The bonfire of regulations will soon fizzle out

Chris Dillow has punched a hole in David Cameron’s claim that his is the party of enterprise. He found that the rate of business start-ups and failures bears no relationship to which party was in power at the time. The British, it seems, set up and close down businesses at a pretty constant rate, regardless of the government’s colour.

The Prime Minister made his claim during a speech about creating a more business-friendly environment, taking on the bureaucrats and cutting red-tape. It occurred to me that there are similarities between ‘bureaucrats’, ‘red-tape’ and ‘quangos’. All are undefinable; there is no official definition for them. Therefore, everyone who hears a speech about quangos, bureaucrats or red-tape can interpret it as an attack on the organisations, people and rules they don’t like. This makes them the ideal politician’s target. You don’t have to be specific and everyone hears what they want to hear.

It is also why bonfires of regulation, like bonfires of quangos, never deliver. For as long as I have been politically aware, probably around thirty years or so, politicians of all parties have vowed to cut red tape. But the red tape is remarkably persistent. The truth is that some rules, like some quangos, have important functions. Get rid of them and things can go seriously wrong. If anything, some parts of the economy could have done with more red tape over the past few years. Mervyn King and others have been advocating just that as they demand tougher banking regulation.

Even as it condemns red tape, the government is coming under fire for introducing more of it. The ban on the display of tobacco products and the immigration cap, while supported by many voters, have been condemned as unnecessary regulation by some in the business world. That’s the problem with red tape; everyone has their own definition of it.

Which is why I expect this bonfire of red-tape, like the quango bonfire, to produce a lot of noise and smoke, then quietly fizzle out. A few rules will be abolished; most will stay. Business people will ignore the political rhetoric, grumble a bit about this or that regulation, then carry on setting up and closing down firms much as they did before.

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6 Responses to The bonfire of regulations will soon fizzle out

  1. Pingback: The bonfire of regulations will soon fizzle out - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Most small businesses fail usually due to a bit of bad luck along with various mistakes made along the way with initial planning. People generally learn from their mistakes and their next business venture will usually be more successful. The level of bureaucracy will have no effect on this cycle of events so unless the government subsidises the cost of an accountant they really don’t have much of an impact. Having said all that a possible exception is the infamous IR35 regulation which I doubt has earned the treasury any more money but has created it’s own industry to enable companies and contractors to get round it.

    It was interesting to see how roofers were mentioned in yet the conversation drifted on to Defence Companies which tend to be a different beast.

    If government are serious about helping small businesses it’s not less red-tape that’s needed but a different set of rules to level the playing field between the large corporates and small enterprises.

  3. Sarah Welfare says:

    One common pitfall for policy makers of all political persuasions is the creation of red tape as a result of attempts to make regulation more business-friendly via exemptions and flexibilities. A lot of the worst “red tape” has come about like this – compare for example the working time regulations with their many exemptions and special cases, versus the relatively simple and successful national minimum wage.

    That is not to deny that there are often valid reasons for complicated flexibility (such as the transition period needed for the NHS when it came to junior doctors’ working hours for example), or reasons why a simple approach will sometimes be like using a sledgehammer to crack a nut.

    But sometimes employers’ groups don’t contest the principle of a certain regulation/law, but set about lobbying government to implement it in a “flexible” (too often = ineffective) way. Surely better either to do something bold and simple – underpinned by proactive enforcement – or decide that regulation is not the solution.

    When it comes to public services, personally I think that this government has a genuinely radical approach when it comes to removing some of the regulatory safety nets that underpin public service delivery (inspection regimes, reporting, all the boring stuff that makes the red light go on when too many people turn out to be dying, for instance) which will also be undermined by cuts.

    In the NHS for example, the previous system of annual health checks backed up by sometimes quite aggressive (and very public) inspections of the type that uncovered the Mid-Staffs scandal had already been quietly replaced by a registration system which means that once providers are registered (as I understand it), they are unlikely to see a visit from an inspection team again.

    Put that together with setting schools and hospitals “free” from central control and I fear that you have a recipe for some serious problems – not that we are likely to know about them until it is too late.

    Oh dear, my comment has turned out to be as long as your blog, which makes me look like a bumbling bureaucrat.

  4. Jim says:

    You do realise that most small businesses only mange to continue because they ignore vast swathes of the rules they are supposed to comply with? That if all rules were rigorously enforced most small businesses would fold? Its the main reason why it costs councils so much money to do anything – they have to comply with all the regs. And it costs a fortune. Private businesses just ignore them, because the chances of getting caught are minimal, if you take certain precautions.

  5. Rick says:

    Jim – I understand that only too well. I run a business and work with a lot of SMEs. One of the reasons I left local authority employment was because I could see the increasing burden of regulation, together with a hostile press and political climate, reducing the capacity for innovation.

    It would be interesting to see a study of how much this adds to local government costs. One of the gripes of local authority managers bidding for contracts against private companies is that they have to abide by a whole set of rules that their competitors don’t.

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