Services – NHS clause is two steps back for SMEs

There is little argument that the accumulated burden of red tape has become the biggest single grievance for small businesses.

The government claims that it recognises the problem and is working to address SMEs’ concerns where it can. The decision to exempt all small companies from the annual audit was a conspicuous, though for many in the profession, highly dubious, effort to show the SME sector it is prepared to take radical action to tackle ‘red tape’.

But it seems that for every step forward, we often take two steps back. Take the issue of liability insurance. The cost of employers’ and public liability insurance has seen very substantial rises in the recent past, a function, in part at least, of the expanding scope and increasing scale of employers’ liability.

After much reflection, the government has now announced that it will exempt limited companies where the owner of the business is the sole employee from the need to take out employers’ liability insurance. It claims this will benefit 300,000 single-employee firms when it comes into effect early in 2005.

At about the same time as this change comes into effect, however, the business community will face a new blow. As from April next year, the government will activate a dormant clause in the Health and Social Care Act 2003.

Under this provision, when a person has successfully claimed compensation from a business and has undergone NHS treatment for a condition directly related to the reason for the compensation claim, the NHS will be able to recover the cost of the treatment from the business. The same rules will apply to charities and voluntary organisations.

NHS claims will be capped at £34,000. So the most serious cases, such as long-term treatment for fractures or stress-related conditions, will not lead to an indeterminate liability. But given that the cost of calling an ambulance is put by the government at £150 and the cost of daily hospital treatment at nearly £600, the costs will mount up.

The government’s draft regulations on these changes specify that liability to pay NHS costs will be deemed covered by any insurance contract that covered liability for the original compensation payment. But ultimately, of course, this new liability for insurers will have to be paid for by the business community in the premiums it pays. And where an employer decides not to take out either employers or public liability insurance, for whatever reason, it will of course not be able to look to any such policy to fund the compensation and any consequent claim from the NHS.

The only real answer for businesses is to ensure they take their compliance responsibilities as seriously as possible, and do what they can to reduce the risk of their staff or customers incurring injuries.

Accountants should be prepared, and soon, to encourage their clients to re-assess their health and safety procedures to minimise any increase in their premiums.

John Davies is head of business law at ACCA.

Related reading