Small businesses in London face £1.2 billion bill for regulation

25 June 2009

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London's small businesses lose more than £1.2 billion every year due to government red tape, new figures have shown.

Research carried out by the FPB has found that firms in the capital spend around £1,280 million each year complying with legislation.

The figure, calculated using feedback from the FPB's members, gathered as part of its quarterly Referendum ballot, means the city's entrepreneurs face the second highest bill out of a total of 12 regions for dealing with the paperwork associated with running a small business. Only businesses in the South East region pay more, spending around £1.4 billion a year dealing with red tape.

London's £1,280 million figure, based on the amount of company time – and therefore money – spent complying with laws and regulations, includes £273 million spent on health and safety legislation, £332 million spent dealing with paperwork on employment law, and £32 million on dismissals and redundancy.

The work associated with staff absences cost £55 million, while dealing with maternity matters came in at £35 million and disciplinary issues at £46 million.

The figures came as no surprise to FPB member Graham Auger, who is closing down his SE17 car servicing and repair garage partly due to the costs of complying with legislation.

Mr Auger said dealing with red tape had contributed to the excessive overheads which had forced him to wrap up Mercury Garage on Fielding Street. He plans to work as a mobile mechanic and cab driver in future – removing the possibility of him expanding the business and creating local jobs.

He said: "All these rules and regulations are getting stupid. It just takes up so much of your time trying to keep up with it – it's a big hindrance."
Adding that he believed government red tape was discouraging small businesses from expanding and taking on staff, Mr Auger said: "I didn't employ anyone at the garage but I still had a whole load of paperwork to do. It I had got people working for me it would have been even worse."

The not-for-profit FPB is now urging the Government to cut down on the burden of regulation for small businesses after this latest ‘cost of compliance' Referendum survey found that, nationally, regulation costs the UK's smaller business employers almost £12 billion per year.

The FPB's survey found that, on average, small business employers devote 37 hours each month to complying with regulations. The FPB believes that reducing the time and cost of complying with legislation must not be sidelined, particularly as many firms are struggling to survive because of the recession.

The FPB's Policy Representative, Matt Goodman, will attend a meeting of the Better Regulation Executive (BRE) tomorrow. (Friday, 26 June 2009) The meeting follows reports that the Government is not pushing through plans to reduce regulation following its scrapping of ‘regulatory budgets' that had been earmarked for individual departments.

In addition, two committees on regulation announced in April by Peter Mandelson, the Secretary of State for Business, Innovation and Skills (BIS), have still not been set up. Further, in a recent blog on its website, and ahead of the publication of the Treasury's forthcoming consultation on regulating lenders, the BRE said that ‘financial services [are] at the forefront of our issues now'.

"As part of a new department with a broader remit, the BRE must continue to put the smallest businesses at the forefront of its plans to change the culture of bureaucracy in the UK," said Mr Goodman. "Our research shows that complying with red tape remains one of the major cost burdens facing smaller businesses, swallowing up valuable time and money that could be used more profitably elsewhere."

He added: "In addition, at a time when protecting both workers and businesses should be a priority, regulations are increasingly burdensome as businesses take on more staff."

Micro businesses (0 to 9 employees) spend an average of 33 hours per month complying with regulations, small businesses (10 to 49 employees) 48 hours per month and medium-sized companies (50 to 249 employers) 131 hours – equivalent to one full-time member of staff.

Employment law is the costliest bureaucratic burden, costing small businesses £2.4 billion per year. Health and safety administration costs £2.1 billion and tax £1.8 billion per year, according to the FPB's research.

The average time per month spent on employment red tape (dismissals and redundancy, discipline, absence controls and management, parental leave, and holidays) is ten hours. For health and safety, it is eight hours. Business owners spend an average of seven hours each month on tax administration, four on building and property regulations, four on standards, three on environment and waste regulations, and an hour per month on equality and diversity.

Representatives from the BRE have been in discussions with small businesses from across the UK hoping to meet a target of saving £3 billion per year via reducing bureaucracy. While welcoming this engagement, the FPB believes that more must be done in order to meet this target.

The FPB provides a member helpline, a 24-hour legal advice service and Health & Safety and Employment Guides in order to help small businesses to comply with legislation. In addition, the organisation has recently launched an online video advice portal, www.smallbusinesschannel.co.uk, and has joined forces with Cardinus, a subsidiary of THB Group, to provide online health and safety training.

Small businesses in London face £1.2 billion bill for regulation

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