EU Red Tape - We Make EU Rods For Our Own Backs

The UK government has been running its own Red Tape Challenge for some years and at last the EU is getting in on the act (though it thinks member states are in worse shape!). 

Listed below are some cuts to EU red tape that the UK government has suggested, according to the activity that is being restricted. See if you agree.

The first of two big concerns I have is how these suggestions appear to citizens and businesses in the EU's civil law countries (i.e. virtually all of them). Generally, they want the state to tell them how to act by setting out rules in a civil code. As a result, commerce in those countries tends to follow the law. But in common law countries (e.g. the US, UK and the Commonwealth), we consider ourselves free to act unless a law restricts that activity in some way - our laws tend to follow commerce. 

So what we see as red tape that doesn't properly reflect how we do business, a continental European might see as his only right to act in a certain way. 

This distinction is blurring a little, both as a result of the UK's membership of the EU and the need for businesses in the US and Commonwealth countries to do business in the EEA. But it remains an important driver of what each of us considers to be 'red tape', and it needs to be considered when making or supporting a cut. Where necessary, a compromise might be to remove some of the more restrictive detail but leave a general permission in place, with some means of passing more detailed rules later if necessary. 

The other major concern I have is that UK officials have a silly tendency to interpret an EU law literally (as we do with UK laws) rather than taking a 'purposive' view of their intended effect as the European Court of Justice does. So UK officials present laws to Parliament for approval which 'gold plate' EU requirements, rather than just deliver the spirit of what is intended. A European would say we are stupidly making a rod for our own backs, and I completely agree. This has to stop immediately.

Competitiveness of EU businesses:

• Ensure the full implementation of the Services Directive across the EU
• Ensure data protection rules don't place unreasonable costs on business
• Refrain from bringing forward legislative proposals on shale gas 
• Drop proposals to extend reporting requirements to non-listed companies.

Starting a company and employing people:

• EU Governments should be allowed flexibility to decide:
• When low-risk companies need to keep written health and safety risk assessments
• How traineeships and work placements should be provided.
• Micro-enterprises (employing fewer than 10 people and have an annual turnover and/or annual balance sheet total that does not exceed €2m) should be exempt from new employment laws unless they are sensible and proportionate.
• Pregnant Workers proposals should be withdrawn 
• Posting of Workers Directive should not introduce mandatory new complex rules on subcontracting  Existing legislation on Information and Consultation should not be extended to micros, and no new proposals or changes to existing legislation should be made
• Working Time Directive should keep the opt out; give more flexibility on on-call time/compensatory rest; clarify there is no right to keep leave affected by sickness 
• Agency Workers Directive should give greater flexibility for individual employers and workers to reach their own arrangements that suit local circumstances and give clarity to companies that they only need to keep limited records 
• Acquired Rights Directive should allow an employer and employee more flexibility to change contracts following a transfer.

Expanding a business

• Drop costly new proposals on environmental impact assessments 
• Press for an urgent increase of the current public procurement thresholds
• Exempt more SMEs from current rules on the sale of shares
• Minimise new reporting requirements for emissions from fuels 
• Drop plans for excessively strict rules on food labelling
• Remove proposals to make charging for official controls on food mandatory 
• Remove unnecessary rules on SMEs transporting small amounts of waste 
• Withdraw proposals on access to justice in environmental matters 
• Withdraw proposals on soil protection.

Trading across borders

• Take action to create a fully functioning digital single market
• Rapidly agree measures to cap card payment fees
• Remove international regulatory barriers which inhibit trade
• Reduce the burden of VAT returns, and stamp out refund delays
• Drop proposals on origin marking for consumer goods.

Innovation

• Improve guidance on REACH to make it more SME-friendly
• Rapidly agree the new proposed Regulation on clinical trials 
• Improve access to flexible EU licensing for new medicines 
• Introduce a risk-based process for the evaluation of plant protection products.

There is also a huge list of Directives in Annex 1 that businesses have said need attention.

Why Consumer Terms Aren't "Silly"

A strange article in the FT yesterday from the usually reliable John Kay, explaining why he 'ignored' the consumer terms related to his smart TV and Apple's new operating system. Of course, we're all free to decline a reasonable opportunity to read and agree consumer terms. But it's wrong to suggest they're 'silly', as the Carbolic Smoke Ball Company discovered long ago. While consumers rarely read them, certainty as to what consumer terms apply is fundamental to the efficient operation of retail markets. Allow me to take each of John's pronouncements in turn:

"Samsung and Apple are plainly in business for the long term, and their continued success depends on maintaining their reputation with their customers. It is unlikely that these agreements contain anything seriously damaging to my interests, and if they did I am reasonably confident that the combined forces of judges, legislators, regulators and the press would protect me."

Putting aside the misplaced trust that a major corporation's long term aspirations are aligned with their customers' interests (think retail banks), this misses the point of consumer agreements - particularly in the context of supplying a 'smart' device that operates in multiple jurisdictions. Apple's end-user agreement helps set the rules of the Apple ecosystem, just as Facebook's privacy policy does. Such services would rapidly break down if suppliers, customers, regulators and other 'stakeholders' did not understand the detailed rules that underpin them. How does John think that Apple gets paid for selling other people's Apps? Ironically, numerous regulations insist on very prescribed sets of consumer terms, which often provide the basis for the very action by the 'combined forces' on whom John relies for protection (although they can also be hijacked, as we saw when the US government effectively deputised PayPal and others as private sheriffs, relying on violations of their terms of service to 'shut down' Wikileaks).

"On the odd occasion when I have troubled to read similar agreements, I have found they are generally riddled with ambiguities and with conditions that are unenforceable in practice and probably unenforceable in law. The attorneys who draft these documents are mostly unimaginative hacks rather than hotshots of the profession. And complex contract specifications do not so much define the obligations of the parties as identify the point at which legal argument will start. Ask the people who thought they knew where they stood with Lehman Brothers."

Let's unpack this. John rarely reads consumer terms, so his experience here is unreliable. He's not a lawyer, so he's no guide to the enforceability of contractual terms. He clearly has no friends in this area, which is a shame, but he's unwise to underestimate the scale or calibre of the legal resources Apple devotes to the customer terms that underpin its position as one of Earth's most valuable corporations. And Lehman Brothers? Being an investment bank it simply never dealt with 'consumers' at all, however, (ironically, John) the banks had no idea of who owned which assets after trading with Lehman Brothers because they ignored the small print.

"...To the extent that the user agreement has relevance at all, that relevance is to the battles these large technology companies conduct with one another and with their various regulators."

As explained, this ignores the role of end user agreements in determining how the entire retail ecosystem works - in this case, the rules that make John's TV 'smart'.

"...If there is a problem, it is not the laziness of consumers but the use of inappropriate models in the formulation of public policy. These too often espouse a legal and economic view of human behaviour in which agreements are negotiated between informed and consenting parties, and enforced through adherence to the contract provisions, if necessary through the courts. The reality is that the terms of exchange in a market economy are defined by social expectations and enforced by the mutual need of the parties to go on doing business."

I agree that 'laziness of consumers' is not an issue - again, we are all free to decline the reasonable opportunity to read consumer terms upon which the law insists. But if by 'inappropriate models' John is referring to the common law system, then he should compare it to the joys of the civil law system. In common law countries, we are free to act unless the law restricts us - the law follows commerce. In the absence of Parliamentary edicts, contracts provide the rails on which commerce runs. Meanwhile the citizens of civil law countries wait for their lawmakers to define how they may act, so European commerce, for example, follows the law. Thus, our EU colleagues regard entrepreneurship as rather dodgy, and believe that contracts should rarely be needed to supplement civil law codes.

I know which system I prefer.

But, critically, John is also choosing to gloss over the need to record what he calls the 'terms of exchange' so that people have enough certainty 'to go on doing business'. That is the role of the contract in a common law country. And the enforceability of such terms - the 'rule of law' - is what distinguishes a (reasonably) efficient market economy from, say, corrupt dictatorships or centrally planned economies.

In other words, Apple's lengthy terms - and John's freedom to decline the opportunity to read them - not only facilitates the collaborative ecosystem that creates John's 'smart' TV, but they also help everyone keep Apple and its suppliers honest.


Image from CloudPro.

Help To Bubble

I just don't get it. The UK is awash with debt it can't shift, yet the UK government thinks it's a great idea to ensure that people get £130bn of mortgages they can't otherwise afford. 

A Treasury spokesperson is quoted in today's FT as saying that "there are rules ensuring that people can pay the mortgage that they have taken on." But if they couldn't have got the mortgage in the first place, how is that so?

It would be fair enough if someone were able to point to specific, unreasonably restrictive bank lending practices and get them changed. Yet neither the Treasury nor the Bank of England has been able to bring the banks to heel, so putting the taxpayer on the hook for 15% of a bunch of new high loan-to-value mortgages seems a little careless to say the least.

But maybe it's too late. Maybe we're just seeing the inevitable consequence of the fact that the UK state is already standing behind £491bn of UK mortgage debt, or 42%. The state simply has to be back even more. The US introduced this nonsense as a 'temporary measure' 70 years ago and, as Gillian Tett recently pointed out, is now behind 90% of the US mortgage market. How's that working out for them? You be the judge.

Welcome to Bubbleland.

Image from LuxLifeMiami.

Labour's Rocky Horror Show

As the Labour Party took it's "jump to the left" this week, we saw firsthand how "madness takes its toll."

Things turned ugly when the faithful realised there'll be no pot of gold at the end of the 2015 campaign rainbow - brutal medicine for a party infamously free with the public purse. So the furious mob turned its sights on the private sector, just like in the bad old days.

Gordo's lieutenants did their best not to disappoint the baying crowd, smashing in a few shop windows in an effort to claw back some of the profits they'd gleefully handed out when their old boss proclaimed the end of boom and bust. But the private equity boys are a vicious crew, and they were waiting. They went after those dogmatic party geeks like a bunch of Paras on PCP, strangely trailed by Lord Mandelson waving a socket wrench.

The geeks took a hiding, but they weren't giving up, or venting their sterile rage on public sector waste. Or gnashing their teeth about the six ways 'the System' is in a worse state than in 2008. No way. Back in the safety of the Hilton Metropole they were hell-bent on re-nationalising everything this country's sold off in its vain attempt to keep kicking the economic can down the road: "railways, power, water, Royal Mail." Savagely yearning for the return of British Leyland. A time when the State could do no wrong and Jimmy Savile ruled the BBC.

As the great Gonzo once said, "when the going gets weird, the weird turn pro."

Doomed, you might think. And so too is the old Labour rort of hiring public sector employees so they can automatically join the unions and unwittingly subsidise the party's lust for power. Snubbed by these ingrates, Milibore now wants to slip his hand into the public purse to fund his dreams, and is tempting the other parties to follow suit. He might be onto something there. Party political types are united in greed, if nothing else. But the Tories know there'll be nothing left by 2015 anyway. Soon they'll be sewing patches on the elbows of their suits...

You'd think that should mean a blissfully quiet election. But based on this week's performance I reckon Labour's rocky horror show has only just begun.

We're in for a mind flip.

We'll be into a time slip.

Labour will do the Time Warp again.

We Need Let The Crowd into Financial Services

What a difference a year makes. At an industry event yesterday none other than Nicola Horlick, a well-known fund manager, confirmed her faith in crowdfunding as way of people putting money directly into the lifeblood of the economy, at a time when bank finance for small businesses is limited. Her own film finance vehicle raised £150,000 by issuing shares within weeks of an initial discussion with Seedrs CEO, Jeff Lynn, about how the crowd might help. A year ago, she wouldn't have given it a moment's thought. 

Of course, Nicola was referring to equity crowd-investing, which is the latest type of crowdfunding to burst into life. People have been donating to each other's projects via online marketplaces for nearly a decade and lending to each other online since 2005. Even the UK government is lending along side savers on peer-to-peer lending platforms. 

But these 'direct finance' marketplaces are no longer simply challenging a dozy bunch of retail banks. The addition of crowd-investing in shares and bonds is a direct assault on the sophisticated world of venture capital, private equity and boutique investment banking. 

Silicon Roundabout has launched a rocket attack on Mayfair.

This trend has raised a few bushy eyebrows down at Canary Wharf, where the paint is still wet on the signage at the hastily re-named Financial Services Conduct Authority. Not everyone at the FCA is excited by the prospect of just anyone being able to put a tenner into a business run by Nicola Horlick. In fact, the 'hawks' down there seem to believe that ordinary folk should content themselves with a low interest savings account, a lottery ticket and a flutter on the nags between visits to the nearest pub. If you can't afford to lose a grand, say the hawks, then you've hit the economic buffers. The banks can enjoy the use of your savings for free, while the government enjoys the betting taxes and the excise on your beer and cigarettes.

And we wonder why the poor get poorer.

You might also wonder, as I did yesterday, how 'the government' might explain to the same person who is banned from buying a share in the local bakery why he is still be free to blow £10 on a drug-fuelled quadruped at a racetrack, or donate it to a band that might go triple platinum and never have to share a penny of the upside with those who backed them.

But that's where you're reminded that the government never puts itself in the citizen's shoes; and there's really no such thing as 'the government' anyway. Just individual civil servants at separate desks in separate buildings, each looking at his or her own policy patch and waiting to be told what to do. Collaboration is not a creature common to Whitehall. In that world, no one at, say, the Treasury snatches up the phone to share a bold new vision for driving economic growth from the bottom-up with the folks over at Culture Media and Sport, or Business Innovation and Skills or Communities and Local Government. 

Or do they...?

At least those in Parliament, bless them, did collaborate in response to the ongoing financial shambles. Julia Groves of the UK Crowd Funding Association quoted some choice words on alternative finance from the report of the Parliamentary Commission on Banking Standards, and I've set out the full quote below (as I have previously). Julia also put it very nicely in her own words: "Wealth is not a skillset." We need to let the crowd into financial services, and we need to keep the 'crowd' in crowdfunding. Let's hope this time the following message permeates all the way to the remaining hawks at Canary Wharf.

"57. Peer-to-peer and crowdfunding platforms have the potential to improve the UK retail banking market as both a source of competition to mainstream banks as well as an alternative to them. Furthermore, it could bring important consumer benefits by increasing the range of asset classes to which consumers have access. This access should not be restricted to high net worth individuals but, subject to consumer protections, should be available to all. The emergence of such firms could increase competition and choice for lenders, borrowers, consumers and investors. (Paragraph 350)

58. Alternative providers such as peer-to-peer lenders are soon to come under FCA regulation, as could crowdfunding platforms. The industry has asked for such regulation and believes that it will increase confidence and trust in their products and services. The FCA has little expertise in this area and the FSA's track record towards unorthodox business models was a cause for concern. Regulation of alternative providers must be appropriate and proportionate and must not create regulatory barriers to entry or growth. The industry recognises that regulation can be of benefit to it, arguing for consumer protection based on transparency. This is a lower threshold than many other parts of the industry and should be accompanied by a clear statement of the risks to consumers and their responsibilities. (Paragraph 356)

59. The Commission recommends that the Treasury examine the tax arrangements and incentives in place for peer-to-peer lenders and crowdfunding firms compared with their competitors. A level playing field between mainstream banks and investment firms and alternative providers is required. (Paragraph 359)."