The European Commission’s commitment to a new regulatory scheme risks misallocating resources and ossifying policy making.
European Commission President Ursula Von der Leyen has made a commitment to introduce a “one-in-one-out” policy to manage the stock and flow of European Union (EU) law. Although such an approach has been tested in many EU member states, the United States, and elsewhere, there is little evidence to show that it has generated expected results. Furthermore, it risks amounting to little more than a paper exercise that diverts scarce regulatory policy resources from other essential tasks such as evaluation. It also introduces another layer of analysis into the law-making process, potentially creating delays and reducing the ability of policy makers and regulators to adjust flexibly to the rapid pace of change and innovation.
The United Kingdom, the pioneer and champion of one-in-one-out discontinued its use in 2017. Introduced in 2010, one-in-one-out was progressively expanded to “one-in-three-out.” With initially glowing performance reports the scheme was profiled as the main tool to achieve a business impact target—a global savings target underpinned by economic assessments of regulations’ effects—set by the government in 2015 for a five-year period. But a report of the U.K. National Audit Office in 2016 strongly criticized the government’s efforts, concluding that it had made limited progress in reducing regulatory costs. The report also concluded that departments generally had no idea about the costs of legislation and that they generally disregarded wider social and economic impacts.
Similar to the early claims about the U.K.’s success, Germany has reported impressive results from its one-in-one-out effort. New regulations introduced between 2015 and 2018 were estimated to cost business €1 billion. This was offset by estimated cost reduction of roughly €3 billion leaving a positive balance of €2 billion. As the scheme has not been independently assessed, it is difficult to judge if these estimations are actually providing cost relief for business. The German Industry and Trade Association recently criticized the scheme, indicating that consultation of business is often limited to a few days, the methodology is not transparent, and the scheme excludes costs such as one-off investment costs that are the most burdensome for business.
Other exceptions also cloud the picture of rosy results in Germany. For example, minimum wage legislation, entailing estimated annual compliance costs of over €1 billion, was excluded from one-in-one-out calculations because the decision to introduce it was formally made in 2014, before one-in-one-out was launched. The costs of compliance with EU laws and the rulings of the Federal Constitutional Court are also excluded, meaning that there are significant gaps in the coverage of the scheme.
Given their recent introduction, it is too early to assess the results of one-in-one-out schemes in other countries. But, the fundamental conceptual and practical drawbacks of one-in-one-out are well documented and serve to dampen expectations. If one-in-one-out methodology were based on the number of laws and not on costs, insignificant regulations would have the same weight as significant ones. Thus, normally a one-in-one-out scheme is based on some form of estimated cost reduction. The focus on costs overlooks both the fundamental justification of regulation, which is to maximize net social benefit and the significant benefit to society produced by regulation. One-in-one-out takes the level of regulation at the outset of the program as an acceptable, if not optimal, baseline. This is problematic because, although some sectors may indeed be overregulated, others may need more regulation.
On a practical level, one-in-one-out is not suited to EU-level governance. The European Commission often proposes laws in the form of directives that are not directly applicable but need to be transposed into national legislation. The legislators, the European Parliament and the Council, decide on the legislation. Once EU-level legislation is approved, member states then introduce the law into their national statutory codes and apply it. In this governance chain, costs calculated for Commission proposals may not be the same as the costs of the legislation ultimately adopted by the legislators, not to mention the possible variation in costs related to the implementation and enforcement choices made by the member states. Calculated cost savings may be lost along the decision-making chain.
Repeals, a built-in feature of regulatory offsetting, require the same legislative process in the EU as new law. Even though the Commission can make a proposal, there is no guarantee that the legislators will follow. And, even should the law be repealed at EU level, it may be difficult for the member state to separate the EU elements from the domestic law in which the EU law has been transposed. This whole process could take up to five or more years with cost calculations and business perceptions of burden inevitably affected by the passage of time.
While the Commission regularly repeals obsolete regulations—for example, those in the agricultural sector with specific expiration dates—substantial repeal efforts have been less successful. The outgoing Commission took on the repeal challenge by inviting an independent high-level task force to come up with suggestions for laws or areas of legislation that could be taken back to the national level. They were not able to identify any candidates.
At best, regulatory offsetting is a way to increase cost consciousness among regulators. But it has a high price tag, diverting scarce regulatory policy resources which could otherwise be spent on, for example, producing better impact assessments, consultations, and evaluations. It adds another layer of required analysis which could ossify the policy development process, reducing the ability of the Commission to adjust to the rapid pace of economic, technological, and social change and innovation.
President Von der Leyen has a valid concern about regulatory costs and regulatory saturation. There are undoubtedly outdated laws on the statute books and areas that could benefit from thorough legislative housekeeping. But one-in-one-out is not the answer to this problem. The situation calls for targeted and rigorous evaluation to see if laws are meeting their objectives, if there are overlaps and inconsistencies between pieces of legislation, and if there are solid grounds for repeal. Such an effort requires the involvement of the EU legislators, the member states, regional and local authorities and a cross-section of interest groups. It is not a task that can be handled by the Commission calculating costs in isolation.
Rather than diverting resources to pursue a one-in-one-out regulatory system, the new Commission should further consolidate its results-oriented approach, requiring departments to show through evaluation that legislation on the statute books is generating expected benefits and that any new initiatives are soundly justified through impact assessments. The current system—which uses strategic planning and impact assessment to control the flow of new laws, evaluation of individual laws as well as of cross cutting policies and legislation to assess the stock, and consultation throughout the policy cycle—has been judged positively. The new Commission needs to be vigilant in enforcing its deployment.
One-in-one-out is a catchy sound bite, but it perpetuates the notion that the EU is over-regulated and that EU regulation is excessively burdensome and costly. The new Commission has bold ambitions. It could accompany them with a more positive reguatory narrative, focusing regulatory policy on maximizing benefits and better assessing the equity and distributive effects as well as the job creation and innovation potential of regulation.