Thank Fathom it's Friday

Red tape and vacuum cleaners

17 March 2017|

A sideways look at economics

Curvy bananas. Vacuum cleaners. Eggs by the kilo, not the dozen. These are just some of the EU regulations cited, often incorrectly, as typical of an overbearing ‘nanny-state’ in which children under eight years old are not allowed to blow up a balloon and businesses are held back from achieving their true potential.

A key Brexiteer claim was that cutting ties with the EU would allow UK businesses to be unshackled and soar as titans of global industry once again. But is the UK really held back by EU regulation? Every five years, the OECD publishes its index of product market regulation (PMR). Based on responses to more than 800 questions, a reading of zero indicates a near-absence of product market regulation.

The burden of red tape in the UK was already low in 2013, lower in fact than in most other EU countries. Our research, published to clients, found that were the UK able to cut red tape to such a degree that its index of PMR matched the Netherlands – the state of the art in terms of light-touch regulation – the level of potential output in the UK would rise by little more than 0.5%.

Not only is there no great desire to sweep aside significant areas of regulation such as maternity and holiday pay entitlements, but UK regulation for both are in fact greater than that required by the EU.

Cutting regulation which is simultaneously significant, burdensome and entirely without merit would clearly be beneficial. Yet identifying regulation that meets all three criteria will prove tricky, especially as the UK is already one of the least-regulated of all advanced economies. Unless, of course, the curvature of bananas is productivity enhancing in some way that eludes economic analysis.

Thank Fathom it's Friday

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