Red tape costs small firms £14K a year, finds research

By Lorraine Heller, 26-Jul-2011

Related topics: Legislation, Restaurants, Hotels, Pubs & Bars

Small firms in the UK are spending an average of £14,000 per year on complying with regulations, despite government initiatives to cut red tape, finds a new survey from the Forum of Private Business (FPB).

A survey of thousands of small business owners across the UK found that small firms are spending a total of £16.8bn a year in tackling red tape.

Of the FPB members who participated in the survey, 84 per cent said they are spending more time complying with legislation compared to two years ago, while 67 per cent are spending more money on external consultants to help them avoid legal pitfalls.

Cost of compliance

FPB found that the total annual cost of compliance for the UK’s smaller employer is £16.8bn, encompassing £11bn in internal costs and £5.8bn for external and contractor costs. This is equivalent to an average of £14,200 for each small firm.

“While this is a rise of just 1 per cent 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.

“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.”

Cutting red tape

Speaking at the Federation of Private Business annual conference earlier this year, business secretary Vince Cable outlined plans on cutting red tape, including no new domestic laws for three years for firms with fewer than 10 staff.

The government is also currently collating industry comments on the most onerous regulations in an effort to reduce the burden of overregulation as part of its Red Tape Challenge.

On an industry level, the British Hospitality Association has set up a task force under the chairmanship of its new president, Alan Parker, to help reduce red tape in the hospitality sector.

“Of course, red tape costs time and money, as both industry and government recognizes, so we welcome the opportunity to look at the whole issue of deregulation, in conjunction with the DCMS,” BHA told BigHospitality.

“The department has promised to work with the Task Force to cut, modify or abolish as much red tape as possible, in collaboration with other government departments, so we are hopeful that much progress will be made.”

Earlier this year, the FPB also launched its Get Britain Trading campaign, designed to raise awareness of the contribution that small and medium-sized enterprises (SMEs) make to the country’s economy, and to improve the conditions under which these businesses operate.

A primary objective of the campaign was to cut through red tape and complex tax laws to make it easier for businesses to grow.

Missed opportunities

According to FPB’s recent survey, small firms feel they have missed out on business opportunities worth £29.8bn due to the time and resources they spend on dealing with regulation.

The latest figures reveal that administering tax has become the top regulatory burden for small business owners, costing a total of £5.1bn per year.

Employment law was the second most costly burden at £4.2bn, followed by health and safety law at £3.8bn.

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