Cost of red tape reaches £16.8bn despite government schemes, says FPB

27 July 2011

Research carried out by the Forum of Private Business (FPB) has found that small firms are spending more time and money on complying with regulations - £16.8bn per year to be exact - despite the government’s legislation-busting initiatives to date. In all, 84% of FPB members reported an increase in time spent complying with legislation since 2009, when the FPB’s previous ‘cost of compliance’ referendum survey took place.

Jane Bennett

Based on data provided by members who took part in the survey, the total annual cost of compliance for the UK’s smaller employer is £16.8bn - £11 billion in internal costs and £5.8 billion for external contractor appointments – which is £14,200 per firm on average.

“While this is a rise of just 1% compared to two years ago, the increase is greater in real terms because economic activity, which drives the need for compliance, has shrunk significantly since the 2009 survey was carried out,” said the Forum’s head of campaigns Jane Bennett (pictured).

“Despite several government initiatives – some more effective than others - it is clear that we are heading in the wrong direction as far as reducing regulation for small business owners is concerned. We simply want these measures to work properly and for the voices of the UK’s business owners to be clearly heard.

“We also want the authority of the Local Better Regulatory Office (LBRO) to be maintained following its move into the Government’s business department, and targeted support, sympathetic enforcement and grading of compliance would be helpful.”

Ms Bennett added: “The Regulatory Policy Committee has been established to ensure legislators take full account of the impact of regulation on small businesses. We fully support its work in rejecting inadequate impact assessments and recommend it continues to refuse to endorse any regulations that have not taken into account the impact they have on small businesses.”

The Forum’s headline Get Britain Trading campaign highlights the barriers to growth created by over-regulation in the UK.

As part of the campaign, politicians have been invited to attend ‘work experience’ placements at businesses in their constituencies. It is hoped that giving decision makers direct experience of the challenges of running a business via the Forum’s ‘Business Buddy’ scheme will lead to reduced regulation and other pro-enterprise measures.

According to the survey administering tax has become the top regulatory burden for small business owners. Tax-related regulation was deemed to be the most costly area of red tape, leaving smaller employers with a bill of £5.1bn per year. Employment law was second at £4.2bn, followed by health and safety law at £3.8bn.

These results were quite different compared with the 2009 Cost of Compliance survey, which put employment law in first place, followed by health and safety in second and tax third.

The survey also found that Forum members estimate they have missed out on business opportunities worth £29.8 billion due to the time and resources they spend on dealing with regulation.

Other impacts of compliance
One in five (21%) Forum members surveyed feel that the time and cost they spend on compliance has resulted in poorer business performance. In all, 18% believe it impacts on the motivation and even health of employees and 5% feel that compliance hindered employment opportunities in the future.

In all, 16% of businesses said they have actually seen an increase in the control they have over their business as a result of regulation. However, more than twice as many respondents (36%) believe that being made to comply with legislation has left them with less control.

The research also found increased frustration with the government for its failure to reduce red tape after several years of apparent inaction.

In fact, they are concerned that overall legal requirements placed on smaller employers have increased since the Coalition came to power. There also appears to have been no improvement in the guidance, explanation and support small firms are given when new laws are introduced.

In addition to the government’s red tape challenge, where people are invited to post online the regulations they find most onerous, the Regulatory Policy Committee is set to publish a paper on the effectiveness of Whitehall’s regulatory impact assessments for the first time since its inaugural report in March 2011.