Follow up: small firms stunted by red tape

Small firms are now complaining there is too much form-filling these days, with many deliberately holding back on growth to avoid more red tape.

The Better Regulation Task Force believes that small firms are choosing to remain small to ensure they stay below the threshold at which regulations apply. Many health & safety and employment rules only affect firms with five or more staff, for example.

The government-backed task force also found small companies were frustrated by the amount of unnecessary form-filling imposed by the European Working Time Directive.

The research team, chaired by Lord Haskins, chairman of Northern Foods, found that the main problem is that firms are more concerned with survival than regulations when they first start up in business. "As they develop and take on employees, they breach regulatory exemption thresholds and come to the attention of enforcers, but are still too small to justify employing a regulatory expert," he said.

The task force says the solution is not to exempt small firms from the rules or to change the rules to accommodate them, but simply to give them compensation for the extra work generated.