Regulations on Small Businesses (Reduction)

– in the House of Commons at 3:33 pm on 27th April 1999.

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Photo of John Bercow John Bercow Conservative, Buckingham 3:33 pm, 27th April 1999

I beg to move, That leave be given to bring in a Bill to reduce the quantity of regulations on businesses below a certain size.

Businesses employing fewer than 100 people constitute 99.6 per cent. of Britain's firms, employ 50 per cent. of the private sector work force and produce two fifths of national output. In preparing today's Bill, I have met or spoken to Stephen Alambritis of the Federation of Small Businesses, Alison Beer of the Forum of Private Business, Ruth Lea of the Institute of Directors, Colin Perry of the small firms council of the Confederation of British Industry, Lucy Miller of the British Chambers of Commerce and Maurice Fitzpatrick, head of economics at the leading firm of chartered accountants in the City, Chantrey Vellacott. All of them agree that the burden of regulations on small business is high, continues to rise and needs to be checked or reversed.

In April 1997, the then shadow Chancellor, the right hon. Member for Dunfermline, East (Mr. Brown), declared in the foreword to Labour's business manifesto: We will not impose burdensome regulations on business, because we understand that successful businesses must keep costs down. Nineteen months later, his right hon. Friend the Member for Hartlepool (Mr. Mandelson) told the House we have no intention of introducing any legislation that presents a burden on business and reduces the competitiveness of British firms."—[Official Report, 25 November 1998; Vol. 321, c. 214.] Sadly, only weeks after the first statement and fully 18 months before the second, the Government began the process of betraying that pledge, which has so far resulted in an extra 2,400 regulations since 1 May 1997.

The working time directive will reduce the flexibility of small businesses to respond to the demands of customers in an increasingly competitive marketplace. The notice of implementation of that directive—a mere 45 days at the height of the summer season—was little short of a national disgrace. The national minimum wage will add £2.7 billion a year to this country's wages bill and will hit small and medium-sized enterprises especially hard. Once again, notice in the form of guidance to employers—which was issued a mere three weeks before the national minimum wage was to take effect—appeared to many to be a calculated insult to businesses.

Whatever their intrinsic merits or demerits, the working families tax credit, the child care credit, the disabled persons learning credit and the student loan repayment administration regulations all shuffle responsibility from central Government to beleaguered businesses, forcing the latter to become unpaid tax collectors and benefit distributors. If small businesses make mistakes in the process, they can expect to incur hefty fines.

The move to self-assessment in relation to transfer pricing threatens to impose an onerous burden of record keeping and documentation on small firms regardless of whether they trade much or little on a cross-border basis. Consistent with other Inland Revenue regulation of late, those companies are obliged to prove that they are innocent of any transgressions of the regulations. They can do that only through an extensive and expensive paper trail, which could otherwise be avoided. A flat rate of £90 a year has been levied to pay for the introduction of the Food Standards Agency. As my right hon. and hon. Friends know, the possibility that that levy could rise to up to £600 per year is a source of growing anxiety to the 263 corner shops in the Aylesbury Vale district council area that incorporates my Buckingham constituency. Above all, the new Meat Hygiene Service regulations—entailing onerous veterinary inspection requirements—represent a devastating blow to small abattoirs, independent butchers and local country markets the length and breadth of rural Britain. The Government have opted for a particularly onerous interpretation of the original European Union directive on that subject, and the meat industry and consumer choice will suffer as a result.

What are the financial costs and other effects of the phenomenon of burgeoning regulation that I have described? The pressure of this regulation on small businesses is remorseless. The pain is intense, but the benefits seem to be negligible. It is astonishing to learn that the Government have not published—and according to a parliamentary answer from the Parliamentary Secretary, Cabinet Office, they do not intend to publish—a statement on the cost of regulations. Fortunately, the Institute of Chartered Accountants has obliged. It informs us that the extra cost for the average small business with fewer than 100 employees as a result of Government legislation introduced since 1 May 1997 is no less than £5,000 a year.

Chantrey Vellacott—the firm of esteemed accountants to which I referred earlier—calculates that the increase in the regulatory burden since the general election is 17.33 per cent. My right hon. and hon. Friends will note that that is before we have taken account of the contents of the Employment Relations Bill, which will add significantly to existing costs. That is the scale of the damage that is being inflicted.

What hope is there? Regulation is damaging to small firms, which bear a disproportionate burden of the fixed cost that is entailed. The effect of regulation undoubtedly will be to divert small owner-managers from business, to stifle growth, to reduce competitiveness, to destroy jobs and to force businesses to close. They will go bankrupt or they will close as individual proprietors give up the unequal struggle against the regulatory leviathan.

What can be done? My Bill proposes a number of simple but helpful measures. First, there should be an annual statement to Parliament on the cost of regulation and the Government's plans to reduce that cost in the ensuing year. Secondly, there should be six-monthly reports on the progress of deregulatory initiatives. Thirdly, there should be a review of all existing legislation to find out where there is harmful gold-plating of European Union directives which can sensibly and helpfully be removed.

Fourthly, there should be a power in all future legislation to exempt small businesses from the most damaging regulations along the lines of the American model, with which the House will be familiar, which is provided for in the Regulatory Flexibility Act 1980 and the Small Business Regulatory Enforcement Fairness Act 1996. Fifthly, a system of sunset regulation should be instituted, whereby a regulation automatically expires or lapses on a given date, perhaps three or five years after its original enactment, unless Parliament chooses to renew it. That system works very well at state and federal level in the United States.

The sixth proposal is that there should also be a minimum three months of consultation on each new regulation and a minimum three months' notice of intended implementation of a new regulation, to give businesses time to prepare. The sea of regulation is now deeper and more hazardous than any with which businesses have previously had to contend. The Government, I regret to say, are lacerating small businesses. My hon. Friends and I want to liberate those businesses. The Bill is a positive step in the right direction at an opportune time, and I appeal to the House to support it.

Question put and agreed to.

Bill ordered to be brought in by Mr. John Bercow, Mr. Graham Brady, Mrs. Angela Browning, Mr. Christopher Chope, Mr. Nick Hawkins, Miss Julie Kirkbride, Mr. Andrew Lansley, Mr. Richard Page, Mr. Owen Paterson, Mr. David Prior, Mr. David Ruffley and Mr. Richard Spring.