Small Talk: It’s nothing new: cutting red tape is easy to promise but hard to deliver

 

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Sajid Javid, the new Business Secretary, seems to have mastered his brief already. Just days after getting his feet under the desk, Mr Javid has announced an initiative to get rid of red tape that costs businesses £10bn a year. Groups representing small businesses profess themselves delighted.

Without wishing to be too cynical so early on in his tenure, it’s difficult not to question this commitment. A blitz on red tape has been the battle cry of every incoming administration in living memory. Harold Wilson, on becoming President of the Board of Trade in 1948, promised a “bonfire of controls”, while Michael Heseltine pledged a “bonfire of red tape” when he resurrected Wilson’s old title 50 years later. More recently, Vince Cable, though preferring the more humble title of Business Secretary, began in 2010 by introducing a one-in, one-out rule on regulation, which was supposed to prevent further increases in red tape.

So why do small businesses claim to still feel so constricted by regulation? A poll by the Federation of Small Business after the election found that 53 per cent of members want cutting red tape to be a priority for the new Government – more than for any other policy initiative. This suggests that previous promises to get rid of red tape have not been kept.

The truth is that pledges to get rid of red tape make ministers sound as if they’re ready to man the trenches on behalf of businesses, but mean little in practice. They’re like those Treasury promises to crack down on tax avoidance – a handy tool when you’re struggling to find revenues from specific policy measures.

The Coalition got rid of lots of regulation. But for every employment tribunal you simplify, there’s a new system on shared parental leave to introduce; for every ban on under-18s buying Christmas crackers you abolish, there’s a pensions auto-enrolment regime to impose.

Even those one-in, one-out rules don’t work. Mr Cable’s commitment was no doubt well-intentioned, but was undermined by the fact that it excluded regulations that the Government had to implement because of new European Union directives.

And what of our friends in Brussels? The European Commission last week unveiled its “Better Regulation Package” – a set of proposals to ensure new rules are scrutinised by independent experts who will judge whether they are necessary and proportionate.

Small businesses will wish the commission luck with that project, while also wondering whether it is likely to prove any more successful than the efforts of Messrs Wilson, Heseltine and Cable.

Does this issue really matter? After all, while small businesses claim to be mired in regulation, they also seem to be flourishing.

Mr Javid claims businesses would do even better if freed from the £10bn burden he is targeting. He may be right, but his numbers are back-of-the-envelope estimates – there has been no scrutiny of this pledge by the National Audit Office, just as there has been no examination of the claims about the savings made by previous attacks on regulation. The best guess of one think-tank, Reform, is that £1.2bn of regulation was removed by the Coalition, but that £4.3bn was added.

None of which will stop businesses complaining about red tape or ministers promising to cut it. But if both sides were honest, they’d concede that unnecessary regulation can be – and is – dumped continuously, while new regulation is often justifiable and important, and will continue to be introduced.

This is a tedious game but everyone will keep playing it.

Are business crowdfunders getting short-changed?

Is one of the explanations for the popularity of crowdfunding among companies raising equity that it enables them to sell much smaller stakes in their business? Research from the analyst Beauhurst suggests that businesses raising equity capital on a crowdfunding platform typically give away less of the business than those that turn to private equity or business angel backers.

The analysis focused on companies raising less than £500,000. It found that for 65 per cent of crowdfunded deals, the businesses gave away less than a 20 per cent equity stake. With private equity backed deals, the figure fell to 44 per cent, while just 28 per cent of business angel backed deals saw less than 20 per cent of the company sold.

While many entrepreneurs will be keen to keep dilution of ownership to a minimum, is it ethical to choose a particular type of capital-raising vehicle because you believe individual investors are likely to accept lower valuations than professional business backers?

Review finds insurers come up short of the mark

While the poor treatment of small businesses by banks and energy companies is well documented, less has been heard about their suffering at the hands of the insurance industry. That may be about to change, after a Financial Conduct Authority review of the way in which insurers and brokers handle claims found substantial shortcomings.

The City regulator assessed the experiences of 100 small businesses as they ran the gauntlet of insurers, brokers and loss assessors. The inquiry appeared to show that small businesses often receive a much worse service than individuals making insurance claims, suffering from poor communication and settlement delays.

“In an area where any delay could have a serious impact on a business or someone’s livelihood, it is vital that claims are taken seriously and processed promptly,” said Linda Woodall, the acting director of supervision at the FCA.

Small Business Person of the Week: Oded Ran, CEO, Touchnote

“Our founder, Raam Thakrar, launched Touchnote in 2008, after he’d had his first child. He had family around the world who wanted a picture of the baby, but the last thing any parent of a newborn wants to be doing is printing out pictures, stuffing envelopes, looking up addresses and queuing at the Post Office – that’s where the idea for Touchnote came from. We enable you to pick any photo from your PC or tablet or phone and we can then send it as postcard or greeting card, with your message on the back, to anyone in the world. We’ve got sites in the US, Germany and Australia and we can print from any of these, so your card will arrive in a day or two, wherever you send it from.

“The idea has proved tremendously popular. It has become so easy to send someone a message with a text or by posting on their Facebook wall, say, that people want to do something a little more meaningful and thoughtful. And since most people only ever receive bills in the post these days, they love getting something more personal.

“Last year sales hit £2.1m. We’ve recently sent our five millionth card and to celebrate that, we’re going to send a card from the edge of space this week, using a device we’ll float up so that it can take a picture of the curvature of the earth.

“We rebuilt our product last year and we’re going to relaunch it across all of our platforms this year. The business is now cashflow positive, plus we’ve raised £4m from institutional investors to scale up.”

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