Red tape stifling the growth of employment

Feb 17 2005 by Brian Amble Print This Article

Employment legislation is actively discouraging small firms in Britain from taking on staff, a survey has revealed.

Despite the government's professed concern about the impact of red tape on economic growth, the UK Business Barometer (UKBB), run by The University of Nottinghamís Institute of Enterprise and Innovation, provides further evidence that employment legislation is stifling the growth of employment in Britain.

A quarter of businesses questioned for the UKBB said that they had purposely avoided growing their businesses to avoid the impact of regulation.

Almost all said that their decision was because of the impact of employment legislation.

The UKBB sister survey, the UK Business Adviser Barometer, also revealed that three-quarters of the advisers questioned had worked with businesses that had decided not to grow because they did not want to pass regulatory thresholds.

They cited employment legislation and VAT as the main reasons leading to businesses not increasing their size.

The UKBB also asked what single regulation small businesses would most want to be exempted from. Almost two-thirds cited employment regulations, with many claiming that they place a disproportionate burden on small firms.

Several highlighted the difficulties in dispensing with the services of employees (8 per cent), others cited health and safety (8 per cent), while maternity/paternity leave regulations were a concern for 13 per cent.

The UKBB research is only the latest to document the counter-productive effect of over-regulation. Last year, the government's own advisors, the Small Business Council, accused bureaucrats of stifling small businesses and discouraging the creation of some 200,000 jobs.

Meanwhile a poll last December by financial services firm Bibby found that almost three quarters of smaller firms polled said that keeping up with the tide of red tape would be their biggest hurdle in the coming 12 months.

Liz Rose, an associate at the Institute for Enterprise and Innovation at the University of Nottingham, said: ďWhat the government wants to do is look more closely at the turning points in legislation, when micro businesses begin to resemble growing business.

"When the extra legislation kicks in the cost can be huge for smaller companies.Ē