A couple of weeks before her short stint as prime minister ended, Liz Truss delivered on a pledge to tackle what some – including Truss – saw as red tape holding back “thousands of growing businesses” in the UK. The move focused on exempting small businesses from certain regulations to help stimulate growth. It involved expanding the government’s definition of “small business” to release “thousands of UK businesses” from reporting requirements and regulations.
Small businesses are an undoubtedly important part of the economy. The latest UK government figures (based on previous definitions) indicate that small and medium-sized enterprises (SMEs) account for 99.9% of businesses, contributing 61% of total employment in the private sector.
Many critics of regulation believe rules hold businesses back. Indeed, following Brexit, former government minister Jacob Rees-Mogg identified in excess of 2,400 EU laws for swift removal as part of a bid to stimulate UK economic growth. Our research reviewed a range of evidence on this issue. It confirms that regulations can be burdensome for small business, but the relationship is not that simple. In fact, some “red tape” can even be good for such firms.
Perception surveys often ask owner-managers about regulatory burdens. When asked whether regulations are hindering growth, a reasonable proportion of owner-managers will typically respond that they are, according to our research. The exact figures vary from survey to survey, and regulation is never reported as the most significant issue, but we find that it does regularly feature on the list of obstacles for such firms.
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