The last couple of weeks have seen the Government stung into action to fend off criticism it has cost SMEs £10bn and strangled their competitiveness through increased red tape since it came to power.
Indeed, such figures as those released by the British Chambers of Commerce in its Cut Red Tape campaign, were described as ‘nonsense’ by small firms minister Patricia Hewitt.
She was said to be incensed by claims made by the BCC over the running costs of the Working Time Directive and the National Minimum Wage.
She said: ‘Recent studies by the Organisation for EconomicCo-operation and Development showed that the UK has feweradministration and economic regulations on businesses than any other OECD country, including the USA.’
However some of the criticism may be considered unfounded as Hewitt has gone on record admitting that ‘Government doesn’t create wealth Businesses do,’ while she has also recognised that 99% of small businesses in the UK are small and medium sized. She also agrees that there is too much red tape which needs to be cut.
But Mo Mowlam’s red tape ‘star chamber’, set up to vet all Government regulatory proposals, and the Small Business, which is due to launch in April, needs to be given time and space to be allowed to tackle this issue.
Small and medium sized business sector representatives say they are suffering from the cost and distraction of complying with the minimum wage, the working families tax credit, the working time directive and the fairness at work white paper.
The effect is that more managers are spending their time on administration and not on growing their businesses.
An example of red tape which has been criticised for holding up small businesses is the IR 35 tax legislation, which refuses to treat IT specialists as self-employed.
This legislation has come under fire from the IT sector and shadow Chancellor Francis Maude as an example of the government failing to understand the sector.
This comes despite well-publicised boastings from the government that it is aiming to make the UK the global centre for e-commerce.
Paul Treby, a partner at Somerset-based chartered accountants Berkeley Jackson, a UK200 Group member, says:
‘To treat these IT contract workers as employees for National Insurance purposes suggests the Government fails to understand that trends in employment policy have led many large companies to shed substantial numbers of staff and outsource.
‘Hence the significant increase in self-employment by individuals who were previously employed but have few prospects of regaining secure employment. They pay their taxes and self-employment NIC and for their own pension, health insurance and other expenses met by large employers.’
Another issue which SMEs believe needs attention from the Treasury involves small hi-tech companies which have a need to invest their retained profits to achieve their full potential.
They are currently being hampered as they have to pay tax on this profit. Many SME managers believe retained profits in high tech businesses should be tax free.
It remains to be seen whether the likes of Mo Mowlam and new Small Business Service chief David Irwin can counter the growing concerns of SMEs or whether they will merely play lip service.
Small businesses: Patricia Hewitt speaks out>
Mo Mowlam: The red tape slasher ?