Sep 11, 2016

Let’s build a real bonfire of red tape

I spend much of my time promoting entrepreneurship, partly because I believe it is a public good. Living standards will rise only if enterprise and investment are encouraged.

But occasionally I despair as I observe the barriers that anyone faces when they want to start a serious new business.

It is not simply the challenge of raising capital, finding staff, inventing a better mousetrap and fending off the competition that can defeat the ambitious. Perhaps the most off-putting aspect for any founder is the ever-growing mountain of government regulation.

Nobody in the early days of a new undertaking could possibly comply with all the rules promulgated by the authorities. Be it employment legislation, building regulations, data protection rules, planning laws, health and safety regulations, tax and VAT paperwork, or energy and environmental legislation, the cost and time required to understand and comply with all the requirements would bury even the most energetic early-stage boss. So it becomes a question of which corners they cut.

Defenders of all the endless red tape say it protects the public. But very few of those who devise and apply the rules have actually worked in business, or run a start-up on a shoestring. They have minimal direct experience of just how hard it is for an entrepreneur to know all the regulatory technicalities as well as actually generating sales, delivering goods and collecting cash.

As the Food Standards Agency says: “The production, processing, distribution, retail, packaging and labelling of foodstuffs are governed by a mass of laws, regulations, codes of practice and guidance.”

So every new proprietor producing food had better learn that “mass of rules” — or face prosecution. This is a sector where thousands want to build a business — and consumers want choice, independent suppliers and local sourcing. But founders are put off by the armies of officials who feel it is their role to stop entrepreneurs doing things.

The food regulator says 90% of the industry’s rules were dictated by the EU. Assuming we leave, the British government must examine every law and rule, and scrap all those that are excessive. The weight must be lifted from the productive parts of the economy if we are to remain competitive.

Unfortunately, parliament, the civil service, quangos, local authorities and all the other arms of the state never truly take into account the damaging impact of their law and rule making. I do not believe that proper cost-benefit analyses feature when MPs undertake their favourite activity — passing more legislation. Proportionality and pragmatism are simply not considered important as they push their pet agendas. Meanwhile, the bureaucrats down the line who execute their new diktats gain their status and job satisfaction from catching out businesses and punishing them.

It is the same mentality possessed by those who join the police: they join up to catch villains. The armies of functionaries in government get their kicks from making life difficult for the private sector.

It never occurs to these taxpayer-funded drones that their bullying and harassment inhibits innovation, discourages job creation, suffocates initiative and places a crippling cost on business.

Big companies can mostly cope with this assault.

Indeed, their ability to deal with the bureaucracy is a competitive advantage.

But research shows that smaller, newer companies create most of the new jobs, and contribute disproportionately to innovation.

They should not be subject to the same regulatory regime as big business; they cannot afford all the in-house experts who ensure that they comply with every rule. Companies should be freed from unreasonable and superfluous red tape. Unions, lawyers, activists and others with a vested interest in ever more rules are enemies to progress in this sphere.

No single law kills business. But the cumulative effect of the 21,000 statutory business rules and regulations — expanded even over the past five years, despite efforts by the last government to slash red tape — contributes to the lack of growth in our economy.

Administering all the rules absorbs management time, while the regulations themselves add costs and cut industrial productivity. We complain about the lack of manufacturing in Britain, yet those who establish and operate factories know just how complex and expensive our rules make it. So companies outsource production to lower-cost countries, and jobs and exports are lost.

I believe societies do not decay due to sloth or extravagance. Instead, they fall apart because bureaucrats asphyxiate them. The harm is insidious and incremental. And by hindering risk-takers and killing opportunities, the state ends up immiserating its own citizens.