WITHIN two years of entering the European Economic Community (EEC) in 1973, there was strong public support for Britain’s membership. In the 1975 referendum on the issue, 67 per cent voted to remain inside the organisation that would one day become the EU.
There were good reasons. Most peoplebelieved that we were in Europe for trade. British self-esteem was so low that the EEC was seen as the future. But neither is relevant today. While the UK has serious economic problems, the EU is clearly not the solution. And not only that, but the dream of free trade has been replaced by the nightmare of the unaccountable regulatory superstate.
Regulation produced by Brussels affects the City as much as any other sector of the UK economy. The EU has decided that the promotion of trade requires the creation of a level regulatory playing field and the centralisation of regulation in Brussels. This is flawed reasoning. Trade is based on consumers having different preferences, and different countries having different relative costs and advantages. A level playing field does not always promote trade.
The price is also high. Solvency II is likely to cost customers of UK insurers at least £3bn. Over two-thirds of respondents to a survey by Deloitte believed the Alternative Investment Fund Managers Directive would reduce the competitiveness of the EU fund management industry – when many are already concerned that fund management charges are eating into pensioners’ incomes. EU regulations on bankers seem designed to make the banking system more fragile.
Not only is Brussels strangling the financial sector, and sectors like food and energy, it is hard to see how the process can be reversed. The power of the European Commission means that it is easy for new regulation to be created. But the qualified majority voting system means that it is necessary to gather support from a huge number of countries to roll it back again.
As long as regulation does not seriously distort trade, there are good reasons for not centralising it in supranational authorities, even if some countries (such as Britain and Ireland) might choose to unify their approaches. Different countries have different market structures that demand different approaches. As we also saw in the banking crisis, unifying regulation internationally can magnify risks. And if it does go wrong at the national level, there is at least the possibility of change – there is always some measure of democratic accountability, however tenuous.
Of course, we do need to ensure that national regulations are not a serious impediment to trade. The European Court of Justice and the World Trade Organisation should have a strong mandate to ensure that regulation is not trade distorting. But we do not need to centralise regulation at the EU level.
It is the slow strangulation of our financial, energy and food sectors that is leading me to become ever-more Eurosceptic. But if there is one thing that prevents me from being a confirmed supporter of the “out” camp, it is that the alternative often does not look much better. Regulation at the national level might be better in theory than regulation at the EU level but, in practice, we often make a bad job of it in Britain.
UK regulators complain that EU regulation of insurance and banking doesn’t go far enough. George Osborne and the Prudential Regulation Authority want to tie the City up in even more red tape than the EU. Solvency II was effectively designed and promoted by the British regulatory establishment. Who killed the British occupational pensions industry? Where did the recent FSA 585 page mortgage market regulatory review arise from? It wasn’t Brussels.
So today the Institute of Economic Affairs (IEA) is launching a competition with a €100,000 prize to find the best blueprint for a Britain outside the EU, with a panel of eminent economists as judges, including Nigel Lawson, Roger Bootle, Ruth Lea and the Labour MP Gisela Stuart. This is an important and complex task. There is no point leaving only to find that we have to implement EU regulations in any case. And there is no point leaving only to find that we end up with a “Brussels plus” approach to regulation in Britain. Entrants are invited to write an initial submission of about 2,000 words. The deadline is 16 September, and around 20 authors will then be asked to make a full submission.
Can we exit and ensure that we have a freely trading, prosperous economy that is not bound up by excessive regulation conceived in Britain or in Brussels? How can we ensure that Britain takes its proper place in the world, looking outwards – and beyond the Urals? The British people need answers to these questions, and we hope that entrants to our competition will provide them.
Philip Booth is editorial and programme director at the Institute of Economic Affairs and professor of insurance and risk management at Cass Business School. www.iea.org.uk/brexit
City A.M.'s Opinion pages are a place for thought-provoking opinions and views. These are not necessarily shared by City A.M.