Regulation Reform Offers £9 Billion Opportunity For Small Firms

Small businesses spend billions of pounds and millions of hours on red tape - but regulators and the Government rarely design rules with them in mind, research by the Federation of Small Businesses (FSB) shows.

FSB’s new report, Playing by the Rules: How to reduce the cost and time small businesses spend on regulatory compliance, sets out the frustrations and costs that small businesses and self-employed people have to contend with as they try to navigate the thicket of regulation that surrounds their business.

The research indicates that the annual cost of compliance for the small and medium-sized business community is a staggering £36 billion, while the time spent grappling with compliance issues uses up 379 million hours.

These vast amounts represent countless lost opportunities for growth, as well as a week-in, week-out regulatory toll that makes just continuing to trade more difficult than it needs to be for many small firms.

The report finds strong evidence that regulators and the Government could and should be doing more to help small businesses and self-employed people find the answers and the guidance that they need.

Two in five small businesses (41%) disagree that the guidance provided by regulators is easy to understand, with a similar proportion (40%) disagreeing that guidance is easy to locate. Only one in seven small firms (14%) agrees that they get a quick response from regulators when they need help, while two fifths (41%) disagree; likewise, just one in 10 (10%) say it is easy to resolve complaints or concerns, with two fifths (40%) disagreeing.

The confusion and stress that this causes is a hidden cost of doing business, but one that should not be underestimated, as it causes immense harm to the small business and self-employed community’s ability to innovate and expand.

The Government has set a target of reducing the regulatory burden by 25 per cent over the course of this Parliament. Achieving this target could save around £9 billion in financial cost and return 95 million hours to small businesses to invest in their operations and futures.

A smaller regulatory load could also help even the odds for small businesses looking to compete with their larger peers, whose greater in-house compliance resources allow them to stay a step ahead of their would-be competitors.

Meanwhile, the pernicious growth of regulation in some industries is gradually forcing many smaller players to retreat from the market, reducing consumer choice and driving up costs.

To tame regulation and make compliance far less of a headache for small firms and self-employed people, FSB recommends the following, among other proposals:

• HMRC and Companies House should have all of their activities included within scope of the 25 per cent regulatory burden reduction target. Currently tax administration – a major source of administrative cost – is not included in the target.
  

• The Regulatory Policy Committee, an independent body that scrutinises regulations, should have its role strengthened, including by requiring regulators to submit an impact assessment to it prior to bringing in any new regulations.
  

• Small business guidance, and examples of real-life situations, should be available from all regulators.
  

• For areas where there are lots of overlapping regulators and different sets of rules, the Government should bring relevant regulators together to carry out theme-based reviews of existing rules, to get to the 25 per cent 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 per cent 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.”