Big government is smothering SMEs
The government’s Employment Rights Act will drive yet another nail in the coffin of SMEs, says Tim Dier
According to the Department of Business and Trade (DBT), Small and Medium-sized Enterprises (SMEs) employ around 16.9m of us, a whopping 60 per cent of total private sector jobs. That includes everyone from the white-van man through to fintech start-ups.
The DBT estimate that accelerating SME growth by just one percentage point a year could deliver £320bn to the UK economy by 2030. But what’s making this growth so unattainable, you may ask?
Policymakers searching for the roadblocks throw out nebulous phrases such as “insufficient investment”, “skills shortages”, or “global headwinds”. But, to paraphrase the old poker proverb, if the government looks around the economy and can’t spot the problem, it’s probably the government.
Research undertaken by the Centre for Policy Studies has identified a plethora of red tape and associated costs that has built up over decades and now clogs up the arteries of SMEs. Complex rules that apply to every business, which for reasons of scale do not make a huge difference to large businesses, but are a real burden for smaller businesses.
The cost of complying with overly complex tax rules, ever-mounting employment rights, and reporting administration is both a financial one and a time one. Yet it’s rarely accurately measured or considered by government. Nor do they properly consider the number of entrepreneurs who’ve been put off starting a business, or the jobs that haven’t been created.
Most SMEs lack extensive back-office support and often end up handling admin tasks in their personal time, frequently at their kitchen tables, late at night or on weekends. Time spent searching for the various logins and passwords to interact with the government is time not spent with family and friends or growing their businesses.
Hidden taxes
Money paid to advisers who help SMEs navigate the system is effectively another tax, a dead-weight loss, sand in the cogs of business. Not to mention that the advisor’s time could be better spent helping businesses access new markets or raise capital for expansion, delivering the growth the government claims is its number one mission.
If these hurdles weren’t a burden enough, throw in the ever-increasing National Minimum Wage and rising National Insurance Contributions clobbering employers, and some of the world’s highest electricity prices, and it’s death by a thousand cuts.
That’s before the entrepreneur wakes up to find a disgruntled employee has made a spurious claim and is taking them to an employment tribunal. With the total number of open employment tribunal claims standing at over half a million, and backlogs in some areas of over two years, the SME faces the dilemma between settling a claim to make it go away, or fighting it and facing the inevitable sleepless nights. The government’s Employment Rights Act will drive yet another nail in the coffin of SMEs.
Evidently, politicians and their advisers, sitting in the comfort of Whitehall with their taxpayer-funded defined benefit pensions, lack hands-on business experience and show little understanding of what it’s like for an entrepreneur to trudge their way through government bureaucracy or to go without to make their employees’ payroll.
We need radical deregulation to unleash SMEs, unlock that £320bn in growth, and let the 16.9m hardworking Brits reap the rewards of boosting the UK’s productivity
Big government has become carbon monoxide for SMEs. The pendulum has swung so far against them that minor tweaks won’t be sufficient. We need radical deregulation to unleash SMEs, unlock that £320bn in growth, and let the 16.9m hardworking Brits reap the rewards of boosting the UK’s productivity.
In the absence of real experience, perhaps as a first step every Member of Parliament should be made to start a small business in a test environment and complete the assault course of interacting with the state, only to find that they’ve reached the cliff edge for charging VAT and are now out of pocket on their last sale. Only then may they realise that big government is the problem.
Tim Dier is a Research Fellow at the Centre for Policy Studies and runs an SME