept private, preventing challenge.

The report suggests that a single impact assessment system for all Commission proposals should cover all relevant costs and benefits, and that there should be a pre-assessment notice that would define the importance of the impact of any proposal (and alert potential business victims). To ensure that each division of the Commission respects the system, it should be subject to central coordination to monitor the process and ensure consistency.

There should be a similar institution in the European Parliament and the Council of Ministers, charged with subjecting far-reaching amendments to an impact assessment. There might also be some analysis after the event of how the assessments performed. Too often commissioners, ministers and parliamentarians are trying to regulate without understanding the full implications of their decisions. This is about as sensible as flying through thick cloud without cockpit instruments.