Thursday, 12 January 2012


I was having a discussion with one of my mates the other day about spending cuts. It was a really exciting conversation, as you may gather! His assertion was that the spending cuts were going too far, too fast, and it was choking off an economic recovery. My assertion was that the state of the economy is more to do with high taxes and excess regulation, and what we need to do is to cut red tape.

So, my mate set me a little homework - to find 10 examples of burdensome regulations that should be cut or reviewed in order to get the economy moving. So, here we go:

  1. Banking - for retail banks to start up business in the UK, it currently costs about £25,000 to apply for the licence. On top of that, there are regulatory requirements to hold a minimum of €5million or more of assets for capital and liquidity purposes. These rules apply even if you only want to provide savings and current accounts, rather than more risky activities such as loans, mortgages and investment banking. They have the effect of limiting new entrants to the market, thereby stifling competition, and allowing the industry to be dominated by a cartel;
  2. Health and Safety - there are currently 51 separate items of legislation referring to health and safety. Nobody is saying that health and safety isn't important, but do we really need 51 separate items of legislation, which are complicated, and difficult to understand and navigate? Keeping up to date with these, and interpreting whether they apply to particular industries or not, is a significant cost on companies, using up money that could be geared towards investment. The regime should be streamlined and simplified;
  3. Minimum Wage - although the Minimum Wage has been useful for setting a benchmark in terms of people's pay, it's interaction with the benefits system has resulted in some people actually being better off on long term benefits than in employment, particularly if they have children. This is a direct barrier to greater employment, and ergo economic activity. Furthermore, the concept of placing an artificial price on someone's labour means that a company will not employ someone if they do not think they are worth the wage, but they might have been employed if the company had the option of paying them less;
  4. CRB Checks - CRB checks currently have to be performed for a wide range of jobs, and virtually anything involving contact with children, even if their parents are supervising. This is a direct cost to businesses. On top of that, a CRB check is a one-off, and does not assess someone's ongoing suitability for the job. So the regulations are not just burdensome, they are ineffective in their purpose. They should only be necessary for supervisory jobs with children, i.e. where their parents aren't present, and there should be a requirement for an annual renewal in such jobs;
  5. Company Law - there are currently 131 separate items of legislation pertaining to company law, specifically accounts and returns, corporate structures and workings, business names and public disclosure. Navigating these is a minefield, particularly for smaller companies who cannot afford expensive legal advice. This is a direct obstacle to new businesses starting up, and an ongoing cost to existing businesses. These should be simplified and consolidated, preferably into a few easy-to-navigate Acts of Parliament;
  6. Private Finance - new businesses often require initial capital in order to get themselves off the ground. Currently, the primary source of this initial capital is High Street banks, but because the banking market has little appetite for lending, new businesses are struggling to get the investment they need. This could be solved by allowing pension and mutual funds to invest in new businesses, rather than the current blanket ban on unlisted companies, and would help to loosen the banking stranglehold on the economy. There are about 5 High Street banks - there are over 35,000 pension and mutual funds;
  7. National Insurance - we currently operate two taxes on earnings in the UK - Income Tax and National Insurance. These have to be levied separately, often requiring complex payroll software or laborious calculations, which is a disproportionate cost to small companies. National Insurance should be abolished, and the rates added to Income Tax, vastly simplifying the tax system. The residual Employer National Insurance could be retained as a Payroll Tax, which is what it is anyway;
  8. Payroll Tax - Currently, employers have to pay 13.8% of their employees' income (over a minimum threshold) in Employer National Insurance, which is in effect a Payroll Tax. The revenue may well be useful to HMRC, but the way it is levied is a direct obstacle to employment. This should be carefully looked at to see if there can be an alternative way of raising the revenue without harming the labour market. Increasing the minimum threshold and reducing the rate may actually stimulate jobs and bring in more revenue;
  9. European Law - many of our laws originate from the EU, and there are often conflicts with domestic law, leading to confusion and sometimes costly litigation. If European law is to be enacted in the UK, I would suggest a full legal analysis of it's impact before it's application, then it's application via Acts of Parliament and the relevant repeal of conflicting legislation. In other words, keeping the law as simple as possible, rather than just bolting bits on and hoping for the best. Of course, politically, this would require a fundamental change in our relationship with the EU, but that's not a bad thing;
  10. Planning - the current planning permission rules are particularly hideous and overbearing - there are currently over 200 items of legislation regulating town and country planning. Restricting the urbanisation of rural areas isn't a bad thing, but if we're going to do it and still allow a dynamic economy, re-use of brownfield and inner city sites is absolutely key. Securing change of use from residential to commercial and vice versa is particularly difficult. These laws should be simplified and consolidated, shifting the bias away from maintaining the status quo, especially in urban areas.

So, 10 examples there of red tape that could be cut, reduced, simplified and/or consolidated which would have a lasting impact on the economy in this country, making it easier to start businesses, carry on in business, get a job, employ people and make money.

Off you go then. Snip, snip.