UK and EU regulation

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UK level of regulation

Pre-Brexit, despite having UK and EU regulation, Britain had one of the most lightly-regulated economies in the OECD. The National Audit Office published a Short Guide to Regulation in 2017, which provided a concise summary of regulation in the UK. The NAO identified 90 regulatory bodies in the UK and 34 EU regulatory organisations whose frameworks affect the UK. Their report cited work by the Organisation for Economic Co-operation and Development (OECD)

The OECD assessed the extent of regulation in its 47 member states in 2013. The analysis showed that the UK had relatively low levels of regulation compared with other member states. The OECD analysis split the economy into network sectors (telecoms, electricity, gas, post, rail, air passenger transport, and road) and a series of product markets.

According to the OECD, the UK had:

the most deregulated network sectors when considering criteria such as barriers to entry, extent of public ownership, vertical integration and market structure;
low barriers to competition in product markets compared with most other OECD nations, and less prescriptive ‘command and control’ regulation;
comparatively complex regulation relative to other nations.

Figure 2.2 from the NAO summarises the OECD’s assessment.

Figure 2.2: Network and product regulation in the UK compared with other OECD countries

Source: National Audit Office, A Short Guide to Regulation, September 2017

EU trade-related regulation

The purpose of EU trade-related regulation is to reduce trade barriers between member states and maintain standards to protect citizens and consumers. This means, for example, that exporters do not have to comply with different standards, workers avoid discrimination, and capital is free to move.

Since regulations can act as barriers to trade, the EU sets the common minimum standards that are necessary for mutual recognition within the EU. This was the founding principle for Europe’s single market for goods. Landmark court cases, notably over a German import ban on the liqueur Cassis, established that products approved in one country may be sold in all EU member states.

Underpinning the regime are the EU institutions that enforce standards and adjudicate disputes with powers to override national governments. Ultimately this includes the CJEU (see below).

Services markets tend to be more highly regulated than markets in goods. This is because consumers find it more difficult to assess the quality of services (e.g. those provided by a lawyer) than goods (e.g. an apple) before they buy, so regulations intervene to ensure that, for example, legal standards are high. Member states do not allow other member states or third countries to provide services to their citizens without meeting the common EU standards.

If post-Brexit Britain wants to continue to trade with the EU, it must continue to meet EU regulatory requirements for traded goods and services.

Need for rules post-Brexit

While international rules are increasingly important to businesses, a close regulatory relationship with the EU is still essential for the UK. The EU is by far the most important market for leading UK industries like aerospace, automotive, life sciences, haulage, food and drink. As a result, post-Brexit convergence in regulation to ensure smooth trade with the EU is likely to continue.

Even if the EU did not exist, member states would still have to make their own rules. It was therefore misleading to imply that Brexit would cause all the regulatory costs associated with EU legislation to disappear. For example, UK banking regulation would still be rigorous and the regulatory burden on banks would remain high because the UK wants its financial system to be safe and seen as such.

International forums outside the EU set the rules for some sectors. Examples include the maritime industry, waste and environmental services, and broadcasting and creative industries. Even so, EU has a major input to the global standards set by other bodies. In others the EU leads the world in setting global rules, from cosmetics to rules for data flows. For more on this, please the Brussels Effect by Anu Bradford.

When both sides recognising each other’s standards or regulatory regimes, this is termed ‘mutual recognition’. For more on MRAs, please see the section on mutual recognition agreements under ‘trade arrangements’.

When only one side recognises the other’s standards or regulatory regimes, this is termed ‘equivalence’. Equivalence is a riskier basis for trade than mutual recognition. If the EU granted equivalence to the UK in a specific area, the EU could decide unilaterally to withdraw the equivalence.

For more on equivalence, please the section on equivalence under trade arrangements ‘trade arrangements’.