Following Brexit, what can firms and businesses expect with regard to changes (or otherwise) of the burdens of regulation?
“Brussels red tape” has long been a phrase that, once said, required no further explanation. Never used in a complimentary manner, instead the image conjured was of continental androids walking into humble, hard-working British businesses and literally wrapping red tape around staff and managers alike, until nothing could be seen but for eyes and a row of blood-coloured mummies. The purpose of such red tape, users of the phrase believed, was to stifle British business, so as to make it as uncompetitive as those elsewhere in the EU, removing our national advantage. One of the many expectations of post-Brexit Britain was that this red tape would vanish in a bonfire that could be seen from Lisbon to Bucharest. But is this actually likely to happen?
In the period before the EU Referendum, the following comparison found great currency on social media: “Lord’s Prayer – 66 words; 10 Commandments – 179 words; Gettysburg address – 286 words; EU regulations on the sale of cabbage – 26,911 words”. What more proof could there be that Brussels need not be tamed, but escaped? According to some, the EU would simply keep on spilling out red tape that cost the British economy a reported £33 billion pounds annually.
This of course was not the only incident used to ridicule the EU. Over the years, there have been many other examples of rule makers in the EU appearing to go a little funny in the head. Commission Regulation 2257/94 is perhaps the most famous. If you do not recognise the name of the law, you will be familiar with its subject: bananas. The EU, it was said, sought to ban bananas that were excessively straight or bendy. Whether this meant bananas shaped as a right angle or those that curled back on themselves several times did not seem to be in question – the mere suggestion of a ban of British bananas on the grounds they were corrupt was enough to make Eurosceptics reach for the Union Flag.
The fact that the banana rumour was not true did not stop it becoming a cause celebre. Rather than seeking to strangle British businesses, the intention (if not always the achievement) was to reduce rather than increase the costs of doing business, simplifying rather than restricting trade. After all, would you buy a right-angled banana covered in bruises?
As for the cabbage, there are no specific EU regulations relating to its sale. Research into the claim shows that the 26,911 word myth originated in America in the 1940s. The claim somehow leapt across the Atlantic, to be used by a Conservative MP, William Teeling, when referring to the control of the British use of eggs. The 26,911 word count thereafter attached itself to a number of attempts to ridicule excessive red tape, not least that coming from Brussels.
Still, such myths were strong enough to form part of the thinking of the British general public when it came to vote in the EU Referendum, many voters having, for years, been affected by the relentless, inaccurate coverage. Yet, in sharp contrast to the figure quoted above, rather than costing the UK economy £33 billion per year, others – including the UK government – say that Britain benefits from the Single Market by more than £90 billion annually, the red tape – that is, the regulation that seeks to address market failures and boost trade between the nations – being one of the major contributing factors. Which of the two numbers you prefer will likely depend on your politics, but as far as the EU is concerned, these rules work, and will not be going anywhere even if Britain is. So, whatever shape the relationship between the UK and the EU eventually takes, trade with the countries of the Single Market will still have to be conducted against the standards set by EU regulation. Which means British businesses wanting to have access to the Single Market will still be subject to Brussels red tape.
There are two other factors that will disappoint those who believe that Brexit will mean an instant and massive lightening of the burden of EU regulation upon businesses, even those that trade only within the UK and have no international ambitions.
The first is that Britain will likely keep most, if not all of this regulation. Most EU laws have been implemented by the UK legislature and is therefore on the UK statute books already. Meanwhile, much EU law reflects modern global thinking rather than a crazy Eurocrat’s scheme to hobble Britannia; it is likely that, if it has not influenced such thinking itself, the British government will wish to mould its own laws to reflect what is going on elsewhere in the world. And – egad! – much EU law has proved popular with the British public. During the Referendum campaign, Priti Patel, then Minister of State for Employment, said that by halving the impact of EU social and employment laws, Britain could create 60,000 new jobs. Yet should the UK government try to scrap the employment rights introduced following EU-wide legislation – a 20-day minimum annual leave allowance, unfair dismissal rights, and significant parental leave – the opposition sure to come from unions and millions of workers will keep the current laws very much where they are – alleviating business from the burden of none of it. Meanwhile, not only is much of the British public in favour of environmental laws that originated in Brussels and would vigorously oppose any attempts by the government to remove them, the UK remains subject to other global regulation, such as the Kyoto Protocol on reducing carbon emissions, which place burdens on the nation regardless of those devised by Europe.
The second likely cause of disappointment is that, while much of the regulation that now affects UK businesses has come from the EU, the UK authorities have frequently been far more demanding than Brussels, either by surpassing the minimum standards set by the red tape, or by enforcing them more strictly than the EU requires, in what is known as “gold-plating”. For instance, the 20-day minimum entitlement to annual leave set by the EU is gold-plated in the UK to ensure that public holidays are not taken from this stock, and therefore must be given in addition to rather than as a part of the 20 days. Likewise, when implementing EU regulations on the question of yet another famous anti- topic of conversation, Health and Safety, those relating to asbestos were “gold-plated” so as to require that contractors be licensed before they are authorised to remove the potentially fatal substance. It is hard to see a popular cause that would lead to the removal of the former or latter “gold-plating”.
And let’s not forget that the UK government is perfectly capable of placing burdens on UK businesses all by itself. One of the greatest (at least according to business, especially those small and medium sized), is the minimum wage, which has nothing to do with Brussels. In 2015, the UK government announced a 38% increase to take effect by 2020, a measure that will have a vast impact on wage costs. The UK government also harms business unintentionally. While the EU imposes rules on how long self-employed truck drivers can spend on the road, how many breaks they must take and how records are kept, the British government imposes high fuel duties and fails to invest sufficiently in national transport infrastructure, which is far more onerous for their business. The concept that Brussels red tape might act as a check and balance on the UK government appears rarely to have been contemplated.
A study by PWC earlier this year indicated that “the potential post-exit benefits of reducing regulatory costs are estimated to be relatively small in macroeconomic terms at around 0.3% of GDP in 2030”. Was it worth it? It is tempting to say “who knows?” As the British government tries to determine what the Brexit vote actually means, little is clear. However, what is clear is that Brussels red tape will continue to be a fact of life for British businesses who want access to the Single Market. Meanwhile, those that do not will still find themselves subject to the global forces and other organisations that manage relationships between nations by way of rules. But perhaps the British public should not feel so bad about this. After all, it is easy to forget that the burden red tape does impose on businesses is for the benefit of consumers: the same people who own, staff and run businesses. In fact, everyone. Yet, even such positive considerations will not be enough to stop some shedding an occasional tear: who will they be able to blame in future if not Brussels …?
This article should not be taken as definitive legal advice on any of the subjects covered. If you do require legal advice in relation to any of the above, please contact Simon Walton on 020 7955 1455 or any member of the Rosenblatt Dispute Resolution Department.