Soapbox: The coalition needs to cut red tape, and fast

Ever since the coalition came into office in May, the business press has been awash with reports of a government pledging to help the private sector, so that UK business, particularly our SMEs, can survive and grow to lead us out of the current economic crisis.

There is no doubt in my mind that the government has been making all the right noises towards the business community and, for the most part, customers and entrepreneurs that I speak to seem to be quietly optimistic that Cameron, Osborne, Cable and co do actually understand what the business community needs from them.

However, once we are beyond the rhetoric, actually creating an environment in which entrepreneurship and small business can flourish is something else, and there are a number of areas on which the government desperately needs to focus its attention. These points are not just my opinion but what I have picked up from speaking to some of the 60,000 businesses (many of which are SMEs) whom we count as our customers.

First, employment law needs to be simplified and made more flexible, to make it easier for businesses to actually employ people. A recent survey that we undertook amongst small businesses showed that it is employment law - more than payroll, statutory reporting or even getting access to finance - that is the biggest source of frustration for SME managers. One third of those polled said that employment legislation was the area of business that most needs a reduction in government regulation.

The same proportion identified health and safety legislation as the area that the government should focus on first. So if the government is serious about reducing red tape for small businesses then it needs to focus on the areas that will make a tangible difference. We cannot continue to have a situation where SME employers suffer from what I call “tribunal terror”, reducing their willingness to hire, because of the never-ending obligations and requirements they must fulfil.

Second, the government needs to understand that it can't maintain the amount of legislation businesses need to comply with; it needs to actively reduce regulation in a focused manner, targeting those areas wasting the most employer time and causing the most frustration. The "one in, one out" rule is way too simplistic - and in reality, given that this rule does not apply to EU directives, red tape is likely to actually increase.

What the government must recognise is that now is not the time to be asking businesses to comply with new or complex regulations of any kind. The business community simply needs to be allowed to get on with running their operations and growing revenue through these difficult times. The benefits - increased tax revenue and employment - will by far outweigh the perceived advantages of greater regulation.

This is why I am so concerned when I read about new regulations being proposed on employer pension schemes, changes to the default retirement age and extensions to flexible working rights for employees. This never-ending tinkering does not seem to tally up with government pledges to reduce the burdens on small businesses.

Furthermore, HMRC has published proposed changes to the PAYE system which will completely overhaul the way that payroll processes are handled by every single employer in the country. Under these far-reaching plans, instead of firms running their own payroll or outsourcing to a bureau, the computational work will be centralised and done by an army of civil servants within the HMRC. Even if we put aside the actual practicalities of such a centralised system (and I have serious doubts about how workable it would be from both a capacity and security point of view, particularly given HMRC’s recent handling of PAYE), the fact is that the proposed changes seem to fly in the face of everything that this government stands for. How many people will HMRC have to take on in order to process calculations for every employee in the country? What happened to reducing the size of the public sector? How does this fit in with the government’s promises not to intrude on company operations?

The government has to start thinking about the actual necessity of new legislation for business – our research revealed that 85 per cent of SME owner-managers feel that the current PAYE system is satisfactory and does not represent a huge burden on their organisation compared to other statutory requirements. So why is the government focusing on overhauling the system? Unless new proposals have major benefits for UK businesses, I would suggest they be shelved – with every change ministers consider, they should be asking themselves “Will this initiative really make the economy grow faster?”

If the answer is “no”, don’t do it. Now is simply not the time to be making massive changes to the way that UK businesses have to operate. The message from business is clear - the best way to stimulate and grow the economy is to reduce the red tape that slows us down. So far the coalition has talked a good game; now let’s see this put into practice.

Martin Leuw is CEO of the IRIS Software Group.