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Red tape costs SMEs and micro firms £41bn

According to Forum of Private Business (FPB) research, the UK's 1.2m micro and small and medium-sized businesses are having to pay £20bn in compliance costs – an increase of 8.4% on 2013, which averages out to £14,900 per business.

Despite "continued government promises to reduce the time and money businesses spend on compliance, the average SME spends more time on compliance than in 2013," said the FPB. Money paid to external consultants has fallen, it reports, but salary increases have meant the cost of compliance has continued to rise at 8.5% consistently since 2011.

More importantly, said the FPB, the opportunity costs of compliance have increased, as senior management has to deal with administrative tasks rather than taking advantage of growth opportunities. As a result, red tape is estimated to actually costs UK SMEs and micro firms closer to £41bn.

According to the FBB, employment law has become the greatest compliance-related outlay for businesses, despite a decrease in time dealing with dismissals and redundancy. Overall, the cost of employment law is £5.9bn, with tax compliance costing £5.7bn and health and safety £4.2bn.

FPB Managing Director Ian Cass commented: 

"Our research shows that the deregulation agenda has not been effective, [because] legislation removed from the statute books has been cancelled out by a small number of legal changes and a reluctance of businesses to change processes, while non-compliance penalties escalate."

The FPB also looked at services (£8.4bn), distribution (£6.4bn), manufacturing (£3.2bn), construction (£2bn) and care homes (£1bn-plus) to compare sector-specific compliance costs. According to the FPB, the cost of compliance for small firms is ten times that of large companies.

Cass continued: "Our members tell us that excessive red tape is a drag on productivity and there is a clear need for accelerating the deregulation agenda and incorporating tax compliance into any new initiatives. Members ... need to have more flexibility to compete globally."

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