Embargoed until 00.01 Thursday 20 September 2012
To unleash growth for start-ups the government must create exemptions in employment law and simplify the enforcement of existing regulations, a new report, Red Tape Challenge – Challenger Businesses, suggests. Furthermore, the government must strive to remove unnecessary or unfair regulations and minimise the need for or impact of any new regulations.
The high risk nature of Challenger Businesses means that they may be disproportionately affected by inflexibilities in the labour market. Exemptions from employment law could have a considerable positive impact. An automatic right for some staff to be treated as self-employed, meaning staff would be exempt from usual employment rights such as wrongful dismissal, would mitigate a vast array of risk, expense and uncertainty for employers.
It is recommended that:
- Staff could be treated as self-employed for a period of time from a company’s formation, for example for a period of three to five years.
- A certain number of staff could be considered as self-employed by a company, for example, up to a dozen.
- Staff could be considered as self-employed until the company achieves a certain annual turnover, for example £5million per annum.
There are also significant issues with the enforcement of existing regulations. There is no clarity over the speed with which one needs to comply with a certain regulation, the likely consequences of a failure to comply, or their rights to appeal. Attention must be given to what protections for a company can be built in at the level of enforcement.
It is recommended that:
- A regulator be obliged to provide a written statement of the reasons compliance is sought.
- A regulator must provide a written explanation of why any immediate enforcement action is necessary.
- Companies have the right to have their point of view heard and considered before any non-immediate enforcement is actioned.
- To complement in built sunset clauses, ‘sunrise’ clauses be added to new rules, giving companies a substantial period of time to prepare for any new regulation or regulatory change.
Commenting on the paper, its author, Mark Littlewood, said:
"It is easy for politicians, especially in opposition, to promise a bonfire of red tape. When they get into government, it is rare for there to be much more than a gentle smouldering around the edges.
"The coalition, through the Red Tape Challenge, deserves credit for taking some welcome steps down the path to a less tightly regulated economy.
"Upstart, challenger businesses which provide alternatives to the established order too often find themselves in a sort of legal twilight zone, whereby regulations designed for a very different world simply aren't appropriate or even comprehensible. It's therefore important to ensure that radical new business models can get clear, timely guidance about the regulatory structures and challenges they face.
"The government has already taken some steps to reduce the number of employment disputes likely to end in a full blown tribunal. But further liberalisation in this area would be welcome, especially in assisting challenger businesses. If new start-up, high risk businesses were able to take on a certain number of staff designated as consultants rather than employees, this could encourage faster growth in this dynamic sector.
"There is much further to go in creating a truly modern regulating environment in which new businesses can thrive and employment opportunities flourish, but it is encouraging that the Red Tape Challenge has helped get the government moving in the right direction."
Notes to editors:
1. This report has been independently authored for the Red Tape Challenge by Mark Littlewood. It does not represent the views of the Institute of Economic Affairs.
2. To arrange an interview with Mark Littlewood, please contact Stephanie Lis on 020 7799 8909 or 07766 221 268.
3. The Red Tape Challenge was launched by the Prime Minister in April 2011 and is systematically examining some 6,500 substantive regulations that the Government inherited with the aim of scrapping or significantly reducing as many of them as possible. It gives business and the public the chance to have their say, by theme, on the regulations that affect their everyday lives. It has also asked the public what red tape holds back Disruptive Business Models and Civil Society Organisations. The Government announced on 10 September 2012 that at least 3,000 of the regulations examined will be scrapped or reduced. More information on the Red Tape Challenge is at www.redtapechallenge.cabinetoffice.gov.uk .
4. The results of the Challenger Businesses theme can be found in Removing Red Tape for Challenger Businesses, which can be found here: www.bis.gov.uk/challenger-businesses-report 
5. Mark Littlewood’s independent report can be found here: http://www.redtapechallenge.cabinetoffice.gov.uk/2012/09/20-09-12-disruptive-businesses-modelschallenger-businesses