‘Increasing amounts of regulation can lock people out of the workforce and so a different approach is needed for small and large firms’ is the message that the Federation of Small Businesses (FSB) will deliver to Labour at the party’s conference in Manchester.
Small firms bear a disproportionate amount of the regulatory burden, particularly around ever-changing employment legislation.

While small firms recognise that employment legislation benefits those already in employment, the FSB is concerned that by introducing new regulations, disadvantaged groups will be locked out of the workforce. This is because regulation increases the risks associated with hiring, which are particularly acute for small businesses, and can affect employers’ willingness to hire in the first place.

The FSB argues that it is small firms that create jobs and take on people who are shut out of the labour market – more than eight in 10 unemployed people that find work do so with a small business. However, legislation and regulation is designed to protect those already in employment while the people most in need of help are outside the labour market. By creating policies that undermine the inherent flexibility of small firms to recruit staff means they will become less able to take on people from these disadvantaged groups.

The increasing scale of regulation also means that growth prospects are slowed, and confidence to take on staff is reduced. Recent FSB survey work showed that 30 per cent of respondents believe that employment law is a barrier to taking on new staff and 26 per cent suggested that regulation in general limits their operations. More than one in five (21%) said that the risk of litigation or employment tribunals is a significant factor limiting their recruitment.

The FSB is urging all party’s to recognise the importance of ensuring that small firms are able to operate as flexibly as possible to create the jobs needed in the current economic climate. It would like to see:

  • An exemption for micro and small firms from the right to request flexible working. Many small firms will do this informally where it is appropriate for the business and so don’t need the added administration of formal requests
  • Changes to the onerous reporting requirements that will be placed on self-employed individuals when the Universal Credit system comes into force. These requirements will have a significant administrative and cost burden on self-employed individuals and will discourage entrepreneurship
  • A full exemption for micro-firms from burdensome pensions auto-enrolment, due to come into effect from 2017
  • The National Insurance Contributions holiday extended to all small firms across the UK that have fewer than four employees that take on up to an additional three

John Walker, National Chairman, Federation of Small Businesses, said:

“Taking a one-size-fits-all approach doesn’t always work. Too many policymakers don’t think about the consequences of policy for small firms or for the people that are on the outside of the jobs market trying to get in. Those people are more likely to be taken on by a small business due to their flexibility and so constant tinkering with the system will undermine this flexibility and result in fewer jobs being created.

“We know that employment legislation is designed to protect those that are already in employment, but it doesn’t help those people who are not working and it can make it more difficult for them to get a job in the first place.”