Mats Persson: The EU could do less things in Britain, and do them better

Small and medium sized businesses are understandably a priority. In 2009, they accounted for 99.9 per cent of all enterprises, 59.8 per cent of private sector employment and 49 per cent of private sector turnover in the country.

These companies tend to carry out their own administration and don’t have the luxury of employing various specialists to ensure they are complying with regulation.

However, there is an increasing feeling among politicians and policy-makers that their hands are tied by rules locked in at the EU level. David Cameron recently said that “almost every day, I see pointless new regulation coming our way” from Brussels.

Similarly, Employment Minister Chris Grayling told the Federation of Small Businesses: “While there are many things that we can change ourselves, we also have to deal with the European dimension of health and safety law. From there, the tide of regulation seems endless. It will hold back growth, it will cost jobs, it will make Europe more uncompetitive, and it has to stop.”

Social and employment law does of course come with benefits, although they are often difficult to quantify in economic terms.

It underpins important worker rights and can increase productivity by improving working conditions. At the most fundamental level, effective health and safety law reduces the chances of work-related injuries or fatalities.

However, it remains unclear that there is any significant benefit in deciding these laws at the EU level, which invariably results in an awkward one-size-fits-all solution, rather than nationally or sometimes locally.

For example, the EU’s Agency Workers Directive come into force last month, putting 28,000 temporary employment contracts for those aged between 16 and 24 in Britain under threat at a time of high youth unemployment.

These new rules, expected to cost employers £1.8bn a year in the UK, will increase the cost of hiring people and have a disproportionate impact on the UK, where agency workers make up a larger share of the workforce compared to the European average. Protection for agency workers is clearly important, but are these new measures really striking the right balance between jobs and growth on the one hand, and protection on the other?

The annual cost to UK businesses and the public sector of EU social and employment law now stands at £8.6bn a year. To put this in context, the wealth lost through EU social policy is roughly equal to the money that the Government expects to raise from its stamp duty in 2010-11.

In a briefing published this week, Open Europe showed how cutting the cost of EU social and employment regulation by 50 per cent could result in a boost in economic output equivalent to the creation of 140,000 new jobs in Britain.

Under a more likely scenario, where the benefits of deregulation would be split between higher employment and increased productivity, a 50 per cent cut could generate the equivalent of 60,000 new jobs in the UK in addition to adding £4.3bn to economic output.

Crucially, this is not a left- right issue. In the past, the concept of “Social Europe” has served as a form of sweetener to get approval of the EU’s Single Market. However, EU involvement in this area is increasingly losing appeal on both right and left.

The Right and many businesses complain about the increased compliance cost that comes with EU social law, while the Left and trade unions increasingly view the EU as both failing to provide adequate worker protection, but also actively undermining it as austerity measures, in part decided in Brussels, sweep Europe.

The Right and Left should both have strong ground to argue against the principle of EU involvement in this area – though they will naturally maintain opposing views on the content of social policy itself

And here’s the thing: should the UK succeed in repatriating powers over social policy, the cost and benefits generated by these laws would not immediately disappear. However, it would bring these costs under the control of Westminster, allowing MPs and voters to change them to better reflect the needs of the UK economy and democratic preferences.

Britain should not seek to use the immediate eurozone crisis for horse-trading – which could prove counter-productive.

But what is needed is a comprehensive plan to use the process of reaching a new long-term political settlement, which will be necessary to reshape the EU in the wake of the crisis. It could ultimately could lead to the EU doing less things in Britain, but doing them better.

• Mats Persson, from Sweden, is director of the Open Europe think-tank.