Red tape burden holds back job creation in small business

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The Independent Online

The burden of red tape is hindering small and medium-sized companies from expanding and creating jobs, according to a survey conducted by the accountancy firm Kingston Smith.

More than two firms in five which took part in the study said their growth prospects had been stifled by the need to comply with onerous and time-consuming regulations.

Michael Snyder, a senior partner at Kingston Smith, said: "The burden of red tape falls disproportionately on smaller companies."

He said the biggest worry is employment regulation and "the fear of what you can and can't do".

The penalties for breaking the rules on issues such as unfair dismissal can be extremely severe. But Mr Snyder said: "Most small organisations can't afford to go running to their lawyers every time they make a decision."

The implementation of new legislation, such as the working time directive, was seen as extremely time consuming by many businesses. Mr Snyder said: "Companies really are struggling [because the] directive demands a whole new set of records to be kept about employees."

Health and safety is seen as the second most time consuming area of red tape, with 44 per cent of respondents citing it as a major issue. Mr Snyder said the new requirement for companies to undertake and report their own fire risk assessment study, a duty which was previously undertaken by the fire brigade, was partly to blame for the increased burden in this area.

The study also found that companies have little or no confidence in the Government's pledge to improve their situation, with 92 per cent of the firms interviewed saying that they expect bureaucracy to increase over the next 12 months. The introduction of the new data protection Act is seen as a particular problem, with 39 per cent of respondents saying that they were concerned about meeting the requirements on how they hold staff information.

As well as the inconvenience of excessive legislation, many smaller businesses also find themselves disadvantaged in financial terms. For example, the cost of PAYE (pay as you earn) compliance for companies with more than 5,000 employees is just £5 a person. But for firms with less than five employees, that cost balloons to £288 a year.

Mr Snyder said: "Small and medium-sized companies clearly view the UK's red tape burden as a hindrance to job creation and a restraint on growth ... The Chancellor needs to use [tomorrow's] Budget to cut the existing bureaucratic burden on businesses."