Two weeks ago we attended an investment conference where William Hague, or Baron Hague of Richmond to use his proper title, was giving the after dinner speech. He relayed a story about the lead-up to the General Election last year when every single pundit and betting shop was predicting a hung parliament.
The day before the Election he received a call from a newspaper that said its poll had indicated results that within 24 hours would be proved absolutely spot-on. They did not publish.
Weeks later Mr Hague spoke to the paper and asked why not. They said they would have been ridiculed and considered a joke had they done so against such an overwhelming consensus.
Such are the perils of groupthink.
Ahead of an important vote such as Brexit, this underlines the importance of objective decision-making and independent thought.
Reasons To Be Cheerful, Part Three
This is the third in a series of blogs we have written (see here for the first and second) with the express intention to inform rather than influence. We have tried to provide impartial analysis upon which readers can base their own decisions, not persuade one way or the other – we would never presume to know what the best choice is for every client in any case.
Fortunately for everyone, the referendum has been given the green light for 23 June and this will hopefully enable a proper, informed debate to commence.
In this blog we will be examining two further elements of the debate – the costs of red-tape, or the administrative, legal and regulatory costs and benefits of EU membership, and a look at the budgets that the two sides will have for the their campaigns to convince us one way or the other.
The Red Devil
Everybody knows the problem of red-tape; how the Ten Commandments has 179 words but the EU directive on exporting duck eggs supposedly has 28,911.
The UK Government’s own Impact Assessment (IA) estimate for the cost of the top 100 European Union-derived regulations to the UK economy is £33.3bn per year. Clearly, some of these regulations are necessary and do not fall into the category of ‘wasteful red-tape’. Indeed, the IA report indicates that these same top 100 regulations provide a total benefit of £58.6bn a year.
However, Open Europe*, a non-partisan think tank, has looked at the detail which reveals that £46bn of this figure comes from just 3 regulations (climate change, bank capital and money payments) and they believe the benefits are “vastly over-stated.. [we] estimate that up to 95% of the benefits envisaged have failed to materialise”.
In addition to the questionable benefits of all the legislation, there appears to be consensus that there is simply too much of it. Open Europe estimate that EU legislation has been responsible for 77% of the cost of regulation on businesses since 1998.
A Norwegian Would
Both the UK Government and the European Parliament seem to recognise that there is excessive regulation. The UK Government claims to have, “scrapped a record amount of red tape since 2010 which has saved businesses more than £10 billion” (Matthew Hancock, Business Minister, 23 March 2015). Indeed, the European Parliament itself has stated that “the next Commission should establish a European objective of a 30% reduction in the costs to SMEs generated by administrative and regulatory burdens by 2020”.
Whilst laudable, these efforts seem to have little effect on the continuing flood of regulations. Back in 2008 the European Commission held a conference entitled ‘Cutting Red Tape’ where the Commission’s Vice-President declared, “I am confident that the EU will reach its goal by 2012 and achieve concrete results”. And yet here we are.
So what are the alternatives? Well, to a degree there are none. Regulations for health and safety are, rightly, a feature of modern society. Plenty of other nations such as the United States struggle with the increasing burden and, as the chart below from The Economist indicates, the UK is by no means the global leader:-
This does not mean that the fight against red-tape is fruitless, but it is difficult.
For example, Norway is not a member of the European Union but has made arrangements to continue trading as a member of the European Economic Area. As such, although it has opted to stay out, it is required to abide by the regulations and red tape required to trade in Europe.
What this means is that it still needs to adhere to 93 out of the 100 costliest EU-derived regulations at around 94.3% of the total cost. In addition, by having no say in the regulatory or legal process, it has no influence in shaping new laws and regulations.
Overall, there is no doubt that any UK exit from the European Union would entail less direct regulation. However, in that event, the country would need to re-establish itself as a major global trading country which would require it to abide by standards and administration set by our trading partners which is likely to lead in full-circle to more red-tape. Probably less but inevitably inescapable.
Now that the date has been announced, how are the campaigns going to take shape?
The Electoral Commission will choose one campaign group from each side to be the ‘lead campaign group’. This status will be keenly fought over because, as described by the Commission, it confers significant benefits on those so designated:
“Lead campaign groups have certain benefits in addition to those given to registered campaigners. These include a higher spending limit of £7 million (during the official campaign period of 10 weeks prior to referendum – non-designated campaigns will only be permitted to spend £700,000 over the same period); one free distribution of information to voters; the use of certain public rooms and referendum campaign broadcasts."
In addition to the £7 million that each officially-designated group can spend in the final 10 weeks before the poll, each political party is given a spending limit based on its share of the vote at the last General Election. The Conservatives, Labour, Liberal Democrats and Scottish National Party are all likely to back the ‘In’ campaign and only the UK Independence Party and the Democratic Unionist Party are likely to campaign to leave.
This will substantially favour the ‘In’ campaign with those parties having over £18m at their disposal in comparison to just £4.7m for the two ‘Out’ campaigning parties:-
Whilst this process is based on the percentage of popular vote we hope that it does not stymie healthy debate from both sides. Indeed, we trust this does not lead to the sort of groupthink trap that Mr Hague reflected on.