Red tape puts off good employers from taking on new employees, says the Federation of Small Businesses

11th December 2008

The smallest businesses are the best employers, but are put off from employing staff by the burden of increased regulation, according to a new report commissioned by the Federation of Small Businesses (FSB).

The number of sole traders and entrepreneurs who work on their own has increased over the last decade, the report says. At the same time, the number of micro-businesses, those with up to nine employees, has fallen, indicating that the small business sector appears to be actually employing fewer people, even though the sector itself is growing.

The report, entitled Small Businesses in the UK: New perspectives on evidence and policy, shows that only one in five employers feel confident about employment law and many are put off by what they consider to be excessive regulation.

Small firms bear a disproportionate burden of any costs associated with new regulation when it is introduced, according to the findings of the report.

But the report – which was commissioned by the FSB and written by the University of Westminster – also shows that small businesses are considered to be good employers, and employ more previously long-term unemployed people than medium or large firms do. They also employ a larger proportion of women and older people. Employees in small firms are also more likely to feel fairly treated by their managers, and are 13 per cent more likely to have flexible working hours than in companies with more than 500 staff.

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

“Small businesses are clearly good employers who look out for their employees, offer them flexible working and are more likely to employ those who were previously unemployed. This report also says that small businesses train unskilled employees on the job, which shows that small firms play an extremely important role in tackling unemployment.

“However, the figures also show that regulation is a real burden for employers who cannot keep up with more and more complex law and red tape. With more and more entrepreneurs appearing to want to go it alone, we are seeing fewer very small companies actually doing what they do well and employing people, which is a real loss to the economy.”

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