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UK Economy Loses £41bn to Red Tape according to Forum of Private Business Survey

Despite continued government promises to reduce the amount of time and money businesses spend on compliance, the average SME spends more time on compliance than in 2013, when a similar methodology was used to assess the market. Money spent on external consultants has dropped but salary increases have meant that the cost of compliance has continued to rise at a cost of 8.5% consistently since 2011.

Summary

  • The cost of compliance for the UK’s 1.2 million micro, small and medium-sized employers is £20 billion in terms of actual costs
  • The perceived cost (opportunity costs) are £41 billion
  • The salaried cost of compliance is equivalent to £14,900 per company
  • Overall the cost has risen by 8.4% with internal costs rising by 13% but external costs dropped by 5.7%
  • Members spend 15% less time on employment law and 50% less on external consultants than other UK businesses.
  • Cost of compliance for small firms is ten times that of large companies
  • Time is however now a greater issue than cost for Forum members.

Despite continued government promises to reduce the amount of time and money businesses spend on compliance, the average SME spends more time on compliance than in 2013, when a similar methodology was used to assess the market. Money spent on external consultants has dropped but salary increases have meant that the cost of compliance has continued to rise at a cost of 8.5% consistently since 2011.

More importantly, the opportunity costs of compliance have increased as the senior management team have to deal with administrative tasks as opposed to taking advantage of growth opportunities and expanding their business.

According to research by the Forum of Private Business, the total cost of compliance for employers with fewer than 250 people is estimated at £20.0 billion, an increase of 8.4% on 2013 which is equivalent to £14,900 per company.

A 3.6% increase in the time spent on compliance tasks equates to an increased internal compliance of 12.8%, with the cost spent on external consultants dropping by 5.7% to £6.5 billion. 

Employment law has now become the greatest outlay for businesses in terms of compliance, despite a decrease in the amount of time spent in dealing with dismissals and redundancy. Overall the cost of employment law is now £5.9 billion, with tax compliance costing £5.7 billion and health and safety requiring an outlay of £4.2 billion.

Changes to flexible working – most notably shared parental leave – have been problematic for micro businesses, while businesses with more than 50 employees have seen an increase in time spent on holidays, salaries and other employment issues most notably pension auto-enrolment.

The Forum’s Managing Director Ian Cass said: “Our research shows that the deregulation agenda has not been effective as the legislation removed from the statute books has been cancelled out by a small number of legal changes and a reluctance of businesses to change processes while non-compliance penalties escalate. 

“It is reassuring to see that our members spend 3% less time on compliance than other businesses and half the amount on consultants but members have reported that they need time to grow their business. 

Our members tell us that excessive red tape is a drag on productivity and there is a clear need for accelerating the deregulation agenda and incorporating tax compliance into any new initiatives. Members may have a competitive advantage over other UK businesses but need to have more flexibility to compete globally as gold plating makes UK goods and services less attractive overseas,” he said. 

As an experienced entrepreneur himself, Mr Cass feels that there is still a culture issue between bureaucrats and business owners. 

“Business owners look at opportunity costs rather than salaried cost and this would put the cost of compliance closer to £41 billion. Our elected representatives need to look urgently at what they get for this outlay as just 19% feel that the legal framework has given them control over their business compared to 31% who feel that their control has decreased. Members also reported that they might create a lovely paper trail but does this make their workplace safer or help them to deal with a tax investigation,” he added. 

The average cost of health and safety specialists amongst Forum members has dropped to £970, employment law specialists to £501 and tax specialists to £2,884. Environmental and other compliance consultants now cost the average employer £491.

“At the Forum we are working hard to ensure that communication on compliance issues is kept simple and effective. It is important that we take some of the burden off businesses as the economic climate remains fragile in so many parts of the UK,” said Mr Cass.

A spokesperson from the Government's Business Innovation and Skills Department said, 'We welcome the feedback this type of report can offer, and would encourage all businesses who have issues with specific regulations to tell us more about their experiences." 

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