A consistent theme in surveys of small and medium sized enterprises (SMEs) over the past few years is the excessive burden they face from regulation and red tape. It usually scores 3rd in a list of barriers to growth after economic conditions and difficulty in raising finance.
A Federation of Small Business survey showed that an average SME spends 7 hours every week coping with red tape; and a Federation of Private Business survey revealed that the cost to SMEs of compliance was £9.3 billion each year and an average firm spent 34 hours per month dealing with regulatory matters.
With so many SMEs struggling in the present economic climate, it is essential that the Government deals urgently with reducing the regulatory burden on the SME sector. Given the importance of SMEs to the UK economy, this should be a key strategy to any economic recovery plan.
Whilst some of the red tape comes from UK Government initiatives, most originates in the EU. Parliament however does still have scope to determine how EU Directives are translated into UK Legislation. Then there is the question of how regulation is implemented on the ground. It often transpires that an EU Directive that is supposed to be applied uniformly across Europe is regulated much more strictly in the UK than in other European States. This directly affects the competitiveness of the UK economy.
Regulation is a necessary element of a modern economy. It is right that there are rules to protect health and safety, employees and consumers, and that certain industry sectors (such as financial services, food production and construction) have their own set of rules, but these must be implemented fairly and consistently, and proper help and guidance given to SMEs to help them comply.
Some regulations are so complex that firms need to employ experts just to advise on how to comply. Often different regulators, or arms of government, conflict with each other – Fire Officers for example insist that a door is kept closed whereas Health & Safety Officers insist it is kept open.
Another area of concern is that ‘strict liability’ is usually applied by the regulations – it is not a defence to explain that this was a one-off breach and you generally comply: either you breached the regulations or you didn’t. We have acted for many clients that have stringent systems in place to ensure compliance but a simple mistake by an employee caused a breach that led to prosecution. It should be a defence in most regulations that the firm had reasonable systems in place and had cause to believe they were working.
Our plea to the Government is to take immediate action to ensure that Red Tape is kept to a minimum and regulation is imposed fairly, proportionately and consistently. Real steps should be taken by Government to help SMEs deal with regulations and simple plain-English advice given on exactly what they need to do to comply.
If you need help in dealing with the various regulators, contact Cousins Business law here or call Cousins Business Law on 0845 003 5639.