The UK is close to dropping out of the world’s top 10 business-friendly countries as over-regulation and a complicated tax system threatens the country’s attractiveness as a place to do business. The UK fell two places to a disappointing ninth out of the top 30 economies according to a recent report by the World Bank and business leaders are again urging the government to tackle the red tape and tax burdens that harm competitiveness.
“The government must take this report seriously and do far more to tackle the burden of regulation on businesses, says John Walker FSB policy chairman. “The convoluted tax system is partly to blame.”
Each year the average cost of red tape to business is around £3 billion, which includes a punitive £600 million to comply with recent Data Protection. Many small firms simply don’t cope well with paperwork and the government has promised to give them more options with government legislation. Even the European Union has asked small businesses how it can help, seemingly oblivious to the fact that half of all the regulations imposed on firms in the UK derive from EU legislation.
At a basic level, small business owners need to prepare VAT, PAYE, and National Insurance paperwork. Some of this has recently been reduced and VAT and PAYE paperwork can now be paid quarterly instead of monthly. If the business has been registered, VAT is only paid on those invoices where money has been collected, and Abbreviated accounts can be prepared to cut costs and save time. This is helpful, but not nearly enough. Most companies do need extra support with administration, but can’t afford it so paperwork is done badly or erratically, and often results in penalties and fines.
Promises to look at ways of simplifying the tax system, accused by many small and medium sized businesses of being over-complicated, time consuming and unwieldy are also underway. The Inland Revenue and Customs service is consulting on a single tax account for small business “where information need only be provided once”.
Under new government plans 35 agencies with watchdog briefs are to be merged to nine, and the number of organisations keeping an eye on the public sector will be cut from 11 to four.
Eastern European countries are leading the way cutting red tape and supporting new businesses, according to the World Bank report. The Bank praised countries for the measures they had taken to streamline business regulations and tax. Five of the top reformers were from Eastern Europe, led by Serbia and Montenegro. From setting up a business through to dealing better with construction licenses, improving property regulation, hiring new workers, bankruptcy and access to credit, the Eastern Europeans are reforming fast. Much of the drive to reform has been encouraged by the integration into the European Union last May of new member states. Slovakia and Romania have also slashed business costs. The report ‘Doing Business in 2006’, surveyed 155 economies found New Zealand still the easiest place to launch and run a new business, although Singapore and the US also did well.
Back in Britain, maternity pay, sick pay, tax credits and student loan repayments are high on the list of small business’s gripes. The latest burden is the stakeholder pension scheme which a business owner needs to provide if he or she has five or more employees. Although businesses shouldn’t suffer any financial costs from providing the scheme, administration can be time consuming and demanding. So far about half small companies that should be providing the scheme have failed to do so.
Chancellor Gordon Brown did say in his budget that global trade pressures meant that the UK needs to “remove unnecessary barriers to profitable enterprise”. Carol Undy, from the Federation of Small Businesses said at the time: “Businesses have been promised bonfires of red tape in the past and they have never been ignited”.
However, even if the UK has slipped down the competitiveness ladder this year, spare a thought for those budding entrepreneurs in parts of Africa. The Democratic Republic of Congo, Burkina Faso and the Central African Republic were ranked at the bottom of the World Bank’s Ease if Doing Business Index, while in Sierra Leone, full payment of business taxes would swallow up 164% of a company’s gross profit.
Here in Britain while we wait for the government to fulfil its promises, small companies must yearn for the early days of business practice when government paperwork was simply bundled up in and wrapped in red strands (hence the name red tape). Preferably very small red strands.