Small construction firms face £1.1 billion bill for regulation

30 June 2009

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Smaller businesses in the construction sector lose more than £1.1 billion every year due to government red tape, new figures have shown.

Research carried out by the FPB has found that Britain's small and medium-sized construction firms spend £1,157 million each year complying with legislation.

The figure, drawn up using feedback from members of the not-for-profit FPB, is based on the amount of company time, and therefore money, spent on government-imposed bureaucracy. It was revealed by the FPB's quarterly Referendum survey of members.

This latest issue of Referendum, which focused on ‘the cost of compliance', found that recession-hit construction companies are forced to spend an average of 37 hours of company time each month on form-filling and paperwork. Those with nine or fewer employees spend an average of 34 hours on it, while those with between 10 and 50 employees spend around 28 hours and firms with up to 249 workers devote approximately 131 hours.

In terms of costs, complying with health and safety legislation alone leaves smaller construction firms £277 million out of pocket each year. The cost of complying with employment legislation was put at £283 million per year, comprised of dismissals and redundancy (£41 million), absence control and management (£44 million), maternity (£18 million), and disciplinary issues at £27 million. Meanwhile, the costs associated with legislation on employee holidays and any other remaining matters were put at £154 million.

The legislation surrounding waste and the environment was calculated to cost £104 million, equality and diversity £25 million, ISO and industry standards £111 million, tax £219 million, and building and property £139 million.

Construction firms in the North West face the biggest bill for overall compliance out of 12 regions identified by the Referendum survey, at £175 million. The sector's companies in the South East are hit with the second largest bill, at £163 million, followed by Eastern England (£118 million), the South West (£110 million), the West Midlands (£108 million), and Yorkshire and Humberside (£91 million). The cost for both the East Midlands and London was calculated at £85 million, followed by £81 million for Scotland, £53 million for Wales, £51 million for Northern Ireland and £37 million for the North East.

Cardiff-based FPB member Terry Scarfe, who runs specialist metal structure manufacturers Amrob Engineering Limited, said filling out paperwork tied in with government rules and regulations was a huge burden on his firm.

He said: "It costs us a fortune just to comply and it's not improving anything – it's just part of this blame culture.

"As long as you sign a piece of paper to say it's not your fault, it's fine."

Mr Scarfe also warned that the regulations were creating more rogue construction companies which ignore the rules and can afford to undercut responsible firms.

He said: "The more legislation comes in and the more paperwork you have to do, the more people go underground.

"We apply the health and safety regulations to everything we do, but there are so many people out there who don't and don't have insurance. We're complying with all the necessary regulations, so our prices are higher and we don't get the job."

Commenting on the figures, the FPB's Chief Executive Phil Orford said: "As many people will be aware, the UK's construction industry has been particularly badly affected by the recession.

"With small building firms facing a drastic shortage of work across the country, I'm sure the £1.1 billion cost of compliance revealed through our Referendum survey will add to the sense of dismay felt by many of the industry's business owners.

"The FPB is urgently campaigning for the Government to cut down on the regulatory burden placed on small businesses, both in this sector and elsewhere, to free up owners and enable them to spend vital time and resources on pulling through the current trading conditions."

Out of four sector headings in the research, based on the UK SIC, the overall cost of compliance for smaller businesses in the construction industry was the third highest. The price was put at £1,157 million for construction, £2,764 million for TRAD businesses and £4,151 million for the services sector.

The survey found that, taking external costs into account, regulation costs the UK's smaller business employers almost £12 billion per year. The FPB is now urging the Government to cut down on red tape for small businesses and 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, attended a meeting of the Better Regulation Executive (BRE) on Friday (26 June 2009) to help put across the lobby group's calls for the legislative burden on smaller businesses to be reduced. 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 by 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, as well as a Health & Safety Guide and Employment Guide 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.

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