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Red tape and gold-plating strangling small business growth

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The Federation of Small Businesses (FSB) and the Foreign Policy Centre (FPC) have joined forces to warn the Government that the current burden on small firms from red tape and gold-plating is holding back small business growth.

The warning follows the launch of a report that examines, in detail, for the first time the extent of so-called 'gold-plating' - where EU regulations, during transposition to UK law are extended or applied earlier than intended - on regulation for UK businesses. This can put UK businesses at a huge disadvantage when competing against their EU counterparts.

The organisations believe that the problem of red tape and gold-plating has to be addressed now before it is too late. Small businesses produce half of the UK’s GDP, so if small businesses fail to expand or, more dramatically, collapse in the future there would be a huge negative impact on the British economy.

The report recommends that:

  • The Government should set up a central body, independent of Government, to assess the potential burden of all new legislation.
  • This body will conduct improved risk assessments that focus resources on the most relevant businesses as outlined in the Hampton Review.
  • This independent body should be involved in the legislative process at all stages. There is a case for its representatives to attend legislative meetings on an EU level and identify potential problematic areas early in the process.
  • There should be retrospective Regulatory Impact Assessments (RIAs) on existing laws examining not only envisaged costs but also real costs to businesses.
  • Clear and unambiguous language of regulations should be a key priority for legislators as many small businesses complain about confusion around what is required from them. Jargon should be confined to the dustbin.
  • Once the Davidson review is published, the Government should outline a series of steps it will take to review existing legislation that has been over-implemented or gold plated.
  • The Government should consider ways to support Germany in its effort to make the Better Regulation agenda an EU priority.
Commenting on the release of the report, Tina Sommer, FSB EU and International Affairs Chairman, said: “If regulation is prepared carefully, with implementation and enforcement carried out proportionately, then the protections for workers or the environment can be achieved without putting the economic well-being of the country at risk. Our small business members cannot afford the failure to tackle the red tape burden to continue any longer.

“Complying with regulations costs five times as much and takes five times as long for small businesses as it does for large firms. Our research has found that two thirds of small firms want to grow in the next five years but half of all small businesses see excessive regulation as a serious barrier to that growth.

“The cumulative burden of regulation on businesses is by far the biggest issue that must be urgently addressed by the EU and UK Government. With so many regulators involved, at local and national level, it is inevitable that no one organisation takes account of the fact that small businesses are being buried in red tape. The red tape tide has to be stopped now”

Stephen Twigg, Director of the Foreign Policy Centre added, “Some member states, the UK included have ‘over-implemented’ EU legislation – which is having a direct, adverse effect on businesses’ competitiveness and economic agility.

“With much new business legislation now originating in Brussels, government and policy makers must improve the way regulations are explained and implemented. If not, the burden of regulation will remain too great for all the wrong reasons.”

The report also found that:

  • There is no doubt that there are a number of cases where Whitehall has extended the scope of the original directive, which is gold-plating. Examples include the Money Laundering Directive or the Insurance Mediation Directive.
  • Risk assessment should play a key role in legislation. This is where a lighter touch in both regulation and enforcement should be applied to sectors or businesses that have had a good compliance record in the past.
  • The Government’s record in providing information to small businesses regarding their obligations under existing regulation is poor.
  • The UK’s legal culture plays a part in over-regulation as stricter interpretations are adopted in this country compared with other EU nations.
  • The perception across the board, not just in businesses, is that the Government fails to consult effectively when transposing EU directives into UK law.

Posted September 18, 2006
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