The costs of EU regulation1

Regulation is the second major area controlled by the EU, through its powers to regulate the Single Market. It exercises these powers according to a ‘social market’ philosophy. A nation state has the power to tax/subsidise, and it can use this power to redistribute income to the less well-off. However the EU has no tax powers because national governments have been unwilling to pass them over to it, even partially. Therefore to achieve social objectives of a redistributive nature the EU uses regulation; examples are labour market ‘rights’ which are essentially subsidies to workers paid for by implicit employment taxes on firms. In other areas too - general product market standards, finance, technology and climate - it has pursued policies that have raised costs and damaged competitiveness. Our estimates suggest a UK cost of 6% of GDP, of which we suggest 2% can be rolled back. In a parallel piece of analysis of the Thatcher reform programme, discussed in the appendix, we find comparable gains, suggesting this order of magnitude is indeed feasible. To these gains we add that of avoidance of uncontrolled EU unskilled immigration, which the UK taxpayer has subsidised by around 20% per migrant, costing 0.2% of GDP, mainly paid by poorer UK taxpayers. On top of this we eliminate the annual net payment to the EU budget, 0.6% of GDP.