Better regulation proves worse for businesses

New research estimates the spiralling costs of red tape to small businesses

An extensive new report has uncovered the true impact of red tape on small businesses compared with multi-nationals.

Research conducted by the Federation of Small Businesses (FSB and the London School of Economics (LSE) shows that SMEs are hit five times harder than their big business counterparts.

According to the findings, they spend five times as many hours per employee dealing with regulations, and incur regulatory costs five times higher per employee. On average, they spend 5% of turnover on compliance – potentially tens of thousands a every year.

Worse still, most respondents thought the regulatory environment was deteriorating; despite assurances from generations of politicians from both the Labour and Conservative parties.

The report sates: “Since 1985 there have been hundreds of government initiatives to tackle red tape including over 30 reports, seven white papers and two acts of parliament.

“More than ten years ago businesses were promised a ‘bonfire of red tape’, and more than five years ago Tony Blair guaranteed that no policy proposal would be considered without a comprehensive regulatory impact assessment (RIA).”

It goes on to say that money and energy have been wasted in successive attempts to address the situation, and despite this “serious flaws” remain in the legislative process.

The FSB says the proportional costs to SME are not properly considered, referring to a study of impact assessments earlier this year by the National Audit Office.

The study found that although all RIAs considered the costs to small businesses, that all concluded that there would be none or that they would not be disproportionate.

Red tape is a huge grievance for SMEs, who claim it costs them time and money, and risks them getting into hot water if they are unable to keep up with new rules.

To remedy the situation, the FSB is calling for RIAs to take place before and 12 months after legislation is put in place, to accurately assess the damage done to small firms.

“Successive governments have made important commitments to better regulation and progress has been made in the level of advice and support offered to small firms,” said FSB national chair Carol Undy.

“But policymakers make assumptions bordering on the heroic when they are asked to quantify costs to small businesses and never take the cumulative impact of regulation into account.”

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