John Jackson says a low-key Treasury review of EU insurance legislation will reach some damaging conclusions

Britain is one of the most over-regulated countries in the world, stifling the traditional entrepreneurial spirit of business, which particularly saw the growth of the UK insurance industry, with insolvencies currently running at a record level.

This month's interest rate rise to 4.75%, warns Mervyn King, Governor of the Bank of England, will almost certainly mean another hike before Christmas, with the possibility of 5% interest rates by year end.

This puts businesses in the position of having to cope with extra borrowing costs and a stronger pound. Then weave into this nightmare web the growing burden of stealth taxes from Chancellor Gordon Brown, and you have serious problems. Little wonder insurers are heading for more regulatory relaxed bolt-holes such as Gibraltar and Bermuda.

This stifling burden falls particularly heavy on the smaller and middle-ranking businesses such as brokers. The Monetary Policy Committee (MPC), set up by Labour following its 1997 election victory to decide on inflation rates, has bad news for the business community.

The MPC forecasts that the consumer price index will be above its target for nine or 10 successive quarters - the longest inflation overshoot since it was formed in 1997. With brokers (and not a small number of insurers) working on narrow margins this, plus the growing regulatory burden, is worrying.

And that panorama does not include the interfering EU, responsible for around 70% of UK laws.

One of the major irritations for UK business is the never-ending avalanche of Brussels-related laws. Worse still, is the 'gold plating' by the UK government and other agencies in interpreting some of those EU laws in a draconian way.

The insurance industry, in particular, has made clear to a Treasury-sponsored review by Lord Davidson QC, its anger over the way the EU Insurance Mediation Directive has been 'gold plated'. A full report and conclusions will be published at the end of the year.

One major complaint by UK businesses is that British officials do not fully understand how a Brussels measure will affect UK businesses when the EU measure is being negotiated, making it impossible to cure difficulties that arise at the implementation stage.

Discussion with industry needs to take place much earlier, if possible prior to the Commission formally publishing its proposal, say the complainants.

Lord Davidson was told of the importance of not just consulting the core stakeholders who were targeted by the legislation, but also those who may be caught indirectly by its scope.

The review received a significant volume of complaints about the Insurance Mediation Directive (2002/92/EC), which came into force in January 2005.

The complaints came from insurers who sell direct to consumers, and therefore are not mediating insurance, but which are caught by the UK regulations due to a decision by the Treasury to extend the scope of the implementing regulations.

The second rank of complainants were brokers, and the third were those who mediate insurance as a small part of their main business, for example, freight forwarders and property developers.

An emerging theme from the complainants is the perception that the consultation was not wide-ranging enough to establish how businesses, for whom insurance mediation was an ancillary part of their business, would be caught or how they would be regulated.

This, say the complainants, apparently led to a lack of clarity initially around which businesses would be covered by the FSA's regime and caused businesses to incur expense in obtaining advice on compliance issues.

Both the FSA and the Treasury have strongly denied the allegations, stating that the implementation of the Directive was carried out in an appropriate and proportionate way following extensive consultation with stakeholders.

The FSA also pointed out that it undertook a wide-ranging consultation, including proactive communication with trade associations and firms, running road shows and speaking at trade association events.

This report exposes how British officialdom overreacts to EU legislation, stifling competition, and reveals the costly, time-wasting grip of heavy-handed regulatory bureaucracy that sits constantly on the necks of the business community. IT

' Davidson Review: Implementation of EU Legislation - web address: