Red tape stifling small businesses

2004

In the latest salvo again Britain's burgeoning culture of red tape, the government's own advisors have accused bureaucrats of stifling small businesses and discouraging the creation of hundreds of thousands of jobs.

The Small Business Council, an agency of the Department of Trade and Industry (DTI) advises the government on the concerns of small businesses and reports on the effects that government policy has on them.

One if its key tasks is to help minimise the burden of regulation on Britain's 4 million small businesses, which together account for 58 per cent of private sector employment and 52 per cent of output.

But in its annual report to trade secretary, Patricia Hewitt, the SBC says that government initiatives to reduce the burden of regulation on small businesses “are not worth the paper they are written on”.

The report, published this week, calls for a major overhaul of the system of regulatory impact assessments (RIAs), which are supposed to consider the implications of new legislation on small businesses.

It also points to a DTI survey which found that seven per cent of sole traders said they had not taken on staff because of employment regulations.

If this statistic is extrapolated across the 2.7m micro businesses in the UK that have no employees, the SBC calculates that red tape has discouraged 200,000 businesses from creating jobs.

And according to SBC chairman, William Sargent, some regulations are actively harming those they are intended to assist. “As a result of increases in maternity leave and payments, for example, we believe that employers may now be less likely to take on women of childbearing age,” he said.

“We are not convinced that policymakers make much attempt to quantify accurately the costs of regulations on small firms.”

The report also recommends that civil servants should be encouraged to view legislation as a last resort and identify legislation that could be abandoned.

Figures from the Institute of Chartered Accountants in England and Wales (ICAEW) published earlier this week suggest that cost of red tape to the UK economy has risen from £6 billion to £7 billion in the last 12 months alone.

The ICAEW statistics also confirmed that smaller companies shouldered the burden disproportionately. Firms with fewer than 10 employees carried 69 per cent of red tape compared with just 3 per cent for big corporations.

ICAEW chief executive, Eric Anstee, said that the plethora of government reviews, initiatives, impact assessments and set 'red tape days' were having no impact on levels of paperwork.

"Government measures to improve access to finance, reduce skills shortages and improve the burden of red tape are falling short of their objectives," Anstee said.

The SBC report comes only a month after the government's Better Regulation Task Force (BRTF) said that over-zealous interpretation of regulations had become "a hidden menace" that was "leading to layers of red tape winding their way around businesses and the public".

Prime Minister Tony Blair also admitted to last month's CBI annual conference that the civil service suffered from "cultural problems" when it came to regulation and tended to assume that "everyone is a criminal who needs to be inspected to see if they are breaking the law."

"For decades civil servants and politicians have prided themselves in dotting every i and crossing every t when legislating administrative rules," he said. "We need to simplify inspection and enforcement, reducing the amount of duplication and overlap."

But for Britain's small businesses, it is clear that a real cultural change in government attitudes has yet to materialise.

According to a survey released last week by Bibby Financial Services, the one thing more than half (55 per cent) of small business owners and managers would do to make the UK a better place to do business would be to immediately outlaw all unnecessary bureaucracy and red tape.