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Archive for 2014

16/12/2014 - Retail Distribution Review: Post Implementation Review - A report for the Financial Conduct Authority

Europe Economics was commissioned by the FCA to undertake the post-implementation review of its Retail Distribution Review (RDR) of the financial advice market. Our report was published on 16th December 2014. We found early indications that the RDR is working as intended, although we also identified issues where further attention may be required.  Further details are available here and our report can be downloaded directly here.

30/10/2014 - The Economic Impact of the Work Programme - A report for the Employment Related Services Association

To coincide with the third anniversary of the Work Programme’s introduction, the Employment Related Services Association (ERSA), the representative body for the employment support sector, commissioned Europe Economics to model the economic impact of the Work Programme.  Europe Economics constructed and calibrated a time series model of the rate at which long-term claimants leave benefits.  We then included the Work Programme in order to estimate its effects. The Work Programme was found to have a positive impact on the number of long-term claimants leaving benefits.   In order to understand the wider economic impacts of the programme we then constructed three representative profiles of jobseekers: a single, over 25, jobseeker living in Glasgow; a single, under 25, jobseeker living in London; and a family living in Birmingham – and estimated the economic benefits of the labour market impact found for the workers themselves, for the exchequer and for business. Our results suggest that of the 1.5 million net attachments there have been under the Work Programme, around 100,000 more people, unemployed for 52 weeks or more, found work between June 2011 and April 2014 than would have without the Work Programme.

14/10/2014 - The Economic Impact of Palm Oil Imports in the EU - A report for the Malaysian Palm Oil Council

The European Union (EU) imported over 9 million tonnes of palm oil and palm kernel meal in 2012. Europe Economics was asked by the Malaysian Palm Oil Council to estimate the scale of the downstream economic activity in the EU and its Member States associated with those imports and the impact of any resulting increase in demand.

21/09/2014 - The economic impact of interchange fee regulation - Slovenia

The economic impact of interchange fee regulation in Slovenia; a report for Mastercard. Andrew Lilico, Executive Director of Europe Economics and author of the report, said: “The impact of similar legislation around the world provides a clear warning of the need for further scrutiny of the proposed regulations.  The experience in Spain, Australia and the United States has been that consumers have so far paid more in banking fees, but not seen a reduction in prices at the shops. Large retailers appear to gain the most, while small businesses might not enjoy the same reductions in fees, but could pay more for their banking services.     Proposals to regulate commercial cards and separate schemes and card processing are likely to be particularly disruptive. The consequences of legislative interference in interchange fee rates require much more careful examination than they have received up to now. The justification for action is not rigorous enough for an intervention with so many poorly understood risks.”

21/09/2014 - The economic impact of interchange fee regulation - Slovakia

The economic impact of interchange fee regulation in Slovakia; a report for Mastercard. Andrew Lilico, Executive Director of Europe Economics and author of the report, said: “The impact of similar legislation around the world provides a clear warning of the need for further scrutiny of the proposed regulations.  The experience in Spain, Australia and the United States has been that consumers have so far paid more in banking fees, but not seen a reduction in prices at the shops. Large retailers appear to gain the most, while small businesses might not enjoy the same reductions in fees, but could pay more for their banking services.     Proposals to regulate commercial cards and separate schemes and card processing are likely to be particularly disruptive. The consequences of legislative interference in interchange fee rates require much more careful examination than they have received up to now. The justification for action is not rigorous enough for an intervention with so many poorly understood risks.”

21/09/2014 - The economic impact of interchange fee regulation - Romania

The economic impact of interchange fee regulation in Romania; a report for Mastercard. Andrew Lilico, Executive Director of Europe Economics and author of the report, said: “The impact of similar legislation around the world provides a clear warning of the need for further scrutiny of the proposed regulations.  The experience in Spain, Australia and the United States has been that consumers have so far paid more in banking fees, but not seen a reduction in prices at the shops. Large retailers appear to gain the most, while small businesses might not enjoy the same reductions in fees, but could pay more for their banking services.     Proposals to regulate commercial cards and separate schemes and card processing are likely to be particularly disruptive. The consequences of legislative interference in interchange fee rates require much more careful examination than they have received up to now. The justification for action is not rigorous enough for an intervention with so many poorly understood risks.”

21/09/2014 - The economic impact of interchange fee regulation - Poland

The economic impact of interchange fee regulation in Poland; a report for Mastercard. Andrew Lilico, Executive Director of Europe Economics and author of the report, said: “The impact of similar legislation around the world provides a clear warning of the need for further scrutiny of the proposed regulations. The experience in Spain, Australia and the United States has been that consumers have so far paid more in banking fees, but not seen a reduction in prices at the shops. Large retailers appear to gain the most, while small businesses might not enjoy the same reductions in fees, but could pay more for their banking services.     Proposals to regulate commercial cards and separate schemes and card processing are likely to be particularly disruptive. The consequences of legislative interference in interchange fee rates require much more careful examination than they have received up to now. The justification for action is not rigorous enough for an intervention with so many poorly understood risks.”

21/09/2014 - The economic impact of interchange fee regulation - Lithuania

The economic impact of interchange fee regulation in Lithuania; a report for Mastercard. Andrew Lilico, Executive Director of Europe Economics and author of the report, said: “The impact of similar legislation around the world provides a clear warning of the need for further scrutiny of the proposed regulations.  The experience in Spain, Australia and the United States has been that consumers have so far paid more in banking fees, but not seen a reduction in prices at the shops. Large retailers appear to gain the most, while small businesses might not enjoy the same reductions in fees, but could pay more for their banking services.     Proposals to regulate commercial cards and separate schemes and card processing are likely to be particularly disruptive. The consequences of legislative interference in interchange fee rates require much more careful examination than they have received up to now. The justification for action is not rigorous enough for an intervention with so many poorly understood risks.”

21/09/2014 - The economic impact of interchange fee regulation - Italy

The economic impact of interchange fee regulation in Italy; a report for Mastercard. Andrew Lilico, Executive Director of Europe Economics and author of the report, said: “The impact of similar legislation around the world provides a clear warning of the need for further scrutiny of the proposed regulations.  The experience in Spain, Australia and the United States has been that consumers have so far paid more in banking fees, but not seen a reduction in prices at the shops. Large retailers appear to gain the most, while small businesses might not enjoy the same reductions in fees, but could pay more for their banking services.     Proposals to regulate commercial cards and separate schemes and card processing are likely to be particularly disruptive. The consequences of legislative interference in interchange fee rates require much more careful examination than they have received up to now. The justification for action is not rigorous enough for an intervention with so many poorly understood risks.”

21/09/2014 - The economic impact of interchange fee regulation - Germany

The economic impact of interchange fee regulation in Germany; a report for Mastercard. Andrew Lilico, Executive Director of Europe Economics and author of the report, said: “The impact of similar legislation around the world provides a clear warning of the need for further scrutiny of the proposed regulations.  The experience in Spain, Australia and the United States has been that consumers have so far paid more in banking fees, but not seen a reduction in prices at the shops. Large retailers appear to gain the most, while small businesses might not enjoy the same reductions in fees, but could pay more for their banking services.     Proposals to regulate commercial cards and separate schemes and card processing are likely to be particularly disruptive. The consequences of legislative interference in interchange fee rates require much more careful examination than they have received up to now. The justification for action is not rigorous enough for an intervention with so many poorly understood risks.”

21/09/2014 - The economic impact of interchange fee regulation - France

The economic impact of interchange fee regulation in France; a report for Mastercard. Andrew Lilico, Executive Director of Europe Economics and author of the report, said: “The impact of similar legislation around the world provides a clear warning of the need for further scrutiny of the proposed regulations.  The experience in Spain, Australia and the United States has been that consumers have so far paid more in banking fees, but not seen a reduction in prices at the shops. Large retailers appear to gain the most, while small businesses might not enjoy the same reductions in fees, but could pay more for their banking services.     Proposals to regulate commercial cards and separate schemes and card processing are likely to be particularly disruptive. The consequences of legislative interference in interchange fee rates require much more careful examination than they have received up to now. The justification for action is not rigorous enough for an intervention with so many poorly understood risks.”

21/09/2014 - The economic impact of interchange fee regulation - Austria

The economic impact of interchange fee regulation in Austria; a report for Mastercard. Andrew Lilico, Executive Director of Europe Economics and author of the report, said: “The impact of similar legislation around the world provides a clear warning of the need for further scrutiny of the proposed regulations.  The experience in Spain, Australia and the United States has been that consumers have so far paid more in banking fees, but not seen a reduction in prices at the shops. Large retailers appear to gain the most, while small businesses might not enjoy the same reductions in fees, but could pay more for their banking services.   Proposals to regulate commercial cards and separate schemes and card processing are likely to be particularly disruptive. The consequences of legislative interference in interchange fee rates require much more careful examination than they have received up to now. The justification for action is not rigorous enough for an intervention with so many poorly understood risks.”

21/09/2014 - The economic impact of interchange fee regulation - UK

The economic impact of interchange fee regulation in the UK; a report for Mastercard. Andrew Lilico, Executive Director of Europe Economics and author of the report, said: “The impact of similar legislation around the world provides a clear warning of the need for further scrutiny of the proposed regulations.  The experience in Spain, Australia and the United States has been that consumers have so far paid more in banking fees, but not seen a reduction in prices at the shops. Large retailers appear to gain the most, while small businesses might not enjoy the same reductions in fees, but could pay more for their banking services.   Proposals to regulate commercial cards and separate schemes and card processing are likely to be particularly disruptive. The consequences of legislative interference in interchange fee rates require much more careful examination than they have received up to now. The justification for action is not rigorous enough for an intervention with so many poorly understood risks.”

10/09/2014 - External Reference Pricing - A report for MSD Europe, Inc.

In 2012-2013, Europe Economics analysed the impact of external reference pricing (ERP) within the EU on affordable access to medicines and pharmaceuticals manufactures on behalf of MSD Europe, Inc.  We argue that ERP creates incentives for delaying the launch of new or innovative drugs in lower-income countries and that prices for these drugs are higher for lower-income countries than they would have been in the absence of ERP.  We substantiate these arguments empirically using data on a variety of in-patent drug molecules. In order to balance ensuring affordable access to medicines with providing an incentive companies to develop innovative medicines, we argue that ERP should be should be reformed and that social welfare would be higher under differentiated pricing that better reflects ability to pay for patented medicines.

31/07/2014 - Cost Benefit Analysis of the New Regime for Individual Accountability and Remuneration - A report for the Financial Conduct Authority

Europe Economics have written a report for the Financial Conduct Authority on an evaluation of the costs and benefits of a change to the accountability regulations in the financial services sector and amendments to the rules on remuneration. This included the development of a cost of compliance model and estimation of the indirect costs and benefits.

22/06/2014 - EU Financial Regulation - A report for Business for Britain

This report was commissioned from Europe Economics by Business for Britain.  Chancellor George Osborne recently stated: “If we cannot protect the collective interests of non-eurozone member states then they will have to choose between joining the euro, which the UK will not do, or leaving the EU.”  This report considers whether the concern Osborne raises is applicable to EU-level setting of finance and financial services regulation and, if so, what reforms might address it. We argue that prior to the Eurozone crisis, the general thrust of EU financial services measures reflected the UK’s traditions of liberalisation, competition and the encouragement of trade.  This was particularly so in the ways EU-level financial regulation affected other Member States much more than it affected the UK, because EU rules mirrored pre-existing UK rules.  We illustrate this with the examples of the Markets in Financial Instruments Directive and the Takeover Directive.  Furthermore, there was a traditional reluctance to over-rule the EU on financial services regulation as the UK was the centre of the largest finance / financial services industry in Europe, whilst the EU in turn offered UK firms large and growing financial services export opportunities. Since the financial crisis of 2008 and especially since the Eurozone crisis of 2010 onwards, the UK’s influence on EU-level financial services regulation has declined markedly.  In many parts of the EU the financial crisis and thus the Eurozone crisis are blamed upon “light touch” regulation failing the discipline the activities of “Anglo-Saxon” financiers in the US and UK.  For many in the EU, the UK’s pre-crisis influence upon financial regulation is seen as malign. Both in the UK and in the rest of the EU, there has been a significant change in the spirit and thrust of regulation since 2008.  But whereas in the UK the change has been towards increasing quality of supervision and strengthening market incentives, at EU level the focus has been much more upon extending scope of regulation, curbing specific behaviours, and protecting the integrity of the Eurozone.  The Eurozone is now set to have the collective weight in qualified majority voting to impose any financial regulation it chooses upon the UK, and its significantly divergent interests mean it may do so. This considerable loss of UK influence is exemplified by the UK being reduced to pursuing four legal cases in the financial services regulation area at the European Court of Justice — at least three of which it seems likely to lose.  At the same time, opportunities for financial services exports outside the EU are now growing (and expected for the foreseeable future to grow) much more rapidly than inside the EU, increasing the cost to UK exporters of an EU focus, whilst the main threats of regulatory arbitrage to the UK are less and less from other European countries and more and more from outside the EU. We consider potential reforms to EU-level setting of financial services regulation, including the extension of “double majority voting” (whereby changes to Single Market rules would require a majority of both Eurozone and non-Eurozone members to pass) and specific undertakings for forbearance from other EU Member States in respect of financial and financial services regulation.  We argue that although such measures may offer some protection in the very short term (up to around 2018) they are unlikely to be sustainable over the longer term because almost all current non-Eurozone members of the EU intend to join the euro by 2020, meaning “double majority voting” would become very close to a UK veto on any new financial regulation — and thus unacceptable to Eurozone members. To make such reforms to voting procedures viable over the longer term would require a large influx of new EU members that would not be required or expected to join the euro for many decades.  Given the change to the nature of the EU that would result and the pool of countries from which such an influx would have to come, the challenges of achieving such a large expansion would be very significant indeed. These are complex issues, and further research would be warranted in a number of areas.  But we believe the central message is clear: For EU-level setting of finance/financial services to be in the UK’s interests long-term, as well as amendments to a number of existing EU regulations, there would also need to be a set of new principles for how EU financial regulations are agreed.  Even then that would be unlikely to be viable unless the long-term membership of the Eurozone and non-Eurozone EU are much closer to balance than is currently planned.  

11/06/2014 - Review of Cost of Capital for mobile, fixed line and broadcasting price controls - Report for ComReg

Europe Economics has conducted an assessment of the weighted average cost of capital (WACC) to be applied in three Irish communications sectors (mobile, fixed-line, and television broadcasting) for the Irish Commission for Communications Regulations.  Our recommendations have been used to model the financing costs in the three industries for multi-year price controls.

18/05/2014 - The European Defence Agency publishes Europe Economics' study on R&D/R&T contracting policies in support of SMEs

The EDA has published a report conducted by Europe Economics, entilited 'Study on R&D/R&T contracting policies in support of SMEs”. The study is to identify contracting policies that would be most effective in raising the participation of defence-related small and medium sized enterprises (SME) in R&D/R&T programmes and defence equipment development projects. In particular, the study examines: incentivising SME participation in co-financed (government and industry) national R&D/R&T programmes; establishing a common requirement in national R&D/R&T contracts to integrate an SME when contracts exceed a certain threshold; and requiring or persuading primes and higher tier suppliers to open a percentage of their sub-contract business to SMEs and non-traditional suppliers.

06/04/2014 - Shelter publishes report on 'How to increase competition, diversity and resilience in the house builder market?'

Europe Economics have prepared a report for Shelter to provide analysis in support of policy recommendations which seek to address some of the barriers to growth faced by existing firms and barriers to entry for potential entrants, with the ultimate aim of increasing competition, diversity and resilience within the housebuilding sector.

25/03/2014 - Health Risk Assessment of Illegal Optical Practice

Europe Economics prepared a report for the General Optical Council to assist them in developing its strategy to address illegal optical practice.  Our report assesses the risks associated with different types of illegal practice and develops an analytical framework to compare and rank the different risks.

20/03/2014 - Illegal practice strategy consultation

Europe Economics prepared a report for the General Optical Council to assist them in developing its strategy to address illegal optical practice.  Our report assesses the risks associated with different types of illegal practice and develops an analytical framework to compare and rank the different risks.

06/02/2014 - Forfas publishes report on "Consumer Costs and Inflation" - based on work by Europe Economics

Forfas, Ireland’s policy advisory board for enterprise, trade, science, technology and innovation, has published a report on "Consumer Costs and Inflation", based on work carried out by Euorpe Economics. The report examines how consumer price levels and inflation rates in Ireland compare with those in their key competitors and identifies the primary products and services driving inflation in Ireland. It also provides a high-level assessment of the implications of consumer price levels and inflation for Ireland's national competitiveness and sets out a range of actions to enhance competitiveness.  

30/01/2014 - Three EU-Related Impacts of Scotland Leaving the UK - Report for New Direction: The Foundation for European Reform

This report examines the economic benefit to Scotland of three special arrangements that have been negotiated by the UK in its relationship with the European Union: the budget rebate, the opt-out from the single currency, and the opt-out from the Schengen border arrangements.