Red tape bonfire of the vanities – Clarke on small business

Ken Clarke promises to slash red tape as Conservative small business policy comes into focus at its 2009 annual conference.

By
7th October 2009 at 12:27 pm

Slash, burn, sweep away. Sharp blades, bonfires and new brooms.

When it comes to small businesses and red tape, politicians have a limited, but suitably strident vocabulary.

Ken Clarke on red tape

Nightclub bouncer Ken Clarke has the talk, but does he have the trousers?

Words that always play well to businesses large and small. Words that always play well politically.

Words that always play well to the vanity of politicians who believe their administration will have a light touch: less government, not more.

The problem is, for decades, Labour and the Tories alike have failed miserably to do anything about the legislative burden on UK SMEs.

They’re all talk and no trousers – words, words and more words.

So will Ken Clarke and the next Conservative government hold true to the pledge he made yesterday at the party’s 2009 annual conference that:

to get Britain back in business, the excessive regulation that businesses face has to be swept away.

Words like these echo down the years.

In 1994 Michael Heseltine famously announced the biggest purge of bureaucracy since World War II (?) and said he had lit a match under the :

… largest bonfire of controls that has taken place in modern times in this country.

In 2006 Tony Blair promised to cut red tape for business by 25% by May 2010, introduced the concept of ‘better regulation’ and Labour committed itself to:

… one of the most radical programmes of regulatory reform in the world.

The Cost of Red Tape

There is little doubt that the cost of red tape since Labour came to power in 1997 has increased dramatically.

Government figures suggest Whitehall bureaucracy costs businesses £15 billion a year.

The Federation of Small Businesses says SMEs spend 7 hours a week dealing with red tape. The British Chambers of Commerce (BCC) estimate new regulations introduced from 1998-2009 have cost business £76.8 billion.

Over 50% of the increase in costs accounted for by the BCC are linked to introduction of the National Minimum Wage, The Working Time Directive and the Data Protection Act.

Some would argue that introducing 4 weeks holiday for all, protecting personal data and setting a benchmark for low pay are all positive pieces of legislation.

But the uncertainty, cost and time it takes small businesses to deal with an ever-changing, growing legislative environment remains a massive headache.

In December 2008 the government claimed to have reduced the cost of red tape by £1.9 billion.

Bizarrely £400 million of this saving is supposed to have come via rather rudimentary ‘online tools’ to help businesses better understand their employment law responsibilities. A saving no business group I’ve spoken to finds credible.

Clarke’s Red Tape Proposals

So what will Ken Clarke actually do to address the red tape burden?

The headline grabbing ‘night club bouncer’ analogy – one in, one out in terms of new legislation – suits Ken down to the ground.

But one in, one out is not a ‘sweeping away’ of red tape, although it promises a 5% net reduction in the legislative burden set out in a policy document released yesterday – interestingly retaining the New Labour mantra of ‘better regulation’.

The challenge will be to prove significant reductions, not just near status quo ‘improvements’.

For years small business groups and some politicians like Vince Cable of the Liberal Democrats have called for sunset clauses on legislation i.e. legislation disappears from the statute books after a set period of time.

Conservative proposals have avoided this step. They did, however, introduce a sunset clause for quangos, unless they can prove their usefulness.

Since much of the legislation affecting small firms is derived from Europe, the pro-Europe Ken Clarke may find the reality of wielding his new broom more difficult to execute in practice, than in theory.

Most important, however, is what’s been missing from government or shadow-government red tape policy for over a decade – the concept of deregulation.

Deregulation – A Dirty Word

The fact of the matter is that ‘deregulation’ has become a tainted word. Why? Because deregulation of financial markets played a significant part in the massive global financial mess we all find ourselves in.

But small businesses shouldn’t be punished for the crimes of big business.

We need deregulation, not the status quo and certainly not ‘better regulation’.

#646464

Alex is the founder and editor of SmallBizPod, the UK's first podcast dedicated to small business, start-ups and entrepreneurship. Alex writes about topical small business issues, entrepreneurs and anything else that catches his eye here on the small business blog. http://www.smallbizpod.co.uk

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  1. Martyn says:

    Its a mindset.

    Politicos can’t help but regulate – its the reason they are there.

    They are actively aided and abetted by the public sector who are agents of the state.

    Plus all large companies (yes ALL LARGE PRIVATE companies) favour MORE regulation as they are able to cope with the increased burden and it keeps the little guys out of their markets by raising the barriers to entry.

    When was the last time a small bank was started? Or a TV company? Phone company? Rail operator? Nuclear fuels re-processor? Waste management?

    All tightly regulated. All closed shops with powerful political lobbies.

  2. Martyn says:

    Alex

    Oh dear…

    ‘Because deregulation of financial markets played a significant part in the massive global financial mess we all find ourselves in.’

    LAZY JOURNO ALERT!!!

    You and I know it was the quality of the regulation and the political interference in markets that caused it.

    If Gordo and Greenspan had choked off the housing boom in ’06 by jacking up rates and curbing govt spending, hadn’t ridden the wave of cheap money from China to debt fund a boom then much of what has come to pass wouldn’t have happened. Compounding this by bailing out the banks instead of letting them go bust was the final nail.

    Hedgies are the most deregulated financial institutions – have any of them gone bust? Asked for govt cash?

    No ‘cos they have ‘skin in the game’ as the yanks like to say.

  3. Hi Martyn

    Great point re regulation and large businesses.

    Greenspan believed that financial markets would regulate themselves i.e. putting survival on an equal footing with profit.

    As it turns out the profits were too great and the shareholders too greedy and the banks glossed over risk.

    Greenspan accepts he got it wrong i.e. he didn’t interfere enough, because he didn’t take into account human nature.

    I don’t believe most of the Western world’s banks going bust was a realistic option, even if you argue it was right both from a moral and market perspective.

    Should there have been greater oversight, perhaps of the capitalisation of banks?

  4. Martyn says:

    ‘Greenspan believed that financial markets would regulate themselves i.e. putting survival on an equal footing with profit.’

    So what about the Greenspan ‘put’ – hardly allowing markets to function. And if they knew they are going to get fried if they failed rather than bailed out the shareholders/execs would’ve been more circumspect and asked a few more questions.

    Re cap of banks – yes but we should have gone for the narrow bank approach – see here from my favourite economist John Kay www2.johnkay.com/papers/JK_NarrowBanking.pdf – a new ‘Glass–Stiegal’?

    But we digress.

    You are so right about rowing back on regulation – it’ll never happen…. even with KC in charge (who is my most favourite Tory).

    After all, if he is at DT/BERR or whatever its called now, he’s hardly going to abolish his own dept is he? Which is what needs to be done.

  5. The real problem is nobody thought the banks would fail, not least the banks.

    Nobody was conducting risky business knowing there’d be a massive safety net. That’s 20:20 hindsight.

    I’m not optimistic about reductions in legislation either, as you’ll have gathered!

    I wish KC the best of luck in trying though.

  6. Jo Bottrill says:

    It’s all just tinkering.

    If either party want to really help SMEs how about dismantling the tax system and rebuilding it from scratch?

    At the moment we have layer upon layer of deadlines for returns, deadlines for payments, payments on account etc.

    How expensive is all this to administrate on both sides of the fence?

  7. Richard Boyd says:

    And I’m afraid it will not change. In order to understand what legislation does you need to actually have to deal with it. They don’t have to deal with it, worse they don’t even feel the need to walk the floor and at least see, albeit on a temporary basis the impact.

    The following is an example of when they get it…but…when it’s too late. Reversing the decisions of a large organisation is a slow torturous process.

    I rent a small flat here, which I find more congenial than constant hotel hopping. The flat, in a modern block, is ten minutes walk from the European Parliament and therefore suits my purposes well. So far nothing out of the ordinary.

    This flat obviously has a front door, and this is where the present trouble started. I needed to get an extra key cut, and thinking this would be a simple and painless task, I made for my nearest locksmith’s shop, the usual kind of place which does keys and shoes. Then the bombshell struck. In order to get the key cut I needed to produce my Belgian identity card! Since I didn’t have this immediately to hand, I offered my British passport, to no effect. It’s got to be the ID card, no negotiation, it’s the rules. I therefore had no choice but to find the card and comply.

    This really is a case of the tail wagging the dog. At my pied à terre here, I keep nothing of value in the flat, merely a selection of work clothes, toiletries, some food and a whole stack of books. I would have thought it’s up to me to decide the level of security I require, and not some agent of the state.

    Also, there was a time I thought identity cards may be a good thing, but I’m rapidly going off the idea. After the front door key episode I really don’t want any excuse for us in Britain to be inconvenienced by Belgian style petty bureaucracy.

    No link because that will imply respect and respect has to be earned – a search will reveal which MEP said the above.

  8. Hi Richard and thanks for this classic example.

    Your comment made me think, it would be a tremendous move for the next Business Minister or one of his cronies to do a ‘back to the floor’ exercise where red tape is concerned.

    In fact, a dedicated unit in government whose sole puprpose was to tour small businesses and experience the admin would give them an insight. They should then draw up a hit list of legislation for repeal.

  9. Richard Boyd says:

    Hi Alex

    It is their methodology which is completely wrong the following should be adopted and run in conjunction with your suggestion…

    Any legislation should be tested/prototyped in real world scenarios, prior to being released into the wild.

    Can you imagine my company buying £10,000 worth of a certain type of plant to hire and then finding out that not only was there little demand for it but it was not suitable for keeping in the UK…it would be business and economic madness.

  10. Richard Boyd says:

    Sorry Alex the following

    “Any legislation should be tested/prototyped in real world scenarios, prior to being released into the wild. ”

    Should read

    Any legislation should be tested/prototyped in small scale real world scenarios, prior to being released into the wild.

  11. […] As some of you will know, I’m sceptical of Ken Clarke’s new broom to sweep away red tape. […]

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