Small and medium-sized businesses collectively spend £36 billion and 379 million hours a year dealing with red tape, new research reveals.
Regulators and the government rarely design rules with small firms in mind, the report by the Federation of Small Businesses (FSB) said, and reducing the regulatory burden by 25%, the government’s aim, could save SMEs an annual £9 billion and 95 million hours.
Two in five small businesses said the guidance provided by regulators is not easy to understand, and 40% said it is hard to find. Only 14% agreed that they get a quick response from regulators when they need help, and just one in 10 said it is easy to resolve complaints or concerns about red tape.
The confusion and stress caused by complying with rules is a hidden cost of doing business which causes “immense harm” to small businesses’ ability to innovate and expand, the FSB said.
In some industries, the report added, “the pernicious growth of regulation” is forcing many smaller players to retreat from the market, reducing consumer choice and driving up costs.
To make compliance far less of a headache for small firms, the FSB outlined recommendations.
Among them are HMRC and Companies House should have all of their activities included within scope of the 25% regulatory burden reduction target. Currently tax administration, a major source of red tape cost is not included in the target.
The Regulatory Policy Committee, an independent body that scrutinises regulations, should have its role strengthened, the FSB said, with small business guidance and examples of real-life situations made available from all regulators.
For areas where there are lots of overlapping regulators and different sets of rules, the report said the government should bring relevant regulators together to carry out theme-based reviews of existing rules, to get to the 25% reduction target.
Tina McKenzie, FSB’s policy chair, said:
“Regulation is a loaded word when it comes to small businesses. We all recognise that rules are needed to ensure that businesses of all sizes have a fair chance to compete, and to protect customers.
“But our research strongly indicates that the pendulum may have swung too far in the opposite direction, loading small firms and self-employed people down with swathes of red tape and preventing them from innovating and growing.
“If the enormous sums and time spent on compliance – £36 billion and 379 million hours across the small business and self-employed community – could be cut by the 25% target the government has set itself, small firms would benefit enormously. Think of all the time and money that could be invested in new products or processes, or expansion, rather than being used up trying to work out how an obscure or confusing rule applies to a particular small firm’s situation.
“Past governments have made all the right noises about simplifying and easing regulation, but their efforts have fallen short of what’s needed.
“A joined-up approach from the government would be highly helpful, if perhaps easier said than done. Regulators themselves also have a huge part to play, and their commitment to helping small firms with compliance needs to be more than lip service.
“The Regulatory Policy Committee is a vital source of independent scrutiny, and its role in examining proposed regulations and assessing their impact on businesses and growth should be strengthened, to ensure that new requirements are fit for purpose, and not over-burdensome.
“If the government and regulators get it right, millions of hours and billions of pounds will be returned to the small business community to invest in growth and innovation, and helping to get our economy out of the doldrums.”