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Red tape threat to smaller businesses

05 July 2004
Red tape threat to smaller businesses

This week saw added proof, if any were needed, that hospitality businesses are drowning in a sea of red tape and bureaucracy which is pushing up costs and hitting productivity.

In a survey by employment law firm Peninsula of 3,464 UK firms with fewer than 340 staff, respondents said they were spending an average of nearly 10 hours a week dealing with red tape and paperwork, with nearly eight in 10 declaring that this was hitting growth and profits.

The problem is particularly acute in the hospitality industry because of the large number of small firms. And although the report covers all industries, it adds weight to calls on the Government from within the industry to reduce the amount of bureaucracy hampering UK hospitality businesses.

One man who has spoken out against the tide of bureaucracy is Robin Hutson, co-founder of the Hotel du Vin chain. While he acknowledges that some of it is well meaning, he believes the raft of regulations coming from local government, central government and Brussels represents a "considerable burden" on small businesses and is the biggest challenge facing the industry today.

Last month outgoing Whitbread chief executive David Thomas told Caterer that he feared the regulatory environment could stifle entrepreneurship in the industry if left unchecked. Thomas pointed out that even the big players like Whitbread, which can afford to employ the services of specialists, were being put under pressure to increase productivity and reduce their cost base to meet the increasing financial burden of regulations.

The steady stream of new regulations has been increasing for a long time, but it has turned into a flood since Labour gained power in 1997. According to the British Chambers of Commerce (BCC) the Government has introduced about 900 regulations since 1997, more than 400 of which have added significant costs to business.

The largest area of increase has been employment protection law, such as the Working Time Directive (1999), the Employment Act (2002), and the new flexible working rules (2003).

In the latest BCC Business Burden Barometer, released in March, the overall cost to UK businesses of regulations introduced since 1998 had soared to £30b a year, up £9b on the previous year. And this figure excluded the £13.5b which the BCC estimates the national minimum wage (1999), and subsequent amendments to it, will have cost UK businesses by July 2004.

However, it's not just the Labour Government adding red tape, since 40% of all regulations affecting British businesses come from Europe. The BCC says this includes the biggest single burden, the Working Time Directive, which has cost UK business more than £10b since its introduction five years ago.

The net result, according to BCC director-general David Frost, is that British business has "a £30b millstone around its neck", making it increasingly uncompetitive.

As far back as June 2000 the Better Regulation Taskforce (BRT), an independent body which advises government on improving the quality of its regulation, was claiming that it was impossible for small hospitality businesses to address the issue on their own.

In its report, Tackling the Impact of Increasing Regulation: a Case Study of Hotels and Restaurants, the BRT found that the overall burden of regulations was distracting owners and managers from more productive activities and inhibiting growth. The BRT also argued that small hotels and restaurants were being put at a competitive disadvantage against larger businesses.

The BRT found that the volume of "essential" regulatory guidance for small firms was 1,500 pages, creating a powerful barrier to entry.

And that was four years ago - a lot more regulations have been enforced since then.

But despite coming under increasing pressure to reduce the amount of bureaucracy and introduce regulations only when the benefits to business outweigh the costs, as yet Tony Blair remains reluctant to take his foot off the regulatory pedal. n

Have your say

Is the increasing tide of red tape and bureaucracy harming your business financially and causing you sleepless nights? Have you considered leaving the industry as a result of red tape? Then let us know - e-mail karl.cushing@rbi.co.uk.

The increase in red tape

Average time employers spend per week dealing with HR issues and red tape

19973.0 hours
19983.5 hours
19994.0 hours
20007.5 hours
20018.0 hours
20029.0 hours
20039.5 hours

Would you say that the influx of legislative red tape has restricted the growth of your business in the previous year?

1997Yes 56%No 44%
1998Yes 62%No 38%
1999Yes 63%No 37%
2000Yes 66%No 34%
2001Yes 70%No 30%
2002Yes 76%No 24%
2003Yes 78%No 22%

Has red tape cost your business financially in the previous year?

1997Yes 46%No 54%
1998Yes 58%No 42%
1999Yes 63%No 37%
2000Yes 70%No 30%
2001Yes 73%No 27%
2002Yes 78%No 22%
2003Yes 79%No 21%

Source: Peninsula

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