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Small Businesses Spending 500 Million Hours on Red Tape
(04 April 2006 )

British small businesses spend around 500 million hours per year complying with government regulations and paperwork, according to the latest NatWest/SERTeam Quarterly Survey of Small Business in Britain.

The average small business now spends 26.7 hours per month completing the required government paperwork. The burden of regulation still falls disproportionately on sole traders as the average one person band spends 8 hours a month (8.4 hours in 2005) completing government paperwork compared with only 1.5 hours per employee (1.8 hours in 2005) in larger companies.

The overall average time estimated to be spent on compliance and red tape by small businesses has fallen from 4.2 hours per person in 1999 per month to 3.7 hours now. This figure is also fractionally down on the 3.8 hours reported in 2003 and 2004. Despite this, 56% of respondents to the survey think that the time taken to deal with red tape has increased over the past year and hardly any that it has decreased.

VAT (62%) is the area of government regulation and paperwork that takes the most time to deal with. However, this is closely followed by the payment of employees, in particular taxation and National Insurance (56%).

Different aspects of regulation and paperwork impact differently on businesses of different sizes. Whilst VAT for example is a major issue for mid-sized companies, those with a lower turnover will be below the VAT threshold (currently 60,000) and so do not have to register for VAT.

Employment laws, and in particular health and safety regulations, continue to have a detrimental effect on the growth of small businesses in the UK. 44% of small firms report that at least one aspect of employee health and safety regulations has a significant impact on their business because of the time, cost or inconvenience involved, compared with 39% in 2003 and 2004.

The effect that regulation has on the average small business is evident in the fact that over half of small firms report that the burden of red tape has had an effect on their employment levels.

Over a third (37%) report that they have avoided employing more people, while a further 19% say that they have actually reduced the numbers they employ, because of the burden of employee regulation and paperwork. Even more concerning is that 45% of firms with no employees have made a conscious decision not to be employers so that they can avoid this type of regulation completely.

Pete Ferns, Director of NatWest Business Banking, said: "The Government constantly needs to look closely at what it can do to encourage growth in the small business community and cutting the amount of red tape, could be the way forward. Small businesses are the engine room of our economy and their success is paramount for the overall economic prospects of the UK."

Notes to editors:

  • The NatWest SERTeam Quarterly Survey of Small Business in Britain is conducted and published by the Small Enterprise Research Team, an independent charity based at the Open University Business School.
  • Copies of this and previous surveys are available at a cost of 40 each or 120 for one year’s subscription from Small Enterprise Research Team (SERTeam), Open University Business School, Walton Hall, Milton Keynes, MK7 6AA. Tel: 01908 655831.
  • Small businesses wishing to participate in this survey, should telephone 01908 655831 or complete the survey online on www.serteam.co.uk. There is a free copy of a summary of the survey findings for those completing the questionnaire.