Memorandum submitted by the Forum of Private
Business (FPB)
This document sets out the response from the
Forum of Private Business (FPB) to the Regulatory Reform Committee's
inquiry into Themes and Trends in Regulatory Reform.
1. CURRENT DEVELOPMENTS
The current economic situation has amplified
the impact of the regulatory burden on small businesses, taking
valuable time away from running their businesses and hindering
their ability to take advantage of new business opportunities.
These burdens can only be reduced with fundamental changes to
the way the Government drafts, reviews and enforces legislation.
Evidence from the FPB's research shows that
the time spent by businesses complying with regulation is substantial,
and can be a barrier to survival and growth of smaller businesses
in a recession. There is also concern amongst our members that
the failure of market regulation in the financial sector will
mean that more regulations are introduced for all businesses.
At present …
13% of small employers work extra hours to comply
with regulation(1)
but in a recession, survival of the business must
take precedence. This means that owners spend the majority of
their time chasing bad debts and marketing their businesses to
potential customers rather than worrying about compliance.
In 2007, the FPB(2) estimated that the amount
of time spent by a typical business on key aspects of regulation
was …
15 hours per month on tax, 14 hours
on health and safety, five hours on absence control and sickness,
four hours on dismissals and redundancy,
and 3 hours on maternity and paternity legislation.
The FPB's research(1) shows that 42% of small
and medium-sized businesses find health and safety legislation
particularly onerous in terms of compliance. Amongst businesses
termed as "proactive SMEs" by the Anderson Review,(3)
one in five owners is still uncertain about whether his/her company
is compliant. Whilst the Health and Safety Executive always caveats
any regulation with the belief that common sense would prevail,
turmoil in the financial sector has increased concern amongst
private businesses that insurers may increasingly use spurious
health and safety reasons for refusing to pay out on claims. As
a result …
89% of the FPB's members would like to see health
and safety legislation better defined and communicated.(4)
Despite the Government's efforts to understand
and lessen employment law burdens, employers continue to have
problems, particularly regarding redundancies. There is a growing
frustration that even well-run businesses are facing retributive
action for making people redundant and have sought our help too
late to prevent costly and time consuming legal proceedings. This
would partly explain why
25% of owners of smaller firms stated that they
were not equipped to deal with employment regulations, compared
to 13% who felt that they were not equipped to deal with health
and safety legislation.(3)
This evidence points to a necessary re-think
of the Government's structure around the introduction of legislation,
and its communications regarding the benefits and burdens of regulation.
Much was made of the announcement in the Budget in 2008 to
introduce a system of regulatory budgets and yet, to date, nothing
has come of those proposals. The FPB is concerned that an excellent
opportunity has been lost to provide a coherent structure for
regulation.
2. DESIGN OF
NEW REGULATIONS
The detrimental effects of a haphazard approach
to regulation has not been overlooked by smaller businesses. Owner-managers
do not see a coherent framework for regulation, but simply further
disproportional costs for small businesses. Around 88% of the
FPB's members disagreed with the flexible working regulations,
but this went largely ignored.(5) If legislation is to achieve
its desired effect without undue burden on business, the design
of new regulations must reflect the lessons learned by those businesses
and citizens who will be asked to comply with them.
First and foremost, Government's approach to
regulation should draw more extensively on the experiences of
those businesses that will have to comply with the regulation
and the organisations that represent them. The consultation process
should be strengthened to ensure this is done. Instead of relying
on impact assessments with hypothetical figures, more practical
tests with actual small businesses may provide a better idea of
what is necessary for compliance.
Second, the Better Regulation Executive's (BRE's)
oversight of the regulatory process must be reinforced. Unfortunately,
sitting as it does within the Department for Business, Enterprise
and Regulatory Reform (BERR), it still raises questions about
the efficacy of the better regulation agenda. The BRE should have
the freedom to act outside the political agenda, as the voice
of the citizen and taxpayer in the policy process. It should be
overseen by a non-partisan panel of parliamentarians and its delivery
should be reported annually to the public and both Houses.
By taking these steps to improve the process
of crafting legislation, the Government can help make its regulations
as business-friendly as possible from the point of conception.
Support for compliance and government enforcement, however, presents
a different set of challenges.
The Anderson Review points out that micro-business
employers (those employing fewer than 10 people) are less
likely to receive helpful advice from government sources.(3) This
is generally indicative of the Government's regulatory and enforcement
track record as well.
Some effort has been made, notably by the BRE
and HMRC, to further understand the "audiences" of regulation
and government services. HMRC's attempts to become more commercially
aware have improved their interactions with taxpayers and resulted
in schemes that have helped small businesses cope with the recession.
The Business Payments Support Service has been welcomed by the
business community and the number of businesses taking advantage
of the service indicates how far HMRC has come in the last 18 months.
The BRE's work to improve commercial awareness
across different departments, however, has been less successful.
The needs of the employer and the protection of the employee is
now more closely aligned than at any time in the last 15 years,
yet …
84% of small-business employers expect the time
spent on regulation to increase in 2009.(6)
This demonstrates the cynicism of owner-managers
towards regulatory reform. This cynicism was not reduced by news
that the burden of employment law(7) had reduced for businesses,
when 67%(1) felt that it had increased. This is most probably
a two-pronged issue of communication about the benefits of legislation,
and the willingness of ministers and departments to accept some
hard truths about regulation.
Communication from the Government does not adequately
convey how new regulations will improve the way owner-managers
do business. Nor is there any understanding of the effect they
have on smaller firms. Although steps are being taken(9) to improve
this, in terms of better communication by civil servants, the
regulations themselves are still unclear. They still cannot be
understood easily by owner-managers, who have no expertise and
often turn to support helplines, such as the FPB's, only after
they have made an error.
Timescales are also perceived as inadequate
for full compliance and the Government is viewed as not understanding
the pressures incumbent on owner-managers. The recently introduced
REACH Regulations highlight this perfectly, where the resources
of small, niche businesses were drained by trying to comply with
the Regulations. Such moves only served to reinforce the owner-manager's
perception that the Government does not understand small businesses,
which leads to further distrust of any new changes.
71% of business owners saw the cost of complying
with new regulations to be a significant barrier to developing
their businesses.(8)
In general, smaller businesses have developed
internal processes for coping with legislative burdens, but each
time they have to recalibrate these processes it is a time-consuming
process. Changes in legislation may only affect one particular
aspect of a businesses compliance process, but teasing out which
element is affected and making the suitable changes is difficult
for many small businesses without the proper support. Guidance
plays an important role in clarifying what an owner-manager needs
to do to comply with legislation.
The FPB would like to see new regulations minimised
for the next year and any new regulations to be supported by clear
and concise guidance that employers can use as their first step
in compliance.
By producing effective guidance, the Government
can make it easier for businesses to take the first steps for
compliance. However, further support for compliance, more often
than not, is necessary for many small businesses. The provision
of these front-line services should fall principally on the business
support organisations—not on publicly-funded solutions.
The Information, Diagnostic and Brokerage (IDB) model of Business
Link is an excellent example of how publicly-funded programmes
can direct owner-managers to the solutions that are right for
their businesses.
These are long-term solutions. In the short
term, there are steps that the Government can take to improve
businesses' ability to cope with the regulatory burden.
92% of the FPB's members(8) would like to see
general red tape slashed to help them to continue in business …
… and twice as many stated that this, rather
than a permanent cut in VAT, would be the key reform that the
Government could make to improve the business climate. Many would,
however, settle for a moratorium on legislation until the economy
starts to grow again.
However, any short-term efforts to help businesses
cope with the regulatory burden must come as part and parcel of
larger reforms. The Government should strengthen the oversight
role of the BRE by setting it beyond the reach of the political
agenda and giving it the ability to enact real change in departmental
behaviour.
By establishing a clear vision for reform, listening
more closely to the views of businesses and citizens, and taking
full advantage of the expertise offered by business support organisations,
the Government can fulfil its role without putting undue pressure
on those who must comply with regulation.
ABOUT THE
FORUM OF
PRIVATE BUSINESS
The FPB is a business support organisation,
providing its members with the tools and support they need to
grow profitably. It was founded in 1977 and is a company
limited by guarantee. It is a formal representative of small and
medium-sized businesses in this country and represents 25,000 smaller
firms, which in turn have a total of 600,000 employees. For
more information, visit www.fpb.org.
SOURCES(1) FPB
Survey on support for SMEs (December 2008).
(2) FPB Cost of Compliance (February 2007).
(3) The Anderson Review of Government Guidance
on Regulation, BERR (July 2008).
(4) FPB Referendum 185 ballot results.
(5) FPB Referendum 184 ballot results.
(6) FPB Feedback from Health & Safety Guide
2008.
(7) Employment law admin burdens survey.
(9) FPB Referendum 186 ballot results.
(9) Supporting business through better regulation,
BERR (December 2008).
March 2009
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