U.S. firms even more concerned about tax and regulation than those in the UK

Feb 28 2006 by Brian Amble Print This Article

A common refrain of British business owners is that they wish the UK tax and regulatory environment was more like that of the USA. But according to new research, companies in the United States find running a business just as challenging - if not even more so - than their counterparts in the UK.

Despite the well-known discontent of British firms over 'red tape', it turns out that American firms are even more concerned about taxation, legislation and regulation as a constraint on their ability to innovate; and surprisingly, they are also more worried about a lack of skilled labour and getting access to finance than British firms.

These unexpected findings emerged from the Cambridge-MIT Institute's International Innovation Benchmarking research project, which has been quizzing 3,660 companies on both sides of the Atlantic for the past three years about what they do to make themselves innovative and how they perform as a result.

They also seem to contradict a raft of research showing the U.S. to be the most competitive place in the world in which to do business.

Last year's Trading Places Competitiveness Index report from Deloitte, for example, put the U.S. at the top of the competitiveness league with the UK sixth out of 25, its prospects threatened by high taxes and excessive regulation.

But the findings will not come a surprise to everybody in the U.S. According to the Competitive Enterprise Institute (CEI), a Washington-based think-tank, regulation is costing the US economy a record $877bn (£482.3bn) a year.

The cost of this amounts to some 7.6 per cent of US gross domestic product (GDP), the CEI estimates. On top of that, agencies spent $36.3bn merely to administer and police the regulatory state in 2004, taking the total burden to $913bn.

These regulatory costs were equivalent to 38 per cent of all 2004 financial year federal spending. Taking all spending and regulatory costs into account would take the federal government's share of the economy to around 27 per cent of GDP, the CEI have estimated.

Another surprising finding from the Cambridge-MIT research is that more UK than US businesses use universities as a source of knowledge for innovation - two-thirds of UK businesses compared to one-third of US firms. Yet strangely, they value such relationships less highly than US businesses.

Professor Alan Hughes, Director of Cambridge University's Centre for Business Research (CBR) and one of the principal investigators, says: "In America, for example, firms both use internships as a link with universities more frequently and rate them more highly than UK firms: this is a key people-based link between industry and the science base that is relatively neglected in the UK."

CBR's Dr Andy Cosh, the project's director, added that there is lots of noise about university-industry links in the UK, but less action than there is in the U.S.

"UK companies are more likely to get involved in some form of university-collaboration, but the U.S. companies that collaborate with universities are more likely to rate this as important, and they devote more of their innovation expenditure to such collaborations," he said.

On the whole, however, U.S. companies are much more likely to have introduced novel innovations (those new not just to the company but also the industry) than their UK peers.

British businesses in telecoms, computer software and R&D consultancy, are ahead of their U.S. counterparts
But the exception to this is in the high-tech services sector, where the report found that British businesses in telecoms, computer software and R&D consultancy, are ahead of their U.S. counterparts.

One finding that will not raise any eyebrows is that U.S. companies face more competition than UK firms. Nevertheless, UK firms have more overseas competitors and are likely to have to deal with the complexities of overseas trade sooner in their lifespan than U.S. firms.

A higher proportion of UK companies get government support - this is particularly marked amongst the largest UK businesses, with 1,000 or more staff. But once again, the picture is more complicated than this, with the amount received per company much higher in the U.S. both in terms of the absolute amount they get, and the percentage of sales that it represents.

And while only half as many small businesses in the U.S. receive government financial assistance for innovation, the amount they receive is on average five times larger than that received by UK companies. It also represents a proportion of their R&D spending (38 per cent), more than three times greater than that for UK firms.

Ian McCafferty, chief economic adviser at the CBI said that he was surprised by the results.

"I was surprised by the data from this survey on 'innovation inputs' that suggested that firms in the US find life just as challenging, and in many cases harder than those in the UK, particularly in areas such as workforce skills, access to finance, regulation, and even technology-related factors.

"Clearly the popular impression of the US - that it offers a much better climate for innovation than the UK - does not fully stack up."