Promises of red tape bonfires will be viewed with scepticism
WHILE champions of Brexit regarded the prospect of deregulation after the UK left the European Union as a big selling point for the project the chances of big cuts in red tape being made any time soon seem increasingly remote.
Former Chancellor Sajid Javid underlined the importance of the regulatory issue when he proposed to hold a red tape challenge that would involve inviting firms to submit proposals for areas in which cuts were most needed.
Whether this will happen is unclear following Mr Javid’s abrupt departure from the Treasury after Boris Johnson’s move to curb freedom of thought in the department.
Some may believe Mr Javid’s idea reflects a genuine willingness to listen on the part of the Government. Others could worry that the move suggests the Government doesn’t have much idea about which regulations really are causing problems.
A senior member of the Cabinet, Michael Gove, recently made clear that Brexit is likely to result in a significant increase in red tape unless the Government accepts a trade deal with the EU that comes with significant limits on the UK’S ability to set its own rules.
If the free movement of goods ends, border controls and customs checks will have to be introduced.
Proposals for a new points-based immigration system announced on Tuesday could lead to a huge increase in administration for businesses.
There were already good reasons for businesses to treat promises of meaningful reform on the regulatory front with great scepticism in view of how many bonfires of red tape have been promised in recent decades.
Tory grandee Lord Heseltine announced plans for one in 1992, five years before Tony Blair’s New Labour government launched a Better Regulation Task Force.
The Conservative Government led by David Cameron promised in May 2015 to cut a “further” £10 billion of red tape over the life of the new parliament two years after the preceding coalition administration’s Vince Cable introduced the Enterprise and Regulatory
Reform Act.
But research completed subsequently showed the regulatory burden actually increased.
In January 2019, the Federation of Small Businesses (FSB) said the cost of government policy to the average small firm had surged by £60,000 in six years.
The study highlighted the impact of UK Government measures that have led to a big increase in the cost and complexity involved with employing people, such as the introduction of the National Living Wage and pensions auto-enrolment.
In the latest official small business survey published in December, the Scottish Government reported: “In line with the prior year and the UK as a whole, the two most commonly-reported obstacles by SME employers in Scotland were competition in the market (reported by 46 per cent of SME employers) and regulations/red tape (45 per cent).” Brexit was cited by 28% of respondents.
The FSB found in 2017 that the areas of regulation that created the biggest barriers to growth for members were employment law, tax administration, pensions, public procurement rules, and workplace heath and safety.
Anecdotal reports suggest there has been no improvement in conditions since the last survey was completed.
The culprits include the EU, which implemented the GDPR data protection regulation in 2018.
Changes in the UK tax system and governance reforms have increased costs and the compliance burden on firms.
Pwc’s head of private business in Scotland, Susie Simpson, noted that disparities in the tax rates levied on people’s wages and in respect of house purchases in Scotland compared with other parts of the UK could create recruitment complications for firms based north of the Border.
The costs and frustration associated with red tape are felt most keenly by small firms.but it is also seen as a big issue by the CBI whose members include large firms.
Business leaders insist concern about red tape does not reflect opposition to the idea of regulation per se. There is a feeling that politicians simply don’t understand the challenge involved in dealing with the wide range of regulations that apply to firms and the frequent changes that are made to these.
When looking for an explanation for why assaults on red tape have achieved so little, critics cite flaws associated with measures-based approaches.
Set a target to reduce red tape by £1bn, for example, and departments have an incentive to game the system. A cut in financial services red tape could yield a big reduction in total compliance costs but benefit a relatively small number of firms.
Susan Love, policy manager at the Federation of Small Businesses, said the Scottish and UK governments had taken steps to address the red tape issue citing positive measures such as greater use of Regulatory Impact Assessments.
But she added: “Whether through ‘gaming’ of targets, inaccurate business cost estimates, or lack of effective reviews, the sheer number of rules facing small firms continues to be a major challenge.”
Some think meaningful change will only come about if there is the political will required to ensure there is a well-designed and sustained response to the problem. Australia has been held up as a model.
Brexit may offer possibilities but it could be years before firms feel any practical impact.
The UK Government must make the tax system simpler in the coming Budget.
The Scottish Government also has questions to answer.
The deposit return scheme it has proposed for drinks containers is intended to cut waste. But the FSB has warned about the logistical challenges it could pose for firms in sectors such as retailing and the difficulties that would be caused by introducing the programme in Scotland before a Uk-wide system is finalised.
Ministers must address public concerns about the environment but ensure any response is proportionate and that firms have time to prepare for any changes.
“The Scottish Government could be doing more to improve the regulatory impact on small businesses, with legislation passed in 2014 failing to live up to its potential,” said the FSB’S Ms Love, in a reference to the Regulatory Reform Act of that year.
The minutes of a February 2018 meeting of the Regulatory Review Group formed to help tackle red tape in Scotland noted a “sense that the momentum of the Regulatory Reform Act has been lost”.
It is not clear what has been done since to help generate fresh momentum.