Memorandum from the Federation of Small
Businesses (FSB) (RL 01)
1. EXECUTIVE
SUMMARY
1.1 The Federation of Small Businesses (FSB)
research demonstrates that the Licensing Act (2003) is fundamentally
flawed with regards to small businesses. The problems are principally
associated with fees, bureaucracy, and disparity in the actions
of the implementing local authorities. A lack of adequate consultation
may also have contributed to the difficulties with the new regime.
All SMEs will have experienced a price increase of 100% in the
cost of their licence. Some SMEs have experienced a fee increase
of nearly 400%.
2. INTRODUCTION
2.1 The FSB is the United Kingdom's (UK)
leading non-party political lobbying group for small businesses.
The FSB exists to promote and protect the interests of all who
own and/or manage their own businesses. With over 190,000 members,
the FSB is the largest organisation representing small and medium-sized
businesses in the UK. We welcome the opportunity to contribute
written evidence to the Committee's inquiry into re-licensing.
2.2 Of its 190,000 members, the FSB is aware
of approximately 20,000 members who are affected directly or indirectly
by the Licensing Act (2003) because of the nature of their businesses.
Approximately 10,000 of our members run licensed premises or trade
within the entertainment industry, of which 5,500 are publicans.
Our membership therefore constitutes at least 17% of the 60,000
businesses that were required to convert their licence before
6 August 2005, or be subject to applying for completely new one.
2.3 The FSB has four main areas of concern
with the new regime:
— The lack of a balanced dialogue with
small businesses about the new regime.
— The level of bureaucracy of the new
regime.
— The disparity of implementation between
local authorities.
3. INITIAL THOUGHTS
AND VIEWS
ABOUT THE
SYSTEM
3.1 The principle behind condensing legislation
into one primary legislative Act is, of course, to simplify and
consolidate the Law. The standardisation of regulation may seem
like an attractive proposal therefore and the FSB has been broadly
supportive of that principled approach. However, it is the implementation
of the Licensing Act (2003) where problems have arisen. The new
licensing regime has adversely affected small businesses. With
regard to the fees system in particular, we consider that the
new regime was not properly thought-out and was implemented with
some haste.
3.2 The dialogue with small business associations,
sports clubs representatives and other bodies representing businesses
adversely affected by the new regime was lacking until it was
too late to make amendments to the new regime. In any event, small
business associations, such as the FSB, had to approach the DCMS
themselves to start up a dialogue.
3.3 The FSB's initial consultation response
to the Department for Culture, Media and Sport (DCMS) about the
draft regulations and Order to be made under the Licensing Act
(2003) stated that "a more business-friendly approach to
the implementation of the regulations" would be desirable
and that "the FSB acknowledges the need for creating a uniform
format, but suggests that the transitional period is unnecessary
and bureaucratic. These licences should be updated to the new
format as and when they expire." Unfortunately, the policy
of introducing the new licensing system as and when licenses expired,
was not adopted by the DCMS. It appears that the new regime was
driven through by central Government, without adequate thought
as to the requirements of local Government.
4. THE LEVEL
OF BUREAUCRACY
OF THE
NEW REGIME
4.1 The FSB has conducted a considerable
amount of research since February 2005. The members that it has
come into contact with on the issue of the new regime have predominantly
been members who already had a liquor licence and needed to convert
it by 6 August rather than apply for a new licence by 24 November.
This marries well with the nature of this inquiry.
4.2 The most oft-cited problem with regards
to bureaucracy has been the length of the licence application
forms. The form to apply and/or convert the alcohol licence is
21 pages long. If converting a licence, only seven pages of the
form are actually relevant. However, the form still needs to be
read and analysed before it can be completed. The length and complexity
of the form is a barrier that SMEs face in comparison to a large
corporation with a legal department to fill their forms in for
them. FSB research has shown that SMEs spend five times more hours
per employee than large firms on regulation.[1]
4.3 In addition to the length of the forms
and the difficulties that SMEs have had completing them, is the
issue of floor plans, sound-proofing and other measures that some
businesses have been required to introduce if they wished to vary
their licences. This is an additional expense that has not been
well-publicised. The costs for small businesses requiring a licence
to sell alcohol has increased sharply and architects' plans and
the cost of sound-proofing premises further compound this. One
member stated that whole process would cost him "in excess
of £4,000." This is a clear demonstration of a system
that has not been properly thought through and has not taken account
of small business needs.
4.4 In the words of another member: "I
am working from my home with only a computer. I will not be selling
directly to the public from my house or storing any significant
amount of alcohol at my house. Unfortunately the new rules do
not distinguish this type of business and I have to perform seemingly
absurd actions like:
— Submitting a scale plan of my house;
why? I'm not changing anything merely working from my bedroom.
I will have to pay a surveyor to do this.
— Posting a "Pale blue" notice
outside my house telling people what I'm doing; why? this will
only attract the attention on undesirables who will think I have
lots of whisky in my house!!! Do you know how hard it is to get
a small amount of pale blue paper? It's not something I'll ever
use again.
— Posting an ad in the paper telling
people what I'm doing and my address!"
5. THE DISPARITY
OF IMPLEMENTATION
BETWEEN LOCAL
AUTHORITIES
5.1 There are over 400 local authorities
who have been tasked with implementing the new Act. The FSB believes
that some difficulties have arisen because of differences in implementation.
5.2 Leading up to the 6 August deadline,
the FSB's research showed that generally, local authorities with
good guidance and clearly accessible information on their website
had had a better response rate than those that did not offer good
guidance and in some cases, no guidance at all. Local authorities
who were particularly committed to ensuring the Act was implemented
in the spirit within which it was intended are: Kingston; Swindon;
Epsom and Ewell. The week before 6 August, Kingston had received
50% of possible applications to convert; Swindon had received
60% and Epsom and Ewell had received 66%. The figure of 66% was
one of the highest. The council with the highest receipt of applications
the week before the deadline was South Hams in Devon, receiving
77% of all applications. Croydon council, which had no specific
guidance on its website, received just 30% of possible applications
to convert in the week before the 6 August deadline.
5.3 The Licensing Officers have also conducted
business differently. This may be a matter of subjectivity, but
the FSB believes that the DCMS has not been the guiding department
that it should have been. The FSB considers that local authorities
(and have spoken to Licensing Officers who have confirmed that
this has been the case) have been left largely to their own devices,
because of the diversity of local authorities in England and Wales,
and their different requirements. The FSB has heard from several
members with problems to this effect:
"I had all my documents with me. Everything
was in order. The only thing that I did not do was get the back
of my passport photos signed by someone known to me who would
state that it was a correct likeness. This was the second time
that I had brought in a form to the council. The first one got
`mislaid'".
"However, those of our guests that do like
a glass of wine with their evening meal may very well choose to
stay somewhere else. Thus we lose, not just a few pounds in drinks
sales, but also the income from meals and bed and breakfast. I
have also heard that we cannot get round this problem by allowing
guests to bring in their own drinks, as West Norfolk is interpreting
the regulations in such a way that we would need to be licensed
even for this."
5.4 Where the FSB has some sympathy for
local authorities is where they have had to institute new ways
of working and, in some cases, new departments. New staff have
been recruited and new databases set up. Most local authorities
are still over-burdened with the level of applications from 6
August. Many local authorities have called for the 24 November
deadline applications to be in by the last week of September to
ensure adequate time for processing the forms. If the FSB's suggestion
of renewing licences as and when they expired had been adopted,
Licensing Departments would not have been overwhelmed in the run
up to 6 August or suffering a backlog now. A slower introduction
would also have enabled their processes to be instituted properly
before being overwhelmed by the volume of applications received
in a matter of days before the 6 August.
5.5 The large increase in applications to
convert licences in the last week may have also arisen because
of the system itself. If you applied for a licence on 7 February
2005 and received it within one month, it is valid from the date
received and then has to be renewed exactly a year after that
date, not on 6 August. This is not a problem for a large pub company
with funds readily available, but it is for a smaller concern.
An SME with a functional licence is more likely to operate under
that licence for a further six months than to apply to convert
their licence as soon as they were able to. This is because of
the cost implication involved.
6. THE FEES
LEVEL
6.1 As noted in the introduction, the FSB
considers that the Licensing Act (2003) was implemented with considerable
haste and was not properly thought through. The FSB feels that
this is the case with particular regard to the fees system.
6.2 The system is supposed to be self-funding.
That the fees must therefore be calculated as fairly as possible
makes sense. Aligning the fees system to the current business
rates regime may be considered to be sensible, but the business
rates system is not flawless. The current business rates system
it is not related to the ability to pay - the only major (business)
tax so constructed. In addition, business rates are proportionally
a greater burden on small firms than large ones (often the third
largest expenditure after salaries/wages and rent payment) and
the system of local government finance itself is also under review.
6.3 The flaws mentioned above have been
replicated under the new licensing fees schedule because it is
a blanket application. It has not fully considered the impact
on businesses with a very low rateable value or businesses that
do not make the bulk of their profit from alcohol sales, and this
has impacted negatively on FSB members and others.
6.4 Some SMEs (in particular those with
a low rateable value who do not make the bulk of their profits
from alcohol sales) have suffered an increase in fees of over
300%. This is unacceptable. Every SME in the first bracket of
rateable value will have experienced an increase in alcohol fees
of over 100%. At the other end of the scale, costs for larger,
more profitable chain pubs and nightclubs have been considerably
reduced under the new system. The present fees structure demonstrates
a disproportionate cost levied against SMEs.
6.5 The FSB should like to see a genuine
sliding scale for licensing fees. As noted above, the first bracket
of rateable value runs from £4,000 to £33,000. The difference
between the two values is large. To charge the same price for
one business with a rateable value of £4,000 and another
with a rateable value of £33,000 is not properly representative
or cost-reflective. To put this into context, firms with 1-2 employees
spend 4% of annual turnover on compliance and businesses with
under 20 employees experience compliance costs that are 35% higher
than firms with over 50 staff.[2]
6.6 The FSB welcomes the fact that there
is a Small Business Rate Relief scheme in England, but unfortunately
it does not apply to Wales (Scotland and Northern Ireland have
slightly different systems). The relief scheme applies to businesses
with a rateable value of up to £15,000 (£21,000 in the
London area) but a similar policy has not been applied to the
licensing regime.
6.7 Our long established policy on business
rates is to extend the banding levels of the current scheme for
solely occupied properties up to £25,000 rateable values
and thence to £50,000 rateable values.[3]
6.8 The new fees system has resulted in
some SMEs selling alcohol at a loss. One member used to make £89
profit a year from selling alcohol at her guest house. Under the
new system, she sells alcohol at a loss because her customers
expect the service of a small bar. Another member runs a florist
shop. Under the new system, he has to double the amount of champagne
he sells to make a profit. Many other SMEs are in the same position.
6.9 Please see below for some quotes from
FSB members:
"the cost in the future for my new combined
licence will be 146% higher, that is nearly 2½ times what
I am currently paying".
"there is also a requirement to submit plans
at 1:100 scale (rather than simply using existing liquor licensing
plans lodged with the licensing justices) with applications to
convert to the new system which also adds hassle and some hundreds
of pounds of additional cost".
"The cost hitherto for this licence through
the old Magistrate Court administered system was £30 for
a three year period. Now I am faced with the requirement to hold
a Personal Licence at a cost of £35 for 10 years and a Premises
Licence cost in the first year of £190 and then renewable
at £180. The other potential costs involve the need to provide
scaled drawings of the premises which for some business may involve
considerable extra architects cost and possibly legal costs in
the completion of the licence application forms."
7. CONCLUSION
7.1 The Licensing Act (2003) seemed to be
a good idea in theory. It should have opened up the night-time
economy and allowed for greater flexibility in the business of
licensed premises. What it has achieved for SMEs thus far, is
a huge increased cost burden and confusion, especially for licensed
premises such a florists, that do not make the bulk of their profit
from alcohol sales; a burdensome form-filling exercise that takes
time and effort. The FSB is aware that some of its members may
not renew their licences and already two members are closing down
their businesses because of the cost of implementing the new regime.
These members are the ones that we are aware of, but there may
be many other small businesses in the same position. This is the
undesired effect of the new regime and one which has affected
a considerable amount of businesses and will continue to do so
if the status quo remains.
1 Professor Robert Baldwin, Better Regulation-Is it
better for business?, an FSB publication, September 2004. Back
2
Ibid. Back
3
Business Rates: the small business perspective, FSB April
2005, p 4. Back
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