Small Talk: It's a misconception that we're tying ourselves up in red tape

Having been embarrassed by yet another set of disappointing figures on bank lending to small businesses last week, Government ministers were understandably keen to get back on the front foot. So Business Minister Michael Fallon must have been delighted to be able to make a set-piece announcement about a crackdown on all the ghastly red tape preventing small and medium-sized enterprises getting on with the day job.

From this day forward, Mr Fallon announced, the Government's Regulatory Policy Committee will scrutinise new regulation and veto it if it decides the impact on small businesses would be too great. Even better, the definition of what constitutes a small business in this context is being extended from an organisation with fewer than 10 employees to fewer than 50.

What's not to like? After all, businesses always complain about the burden of regulation – one recent survey, from Zurich Insurance, suggested that small and medium-sized enterprises (SMEs) think excessive red tape is a bigger threat to their future success than the lack of availability of bank finance.

There are, however, a couple of problems with Mr Fallon's announcement. The first is the scepticism in some quarters about the impact this new approach to red tape will have in practice. The CBI, for example, pointed out that many new regulations won't be covered by the system.

A bigger issue, however, is that this is a policy initiative to tackle a problem that may not actually exist.

Why do attempts at cutting red tape so often come a cropper? Well, here's one possible answer that doesn't sit comfortably with conventional wisdom about the ease of doing business in the UK today – there is actually far less regulation to cope with in this country than in other nations, particularly for entrepreneurs and SMEs.

In other words, the idea that business is being suffocated by red tape is a popular misconception. For Government, that's very difficult to address – if the problem genuinely was over-regulation, policymakers could help by easing the burden. But the problem is actually perception, which practical measures don't address.

But don't take my word for it that Britain is far more shipshape on regulation than is widely imagined – ask the World Bank.

Its data shows, for example, that Britain is the sixth-easiest nation in the G20 in which to start a new business, in terms of the number of regulatory procedures the entrepreneur must first complete. On the cost of getting rid of staff – we're always being told how difficult labour laws make it for businesses to shed employees – Britain is the fourth-best performer in the G20. And in terms of the proportion of profits our small businesses have to devote to labour and tax contributions, we score third in the G20.

So why do we think business has it so tough? Part of the problem is that any regulation at all imposes a burden on business and forces it to spend time on an activity which isn't contributing to their growth.

No-one thinks, however, that we should simply get rid of all regulation, even if the law allowed us to do so. It may be a bother complying with health and safety audits, say, but no business would want to shift to a system where it had no responsibility at all for the well-being of its employees.

The other reason, though, why the great red-tape myth persists is that Government ministers keep announcing crackdowns and policy initiatives to deal with it. If businesses keep hearing that ministers are determined to get rid of excessive regulation, you can hardly blame them for thinking that there's a lot of it about.

'Debt waiver' can oil wheels of lending

Look out for a new report today from ResPublica, the independent think-tank, which makes an interesting suggestion for unlocking bank finance for consumers and small and medium enterprises.

It suggests pinching an idea from the United States and Canada, where "debt waiver" facilities give borrowers and lenders greater security during loan contracts.

The idea is that the lender promises, in certain specific circumstances, to waive a borrower's loan instalments – in the event of the borrower falling sick, say.

Then it transfers this risk off its balance sheet by buying specialist insurance against the cost of the waiver.

The first part sounds rather like the payment protection insurance at the centre of the banks' biggest ever mis-selling scandal.

So it is, ResPublica confirms, warning the fallout of that scandal is one reason why bank finance is so hard to come by.

Its argument is that, when sold properly, the type of protection PPI offers enables borrowers and lenders to be less risk-averse.

Social impact companies sharpen focus

The Social Stock Exchange, launched last week with backing from the Prime Minister, may have a misleading name – given that it offers no trading facilities, it's not a stock exchange in the conventional sense – but it does for the first time provide a single, centralised source of information on publicly listed companies that are making a social impact. It's a global growth market. JPMorgan thinks global social impact investment will total $650bn (£420bn) this year.

That's not surprising. Many of the businesses run with social impact as well as profit in mind are in high-growth industries such as clean-tech, health and renewable energy. The investment case is often compelling. The first 12 members of the Social Stock Exchange are on the alternative investment market and include firms such as Good Energy Group and Accys Technologies.

The exchange provides an opportunity for social impact companies to market their wares to investors through a single investment forum.

Small Businessman of the Week: Paul Tully, founder, pd3

I founded pd3 12 years ago after I'd spent several years in cultural marketing. I was working with people like artists and musicians to raise the money to fund their shows and it suddenly dawned on me that I was doing all the hard graft for them – the penny just dropped that I could build a business out of what had really been a passion for me when I was working with this amazing amount of raw talent.

"We work with big brands, giving them access to this talent, and creating what I call experience in business – the idea is to really get people talking. For example, we made an online video for O2 featuring a cover version of the Little Boxes song, with all the instruments and accessories made from little boxes; it's had more than 7 million views so far.

"For someone like O2, the aim is to show people that they're a cool, hip brand as well as a mainstream operator in what is otherwise quite a homogenous industry. We are judged on how many people see our content and whether they talk about it.

"The business ebbs and flows to some extent, but we started out with good clients such as The Guardian, the BBC and Sega and it just grew from there.

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