Compliance costing small business £6 billion every year

Recent figures from the Forum of Private Business have revealed that spending on complying with regulations through the paying of external consultants is around £6 billion every year. This is around one third of the total spending that firms use for dealing with red tape.

The study was commissioned as new regulations are coming into force in October. Since 2009, when the last such survey was conducted, nearly 70 per cent of businesses say they have increased the amount they have spent in order to comply with various regulations.

The Forum is a non profit organisation and found that as well as spending this £6 billion on contractors, they also lose around £11 billion through the loss of internal time that could be spent focusing on other tasks. The figure in 2009 was an average spending of around £2000 per year per firm, today the figure is close to £5000.

The figures break down to give the amounts spent in different areas. On employment law consulting firms spend about £750 million, on safety support they spent near £1 billion and for tax advice firms are spending over £3.3 billion.

Phil Orford is the Chief Executive of the Forum and has said, “In this poor economic climate small businesses are trying desperately to cut costs where ever they can. One such area should be the red tape they have to cut through. Unfortunately though this keeps increasing and more money is having to be spent on consultants every year. This is slowing the growth of companies, which is slowing employment, which, in turn is making the economy weaker.

“Big companies will have departments that deal with regulation compliance, but this is something smaller firms do not have. Therefore they have to hire an expensive consultant, or do the work themselves. Either way it is going to be a significant cost to their business. Our estimates put the time lost for complying with regulations at about forty hours per month.”

Orford has also commented about what happens when regulations are breached, “If a company breaches a regulation they are going to face yet more costs as legal fees are very high. Businesses have no choice but to comply with the regulations completely or risk even larger costs.”

A notable problem in today’s economic client is the increased consultancy costs a company will face when they take on more staff. When a business has only a few staff there are less regulations to comply with, but as the work force grows there are more and more. This means that businesses will be reluctant to take on new staff members. Firms with less than 10 employees will pay half the fees of a firm with 50.