Memorandum submitted by the Federation
of Small Businesses
INTRODUCTION
1. The Federation of Small Businesses (FSB)
welcomes the opportunity to respond to the Regulatory Reform Committee
Inquiry into Themes and Trends in Regulatory Reform.
2. The Federation of Small Businesses is
the UK's leading non-party political lobbying group for UK small
businesses existing to promote and protect the interests of all
who own and/or manage their own businesses. With over 215,000 members,
the FSB is also the largest organisation representing small businesses
in the UK.
3. The FSB is supportive of the principles
driving the better regulation agenda and agree with the link between
regulatory burdens and its impact on business growth/costs. The
FSB's own research demonstrates that legislation is disproportionately
burdensome to micro businesses and is perceived as a serious barrier
to growth.[8]
4. Anecdotal evidence from FSB members and
recent research indicates that both practically and perceptually
the Regulatory Reform Agenda has not delivered for small businesses
and many consider that Regulation will increase.[9]
SMALL BUSINESSES
AND REGULATION
5. The FSB and its members fully understand
the need for some regulation not only to protect themselves and
employees but also because it can make good business sense; an
example would be the national minimum wage which is now viewed
to have created a fair playing field for all businesses.
6. The key issue is the cumulative impact
of regulation on small businesses and the burden of the administration,
especially in terms of the amount of paperwork but also the frequency
with which it must be completed. In 2007 an FSB report found
that on average an extra 7 hours per week was spent by small
businesses filling in forms and reporting to regulators.[10]
Members said that they would spend this extra time productively
increasing training and other investment opportunities; this would
clearly be of benefit to the economy. In 2005 we found that
67% of respondents to our survey "Inspector at the door"[11]
reported that there were moderately serious to very serious costs
involved in form-filling and providing information to regulators.
Anecdotally small businesses are also concerned with the speed
with which these forms are changed, as this leads to a greater
burden in terms of re-education.
7. A YOUGOV survey in 2006 found that
47% of small firms found excessive legislation to be a challenge
to their growth. This concern was second only to a lack of money
for investment.[12]
And in 2007 BERR found that 60% of small businesses found
regulation to be a barrier to growth.[13]
RECENT DEVELOPMENTS
8. Whilst there has not yet been any research
into how small businesses feel they are being affected by regulation
in the context of the current economic environment, certain assertions
can be made.
9. Our figures strongly suggest that small
businesses find regulation to be an increased burden on their
work and suggest that the fear of regulation will often be a barrier
to the growth of the businesses in so far as they will be reluctant
to take on more staff.
10. The FSB's employment survey published
in October 2007 showed that the business community is "deterred
from creating employment opportunities by the threat of legislation"
with over a third citing the complexity of employment legislation
and the overall burden of red tape as key factors.[14]
11. The findings of the FSB's health and
safety survey in June 2007 were even more emphatic, with
72% of businesses stating that they found that health and safety
administrative requirements had become more bureaucratic. The
volume of health and safety legislation was also cited as a deterrent
to businesses employing more people.[15]
12. This fear can only be increased when
the economy is in difficulty and therefore the need to speed up
regulatory reform and create a cohesive, cross-departmental approach
is even greater. This will also be the case in the wake of the
financial crisis as businesses struggle to regain a footing in
the market and build their businesses.
13. The FSB has called upon the Government
to impose a moratorium on new regulations that will negatively
affect small businesses such as extending flexible working for
parents of children up until the age of 16 and increasing
staff holidays. This is a time when small businesses should be
given as much support as possible. It is essential that the Government
commits to a combined approach of halting the commencement of
new regulations with adverse effects on small businesses and speeds
up and improves the regulatory reform agenda.
THE EXTENT
TO WHICH
THE GOVERNMENT
HAS DEVELOPED
A COHERENT,
REGULATORY REFORM
STRATEGY THAT
CONSIDERS THE
SPECIFIC NEEDS
OF SMALL
BUSINESSES
14. The key problem with the existing regulatory
framework, despite recent reform legislation, is that there is
still too much; it can be complicated and often overlaps regulations
that already exist elsewhere. Members have reported that a great
deal of equality and discrimination regulations overlaps. The
balance therefore is achieved through simplifying regulations
and cutting back on the many unnecessary regulations. Business
success will be achieved through ensuring that only those businesses
that intentionally and continually break the law are affected;
whilst those small businesses that are so essential to the economy
are given the freedom that they need to prosper.
15. Anecdotal evidence from FSB members
suggest that few are experiencing any easing of their current
regulatory burden. The perception is that any reduction in one
area is simply replaced by further regulation in other areas.
This is backed up by the NAO report into Reducing the Cost of
Complying with Regulations, which demonstrates that businesses
lack confidence in the Government's ability to succeed in reducing
regulatory burdens on business and deliver real benefits for business.
They cite that 75% of businesses consider that regulation will
in fact increase.[16]
16. When assessing how burdensome some regulations
are, especially considering administration, FSB members named
Health and Safety as one of the most problematic with 60% claiming
that the Management of H&S at Work Regulations are quite or
very burdensome.[17]
These findings have been backed up by the annual BERR small business
survey in 2007 which stated that 60% found regulation to
be a burden.[18]
In a survey of members in 2007, the FSB found that many were concerned
about the cost of complying with such regulations, both financially
and in terms of time.[19]
Clearly despite the regulatory reform agenda, the burden is still
too great, but also created by external factors such as court
rulings and insurers.
17. The current regulatory reform strategy
does not have the appearance of a cohesive strategy for improving
the conditions for business success. There is a concern that these
measures are often looked at and then implemented on an ad hoc
basis that can be confusing and lacks a systematic and thorough
approach. Regulatory reform is an essential part of government
support of small businesses and must be one of the priorities
alongside encouraging credit.
18. Overall the Government has failed to
completely understand the specific needs of the small business
community and therefore has not been able to design regulations
that are affective for their business success. The Anderson review,
published in 2009, does provide a great deal of positive guidance
which should be used as an important step forward. In particular
the FSB is supportive of the review's recommendation that disclaimers
of responsibility on advice provided by Government on regulations
needs to be removed as they create uncertainty for Small Businesses.
IMPLEMENTATION AND
ENFORCEMENT
19. The FSB does not believe that the Government
has achieved the implementation of regulations in a proportionate
and effective manner. The key issue is the lack of a cohesive
strategy across Whitehall. Whilst some departments are very aware
of the need for regulatory reform and are active in trying to
reduce burdens and simplify legislation, some appear to be unaware
of the impact that they are having on small businesses and many
propose legislation that actively works against it.
20. The NAO recommends that all Government
departments need to work more directly with businesses to understand
their concerns. Furthermore, they suggest that the BRE needs to
do more across departments to ensure consistent delivery of its
objectives.[20]
21. Anecdotally members have also told us
that they feel as though many Government departments are failing
to do thorough enough Impact Assessments on new regulations. IAs
are an extremely important tool for allowing small businesses
to be consulted and are a way of letting Government know what
the affects of new regulations will be before they are implemented.
It is important that IAs are used effectively by all departments.
22. Due to a lack of forward thinking it
is often felt that the practicalities of implementing regulations
are not considered properly by Government. For example our members
feel that they lack the resources to be able to handle all of
the necessary paperwork for health and safety regulations where
as much larger firms don't have such restraints and are able to
spread the cost over a much larger work force.
COMMON COMMENCEMENT
23. We are very supportive of the Government's
policy of introducing Common Commencement dates as a way to simplify
the introduction of regulations but also to allow businesses to
be more aware of new developments. We would, however argue that
again there needs to be a more cohesive approach across Government
so that all departments sign up to CCDs.
CONCLUSION AND
RECOMMENDATIONS
24. In conclusion, the FSB welcomes the
Government's strategy and its principles to improve the regulatory
environment for the business community. However, evidence to date
demonstrates that there is still some way to go as far as small
businesses are concerned.
25. We consider that further work is required
to change business perception about the impact of the better regulation
agenda and to gain a greater understanding of business concerns.
RECOMMENDATIONS
— The Government should ensure that it
takes small and micro businesses into account during the legislative
process and tailors legislation and associated guidance to their
needs. All legislative thinking should start small and work its
way up.
— More needs to be done in terms of measuring
and improving the perception of regulatory changes among the small
business community. More frequent audits could provide a clearer
assessment of progress.
— The Impact Assessment process for any
new legislation should be a robust one which specifically analyses
and quantifies the potential impact and costs of new legislation
on small businesses.
— Constant review of the affects of legislation
to ensure that no businesses type is disproportionately affected.
— Greater advise to highlight regulation
and how it should be implemented on regular occasions not just
when it commences to ensure that all businesses are up to date.
— Ensure all departments are aware of the
affect that their legislative programmes can have on small businesses
and commit to regulatory reform across the board.
— Approach new legislation and regulatory
reform with a clear idea of what success will look like, what
is hoped it will achieve.
March 2009
8 "Better Regulation … is it better
for Business?" p 8 written for the FSB by Professor
Robert Baldwin, 2007 Back
9
"Reducing the Cost of Complying with Regulations: The Delivery
of the Administrative Burdens Reduction Programme" National
Audit Office, p 33 2007 Back
10
What would you do with an extra 7 hours, FSB, 2007 Back
11
Inspector at the Door, FSB, 2005 Back
12
SMEs in the UK Seizing the Growth Challenge, p13 2006 Back
13
The Annual Survey of Small Businesses Opinions 2006-07, BERR Back
14
Employment Law-Key Facts-FSB, 2007 Back
15
Whatever Happened To Common Sense -FSB, 2007 Back
16
"Reducing the Cost of Complying with Regulations: The Delivery
of the Administrative Burdens Reduction Programme" National
Audit Office, 2007 Back
17
Whatever Happened to Common Sense?-FSB 2007 Back
18
The Annual Survey of Small Businesses Opinions 2006-07, BERR Back
19
Whatever Happened to Common Sense?-FSB 2007 Back
20
"Reducing the Cost of Complying with Regulations: The Delivery
of the Administrative Burdens Reduction Programme" National
Audit Office, p9 2007 Back
| 
