Small firms in the UK’s service industry face £4 billion bill for regulation

30 June 2009

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Smaller businesses in Britain's service industry lose well over £4 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 firms across the sector pay around £4,151 million each year complying with legislation.

The figure, drawn up using feedback from members of the not-for-profit lobby and campaign group, 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 and covers a range of different types of smaller businesses, from those providing financial services to firms working in the education, health, public administration and real estate fields.

This latest issue of Referendum, which focused on ‘the cost of compliance', found that recession-hit smaller service industry firms are forced to spend an average of 41 hours of company time each month on form-filling and paperwork – the highest amount out of all four sectors surveyed.
Those with nine or less employees spend an average of 37 hours, those with between 10 and 50 employees spend around 53 hours and firms with up to 249 workers devote approximately 131 hours.

In terms of costs, complying with health and safety legislation alone was found to leave smaller service industry companies £832 million out of pocket each year. The cost of complying with employment legislation was put at £1,104 million per year, comprised of dismissals and redundancy (£84 million), absence control and management (£186 million), maternity (£128 million) and disciplinary issues at £134 million. The costs associated with legislation on employee holidays and any other remaining areas of employment legislation were put at £572 million.

The legislation surrounding waste and the environment was calculated to cost £249 million, equality and diversity £159 million, ISO and industry standards £512 million, tax £877 million and building and property £419 million.

Regionally, smaller service industry businesses in London were found to face the biggest annual bill for regulation at £765 million, followed by the South East at £715 million, the North West at £441 million and Eastern England at £415 million.
The figure for the South West was put at £368 million, the West Midlands at £330 million, Yorkshire and Humberside at £273 million and the East Midlands at £260 million. Small and medium-sized service industry businesses in Scotland pay around £235 million each year, their Welsh counterparts £153 million, those in the North East £109 million and those in Northern Ireland £87 million.

Out of four sector headings in the research based on the UK SIC, the £4,151 million overall cost of compliance for smaller businesses in the service industry category was easily the highest. The price was put at £1,157 million for construction, £1,230 million for manufacturing and £2,764 million for the TRAD sector.

FPB member Rachel Andrews, the financial director of Hertfordshire-based Andrews Computer Services Limited which supplies businesses with IT equipment, software and training, said: "Businesses should be allowed to get on with the business of doing their jobs and not spend hours and hours dotting the i's and crossing the t's, just to comply.
"The government have got to do a better job of reaching out to people to help them understand exactly what the rules are and what help is available."

FPB member Philip Parkinson, the owner of Newcastle-upon-Tyne company Philip Parkinson Homecare, said he felt as though government departments showed an "us and them" attitude when issuing rules and regulations for small firms to follow.

He said: "I take my limited resources, invest them in my business, secure it against my own home and we employ people. We do all of these things and yet the government constantly wants to interfere with my business and tell me how to operate and no help is forthcoming with all of this red tape."

FPB member Tina Bunting, from Ryehill Country Lodge in Hull, warned that the form-filling associated with running her care home was taking up valuable time which could be better spent looking after residents.

Mrs Bunting, who employs 24 people, said: "I just think the more time you spend on paperwork, the less time you spend on care. The residents' health and wellbeing should come before paperwork.
"Obviously there's some paperwork that is important but there's a lot now that feels like it's come from someone sat at their desk thinking of forms to create."

The Referendum found that, with external costs taken into account, regulation costs the UK's smaller business employers almost £12 billion per year. (£11,920 million) 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.

FPB 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.

He said: "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.
"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."

Mr Goodman 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."

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.