IFF explore whether UK regulations present an obstacle to business success

A report exploring businesses’ views on regulation in the UK has been published by the Department for Business, Energy and Industrial Strategy (BEIS). The findings from this report were informed by work carried out by IFF Research in February and March 2016 as part of an ongoing biennial survey of 2,000 UK businesses.

Business opinion has been tracked for almost 10 years as part of this programme outlining which elements of regulation and the regulatory delivery are most burdensome to businesses and exploring where businesses get their advice on complying with regulation.

We have outlined some of the key information from the report below:

  • Half of businesses (49%) reported that they felt UK regulations presented an obstacle to business success (although this figure has gradually decreased over time).
  • Three-fifths (59%) agreed that the time taken to comply with regulation was a burden on their business.
  • The most important factor in encouraging businesses to comply with regulation is maintaining their reputation with customers.
  • On average, businesses spent £8,550 every year on external business agents to help them comply with regulation.
  • Their views of the Government’s approach to regulation were somewhat mixed
    – half (49%) agreed that they found the purpose of regulation clear.
    – only a third (35%) found most regulation to be fair and proportionate.
    – 19% felt that the Government consults well with business before introducing new regulation or changing existing regulation.

The full report and data can be accessed here: Link to full report

IFF Report: Views and behaviours in relation to the Annual Tax on Enveloped Dwellings

Another one of IFF’s high profile studies for HMRC has been published analysing the impact of the Annual Tax on Enveloped Dwellings (ATED).

The ATED was introduced as part of the Finance Act 2013 ensuring that people enveloping residential property in corporate envelopes (and not using them for a commercial purpose, such as renting) pay their ‘fair share’ of tax.

This report involved 40 in depth interviews with findings suggesting that ATED was successful in discouraging the initial enveloping of properties. In situations where envelopes already existed few took the option of de-enveloping as the ATED rate does not warrant losing benefits such as Inheritance Tax and privacy protection.

To view the full report Click Here

SMEs, Exports and The Bribery Act

Small and medium sized enterprises (SMEs) play a vital role in the UK economy accounting for more than half of employment and almost half of turnover in the UK private sector.

To boost the economy the Government are pursuing an export-led recovery, key to which is stimulating those SMEs already exporting to export more and those whom are not exporting (but have the potential) to start. It is estimated that around 20% of UK SMEs are exporting compared to the EU average of 25%. As UK SME exports are estimated at £100 billion a year increasing the percentage of UK SMEs exporting up to the EU average level would have a tremendous benefit to the overall UK economy.

Understanding the Bribery Act

Any exporting business needs to understand the legal framework it is operating in. A significant aspect of this is the international drive to address bribery. The Government is committed to ensuring that the UK makes a significant contribution to tackling corruption and the creation of a level playing field in international business.

The Bribery Act 2010 modernized the domestic and foreign offences of bribery and has extra-territorial reach. British citizens and companies trading in the UK can be prosecuted for offences committed under the Bribery Act anywhere in the world. Described as the toughest anti-corruption legislation in the world, concerns have been raised that the Act may harm British industry’s competitiveness in the global market with SMEs being the most harshly affected. As a result of these concerns the Department for Business, Innovation & Skills (BIS) and Ministry of Justice (MoJ) are working with industry to help small businesses fully understand the appropriate application of the Bribery Act 2010 so as not to spend unnecessary time and money on disproportionate compliance measures. To assess this work BIS and MoJ needed to develop a good understanding of:

  • SMEs’ existing level of knowledge and understanding of the Bribery Act;
  • Bribery prevention procedures currently have in place; and
  • Resources devoted to prevention activities.

IFF’s Findings

To help develop this understanding IFF Research was commissioned to conduct a telephone survey of 500 UK SMEs that were either already exporting or considering whether to export. Encouragingly the research showed a good level of awareness and understanding of the Act and its global reach and that many businesses had assessed the bribery risks they face and taken steps to mitigate them:

  • Two-thirds (66%) of the SMEs surveyed had either heard of the Bribery Act 2010 or were aware of its corporate liability for failure to prevent bribery;
  • Around eight in ten SMEs (81%) that had heard of the Bribery Act were also aware that the Act has extra-territorial reach (i.e. it encompasses bribery offences committed overseas);
  • Of all SMEs that were aware of the Bribery Act, almost three-quarters (72%) perceived that their company had sufficient knowledge and understanding to be able to implement adequate anti-bribery procedures;
  • A third of SMEs (33%) had assessed the risk of being asked for bribes, leaving just under two-thirds that had not assessed the risk of being asked (59%);
  • Around four in ten SMEs (42%) said that they had put bribery prevention procedures in place; defined as anything that they thought helped prevent bribery;
  • The majority of SMEs aware of the Bribery Act (89%) felt that the Act had had no impact at all on their ability or plans to export. When prompted as to whether they had any other concerns or problems related to the Bribery Act, nine in ten (90%) had no specific concerns or problems.

Our research shows that SMEs are generally taking a proportionate, pragmatic and low-cost approach to winning business without bribery. Our report of the key findings from the research can be found here:

Insight into awareness and impact of the Bribery Act 2010

How does the July Budget affect the research industry?

There have been plenty of talking points around this year’s budget. Now that the dust has settled we have decided to look a bit closer to home and think about how all of this will impact the research industry.

Education

Apprenticeships:

The recent budget contained a number of measures which will potentially have a major impact on the future of school leavers in the UK over the coming years. Of these the most significant of these is the introduction of a new Apprenticeship levy for large employers.

The aim of the Apprenticeship levy (not perhaps the natural step for a Conservative party with a predilection for free market solutions) is to fund increases in apprenticeship numbers and quality (e.g. the pledge to create 3m new apprenticeships in the course of this parliament).

Although the nature of the levy is not yet clear (who will pay it and how much) from a research perspective the key questions appear to be:

1. Will the levy generate the required increase in apprentices, while also maintaining quality?

2. How will this vary across different sectors and at different apprenticeship levels?

3. What is the employer view on this?

  • Which employers will benefit from these changes?
  • What affect does the levy have on employer non-apprenticeship training activity, and hence their overall investment in training?

Having conducted extensive research on support for the training levy in the construction sector, on employer views on Apprenticeships and on employer investment in training, we look forward with interest on the government’s research programme in this area.

Student maintenance grants:

The replacement of the Student maintenance grant by loans is another stand out consideration in the education space and will undoubtedly have an impact on those considering the option of University. Currently, students from families with annual incomes of £25,000 or less get the full grant of just under £3,400 a year; more than half a million students in England receive the grant costing taxpayers more than £1.5bn annually. The government hopes scrapping the grant will reverse under-funding of universities, and stops the basic unfairness of taxpayers funding grants for people likely to earn above average salaries. Critics focus on social injustice and the fact that scrapping the grant will make university unaffordable and unappealing for those from the poorest backgrounds.

On this basis the overriding question for research must be what impact does the introduction of the loan have on student numbers, particularly on (planned) applications from low and middle income families?

Welfare

Our recent blog challenging the stereotype of the benefit claimant discussed how the government may look to achieve its cuts of £12bn to welfare payments by 2018-19 – read our blog on here. This budget gives us a first look at how the government aims to approach these cuts. The flagship announcement regarding benefits from this year’s budget has been the new national living wage. This will see a reduction in the benefits provided to low paid workers but in turn businesses will be obliged to pay them a higher wage.

From a research perspective it will be interesting to consider what impact this will have on employment and the way in which employers recruit. It raises some interesting questions:

1. Will we see more under 25’s recruited as employers look to avoid paying the £7.20 living wage in favour of the standard £6.50 minimum wage?

2. Will we find employers recruiting individuals to work restricted hours – for instance, in retail or services, recruiting to cover narrower windows of ‘peak demand’?

3. Will it apply a ‘chilling’ effect to further recruitment, making employers consider more carefully whether to take on further staff?

A more difficult question to answer is whether the national living wage – like the national minimum wage before it – acted as a ‘default position’ that led some employers to pay less than they might otherwise have done –thus ‘flattening out’ wages paid, rather than acting as a ‘safety net’ at the bottom of the wage scale.

Taxation

There have been a number of changes to taxation in this budget with adjustments being made to personal tax thresholds and a reduction to the rate of corporation tax.

Researchers will play a key role following:

1. The impact of the proposed rise in Personal Allowance

2. The Inheritance Tax threshold for individuals

3. The reduction of Corporation Tax and changes to the Annual Investment Allowance for businesses (the August round of our Business Omnibus will be assessing the reaction to the budget across businesses of all sizes and sectors to see what kind of impact these changes have had).

Insurance Premium Tax:

As part of this budget the chancellor also announced that Insurance Premium Tax (IPT) will rise from 6% to 9.5% from November of this year. It is very likely that the IPT change will not be picked up by the majority of people even though it will have a significant impact. To put it in perspective, from November over 20 million households that hold contents / buildings insurance or motor insurance will see their premiums increase (it is estimated typical car insurance will increase by between £12 and £15).

Premium increases are likely to become another barrier for insurance providers to overcome as they look to engage with an already frustrated client base. See our blog on recent insurance innovations.

Healthcare

The words ‘challenging ‘ and ‘impossible’ have been bandied around with the conflicting demands of £22 billion in NHS efficiency savings by 2020/21 while also working to achieve a 7 day a week service in the same period. While there is certainly no ‘silver bullet’ with finance directors talking of general efficiency savings (without discussing specifics), procurement savings and ‘supporting staff to work in different ways’ (isn’t this falling under the efficiency savings heading?), all external suppliers are going to have to work within this austere context.

Only time will tell how deep and far these cuts will go, however what is clear is that ‘efficiency’ is going to be a key word for all suppliers to the NHS and other public sector health organisations, especially in terms of the service sector suppliers such as research.

In conclusion…

All research suppliers are going to have to think smarter in their research solutions and demonstrate this during the procurement process over the coming months. There are a lot of conflicting demands on limited budgets and research suppliers will need to actively demonstrate that the results of a project will enable efficiency savings as well as insight.

The competitive spirit

Competition law and anti-competitive behaviour

Healthy business competition benefits everyone. It is not only essential to the creation of free and transparent markets where businesses can operate in a fair environment but also brings many important benefits to the consumer such as encouraging business innovation and a widening of choice, thereby enabling them to buy the goods and services they want at the best possible price.

Competition Law is designed to protect both businesses and consumers from anti-competitive behaviour. While all businesses must comply with competition law, recent research we have conducted for the Competition and Markets Authority (CMA) into UK businesses understanding of Competition Law suggests that many businesses are unclear as to what is required of them in practice and that as a consequence, the potential for anti-competitive behaviour is present.

Understanding competition law

In order to be able to comply with competition law business must have an understanding of their obligations but our research shows that less than a quarter of businesses reported that they knew Competition Law well (23%) and only 3% said they knew it very well.

There is also a significant ‘compliance gap’ in relation to Competition Law: while 85% of businesses think that they should comply with Competition Law because it is the right thing to do ethically, there is low understanding around specific anti-competitive behaviours. There is also poor knowledge of the penalties for breaking the law and how to report anti-competitive activity.

To close this gap business understanding of Competition Law needs to increase. However, to do this businesses first need to see Competition Law compliance as important to them. At the moment businesses seemed more concerned about their compliance with other areas of law such as Health and Safety and Employment than with Competition Law. Overall 19% had discussed their company’s compliance with Competition Law legal requirements, while only 6% had held training sessions on complying with Competition Law.

The potential for anti-competitive behaviour

This low level of understanding and relatively low perceived importance of Competition Law leads to the potential for anti-competitive behaviours whether by accident or design. Our research shows that 83% of businesses meet other businesses from their sector and that when they do so many discuss transactions (44%) and prices (9%). While it cannot be assumed that these particular businesses are discussing prices in a fashion that is not compliant with UK Competition Law, it does suggest that the opportunity for anti-competitive behaviours around transactions and prices is present. It should also be borne in mind that as this was research for CMA this is possibly the lower limit of what is actually occurring as some businesses might not freely admit to anti-competitive activities.

Businesses also had a perception of non-compliant behaviour among their competitors: 30% thought that the activities of other businesses in their industry put them in at least medium risk of breaching Competition Law and this figure rose to 44% among those who claimed to be familiar with Competition Law.

Our report of the key findings of the research can be found at:

https://www.gov.uk/government/publications/uk-businesses-understanding-of-competition-law

A necessary burden

“If you have ten thousand regulations you destroy all respect for the law.” Winston Churchill 1931

Although not one of the great man’s best known quotes this one sums up the attitude of many UK businesses. To state the obvious these are difficult economic times and many businesses are under great pressure just to survive.

Regulation can often be regarded by businesses as another hurdle to overcome. That is not to say that regulation is a bad thing per se. Most business people would accept there has to be some setting of standards and guidelines – at the very least to ensure a competitive level playing field and to provide some basic protections for employees and customers. Rather it is the number of regulations and the burden these regulations impose in terms of direct costs and staff time which are often seen by businesses as a real barrier to growth. So whilst the UK is ranked 10th out of 142 countries as a place to do business in the World Economic Forum’s Global competitiveness report 2011/12, we are only ranked 83rd out of 142 countries in terms of the burden of government regulation on business.

Recognising the impact of regulation upon business growth, from 2010 the Government announced a range of deregulatory measures designed to ease the burden on UK businesses and in particular SMEs. These measures included One-in One-Out provisions (where to bring in new legislation that will impose a direct cost on businesses, the Government has to remove or modify an existing regulation of an equivalent cost), sun-setting clauses for new regulations (the regulation automatically expires after seven years, unless it is renewed) and a micro-business moratorium (a three-year freeze on new domestic regulation for businesses with fewer than 10 employees). But can Government ever move fast enough in this area for businesses? Can it deliver significant deregulatory measures that reduce the burden on businesses and how can it deregulate effectively when much of the regulatory agenda is driven by Europe?

The answers to these questions can only emerge over time but there are indications of some light at the end of the tunnel.

Earlier this year IFF conducted a survey of over 2,000 senior business decision makers on behalf of the National Audit Office, in collaboration with the Local Better Regulation Office and the Better Regulation Executive to determine businesses’ views on the extent of the burden of regulation, both in general and in specific regulatory areas, and how that burden might be reduced.

The survey found that fewer businesses felt that the overall level of regulation in the UK was an obstacle to their business success when compared to three years ago, but still half of all businesses – particularly SMEs – reported that there is too much regulation. There is also evidence to suggest that year on year fewer businesses are finding some aspects of regulation and compliance burdensome.

Nevertheless there is still work to be done in demonstrating to businesses that government understands their needs and is able to consult meaningfully with business on regulation and enforcement more widely.

A copy of IFF’s report is available to download.