The current Government has made much of being ‘a Government for small business’ by making efforts to reduce red tape for SMEs. They’ve also shown willingness to tackle the issue of late payment more forcibly. Even before the Carillion collapse.
But how much are their policies costing the average small business? Quite a lot, a recent analysis suggests.
Cost of government policy up £60,000 in six years
According to the latest Impact of Government Policy Index (IGPI), the UK small business community collectively spends 15% more on taxes, levies and employment obligations compared to 2011.
The Index, compiled by the Centre for Economics and Business Research (Cebr) for the Federation of Small Businesses (FSB), analyses a range of policy-linked obligations. It’s a long list including;
insurance premium tax
employer National Insurance Contributions
the apprenticeship levy
minimum wage rates
vehicle excise duty
climate change levy.
It 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.
The Index also reveals that Labour-intensive industries are hit particularly hard by government interventions. Smaller businesses in the construction sector suffered a 28% increase in policy-linked costs, 13 percentage points higher than the IGPI reading for small UK firms as a whole.
The policies costing small firms dearly
Some of the major costs companies now face include:
Higher employment costs
Employment costs have soared since 2011, with the minimum hourly pay for staff over 25 rising 29% in that time. The rate is set to increase by a further 5% in April
National insurance contributions of more than £1,000 a year for qualifying employees
Contributions to their qualifying employees’ auto-enrolment pension schemes. Currently at 2%, employer contributions will rise to 3% in April 2019.
On top of this, previous FSB research shows that on average, a small company loses £5,000 and three working weeks a year to tax administration and paperwork alone.
“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,” said (FSB) National Chairman Mike Cherry.
“This will be a flashpoint for a lot of businesses, one which could threaten the futures of many.”
He warned that small firms are set to see costs spiral as the result of government policies in the months ahead. With Brexit on the horizon,he wants to see the Government doing more to help small businesses.
“Mitigating spiralling employment costs through further enhancement of the Employment Allowance and reforming outdated aspects of the tax regime, particularly business rates, would be a good place to start,” he added.
Failure to thrive in the international market
The Index was released just as it was announced that the UK had fallen 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 competition to attract entrepreneurs to the UK is more intense than ever”
warned Mike Cherry. He believes the cost of staff is a significant burden on UK small businesses as they begin to grow, hindering their progress.
“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.”
Want to know more? You can read the IGPI 2019 here.
What do you think of government policy? Do you think it’s costing small businesses more than they gain? Let us know your thoughts below.