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Understanding regulation in small firms

Do you want to pay more taxes? Thought not. Whilst in principle many of us support the idea of higher taxation to pay for better equipment for soldiers and better hospitals, when it applies to you in particular there is often more reluctance. The same applies with regulations and small businesses. Ask a small business manager what they think about regulations and invariably the word ‘burden’ comes as part of the response. In many respects regulations are indeed a burden. The administrative costs for complying with new and revised regulations do logically exact a greater proportion of resource from the smaller firm.

But as with taxation a lot of hot air gets expended talking about regulation. Some imagine a utopian world of free-markets where there are no regulations fettering business. The aim of de-regulation for them is a world empty of constraints. This is clearly not ever going to be achieved, nor would most reasonable people want it. Tiresome and expensive red tape for the small business owner represents good working conditions for their employees, and a guarantee of safe, environmentally sound, quality products for consumers. In practice, what people really mean by de-regulation is re-regulation: simplifying and making the rules that govern business activity more efficient and sensible. Even this is difficult to achieve, and despite the rhetoric of being the small business’s friend, governments often struggle to actually reduce, let alone simplify, the administrative ‘burden’.

From the government point of view, whilst they may attempt to ameliorate the impact of regulation on smaller businesses through thresholds and exemptions and the like, they have a responsibility to look at the big picture. And, in any case, some regulatory initiatives are meant to have a universal effect, because it is good for the nation as a whole. Ultimately the government has a responsibility to protect citizens, consumers and employees, and, where appropriate, to steer industrial policy. Sometimes this means that small firms lose out. Sometimes this is a good thing, even for the small firm. Regulations can have a profoundly positive impact on the international competitiveness of industries. High compliance costs can shift industries and their small firms into high-end, high-quality markets.

Getting it right is difficult, as is knowing whether you have got it right. Someone is always going to be unhappy about regulation. And unsurprisingly the vast majority of research on small firms - most of it based on questionnaire surveys - reports a negative attitude from small firm managers. When you speak to small business managers in more detail and the more you dig into the particulars, the more nuanced the responses become. Some recognise that regulations, though time consuming, also help to keep cowboys out, for example.

But despite recent research showing a more nuanced and less alarmist picture, we know very little about how firms understand and experience the regulations they have to abide by. This is why the Economic and Social Research Council (ESRC) – the chief and most prestigious government funding source in the UK – have funded myself and other colleagues from Newcastle to investigate the everyday reality of living with regulation for small firms. Our project has compared firms in the North East and the East Midlands in the environmental services, bio-pharma, film and media and security sectors, tracking 12 businesses over 28 months to get a close up understanding of how firms actually use and respond to regulations. The research team includes Dr Jane Pollard of the Centre for Urban Regional Development Studies (CURDS), Paul Richter (KITE), and Professor Monder Ram (De Montfort University), who has been awarded an OBE for his services to black and ethnic minority small businesses. The project findings will feed directly into policy thinking, which will be helped by the project Steering Group members, which includes Professor Robin Jarvis (Head of Small Business Affairs at the Association of Chartered Certified Accountants), Ian Drummond (Department for Business, Innovation and Skills), Sara Higham (FSB) and other policy-makers.

If you want to learn more, please contact Dr Simon Down simon.down@ncl.ac.uk

We are running a series of events, which we would be delighted you sign up to attend in either Newcastle or Nottingham. The events are free of charge.

http://bdaily.co.uk/events/business/12-06-2012/managing-regulation-what-small-firms-need-to-know/ at Newcastle University on the 12th June

or http://bdaily.co.uk/events/business/20-06-2012/managing-business-regulation-how-to-make-it-work/ in Nottingham on the 20th June 2012.

This was posted in Bdaily's Members' News section by Simon Down .