SMEs clash with ministers over scale of red-tape costs.

The last couple of weeks have seen ministers stung into action to fend off criticism that government-imposed red tape has cost SMEs £10bn and strangled their competitiveness. Figures such as those released by the British Chambers of Commerce in its Cut Red Tape campaign, have been described as ‘nonsense’ by small-business minister Patricia Hewitt. She is said to have been incensed by claims made by the BCC over the running costs of the working time directive and the national minimum wage. On the defensive, she said: ‘Recent studies by the Organisation for Economic Co-operation and Development showed that the UK has fewer administration and economic regulations on businesses than any other OECD country, including the USA.’ Too much red tape Hewitt has also gone on record admitting there is too much red tape and it needs to be cut. ‘Government doesn’t create wealth, businesses do,’ she said. But Mo Mowlam’s red tape ‘star chamber’, set up to vet all regulatory proposals and the Small Business Service needs time to tackle this issue. Small and medium-sized business sector representatives say they are suffering from the cost of complying with the minimum wage, the working families tax credit, the working time directive and the fairness at work white paper. Among the most criticised is IR35, 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, despite boastings from the government that it is aiming to make the UK the global centre for e-commerce. Shedding staff Paul Treby, a partner at Somerset-based chartered accountants Berkeley Jackson, a UK200 Group member, said: ‘In treating these IT contract workers as employees for national insurance purposes 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 employment. They pay their taxes and self-employment NIC and their own pension, health insurance and other expenses are met by large employers.’ Another issue which needs attention involves small hi-tech companies which need to invest their 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 hi-tech businesses should be tax free. It remains to be seen whether the likes of the Small Business Service chief David Irwin can counter the growing concerns of SMEs or whether they will merely pay lip service.

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