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29 January 2019

Cost of government policy to average small firm surges £60,000 in six years

  • New analysis shows smaller businesses spending 15% more on government interventions compared to 2011
  • Labour-intensive construction sector suffers 28% rise
  • Research comes as UK falls from 4th to 9th in World Bank’s Ease of Doing Business index and to 34th in World Economic Forum’s Burden of Government Regulation rankings

The UK small business community is collectively spending 15% more on a swathe of taxes, levies and employment obligations compared to 2011, according to the latest Impact of Government Policy Index (IGPI), compiled by the Centre for Economics and Business Research (Cebr) for the Federation of Small Businesses (FSB).

The index – which analyses a range of policy-linked obligations, including business rates, auto-enrolment and Insurance Premium Tax1 – shows the average VAT-registered UK small business collectively spending over £480,000 each year on these interventions, up from £420,000 six years ago.

Previous FSB research shows that small firms each lose an average of £5,000 and three working weeks a year to tax administration and paperwork alone.

Labour-intensive industries are hit particularly hard by government interventions, according to the index. Smaller businesses in the construction sector have suffered a 28% increase in policy-linked costs. The figure is 13 percentage points higher than the IGPI reading for small UK firms as a whole.  

Employment costs have soared since 2011. The minimum hourly pay rate for a member of staff over the age of 25 has risen by 29% in that time. The rate is set to increase by a further 5% in April.

Employers must also make national insurance contributions of more than £1,000 a year for qualifying employees and – from next year – their minimum contribution to auto-enrolment schemes will rise to 3% of eligible staff earnings.   

Federation of Small Businesses (FSB) National Chairman Mike Cherry said: “In 2011 the UK was ranked the fourth best place in the world to do business. Today, it’s ranked ninth. Despite some welcome announcements from the Chancellor in October, small firms are still set to see costs spiral as the result of government policies in the months ahead.

“Come the beginning of April, small firms will not only have Brexit day to worry about but also Making Tax Digital, a higher living wage, rising employer auto-enrolment contributions and further business rates hikes. This will be a flashpoint for a lot of businesses, one which could threaten the futures of many.

“The competition to attract entrepreneurs to the UK is more intense than ever. With Brexit on the horizon, it’s critical that government at all levels does it upmost to help, rather than hinder, the UK small business owners who are being tempted to other shores.  

“Small employers have played a massive role in securing record-high levels of employment. Maintaining these levels means providing more support for the small and mid-sized firms that are hit especially hard by policy-linked costs – particularly where staff are concerned.

“Government officials scratch their heads over why small UK firms don’t expand at the same pace and frequency of small businesses elsewhere. Clearly, the burden placed on business owners as they grow their workforces needs to be looked at.

“The minute you start firing on all cylinders as a business owner – stepping up your hiring, investment and sales activity – you’re struck with an avalanche of additional cost burdens. That has to change. Proactive efforts should be made to address the debilitating cumulative impact of these interventions on small firms.

“Mitigating spiralling employment costs through further enhancement of the Employment Allowance while reforming outdated aspects of the tax regime – not least business rates – would be a good place to start.”