Excessive government regulation is systematically suffocating Britain's small and medium-sized enterprises (SMEs), threatening a potential £320bn boost to the economy, a leading researcher has warned.
The Crushing Weight of Compliance
According to Tim Dier, a Research Fellow at the Centre for Policy Studies who also runs an SME, the cumulative burden of complex tax rules, mounting employment rights, and administrative reporting is crippling smaller firms. Small and Medium-sized Enterprises (SMEs) employ approximately 16.9 million people in the UK, accounting for 60% of all private sector jobs. The Department for Business and Trade (DBT) estimates that accelerating SME growth by just one percentage point annually could deliver an extraordinary £320bn to the UK economy by 2030.
However, Dier argues that policymakers in Whitehall, insulated by taxpayer-funded pensions, fail to grasp the daily reality for entrepreneurs. The cost of compliance is not merely financial; it is a vast drain on time. Most SMEs lack large back-office teams, forcing owners to handle complex government admin during evenings and weekends at their kitchen tables.
Hidden Taxes and Tribunal Fears
Money spent on advisers to navigate the system acts as a hidden tax, diverting resources from productive activities like market expansion or capital raising. This burden is compounded by the rising National Minimum Wage, increasing National Insurance Contributions, and some of the world's highest energy prices.
A particularly acute fear for small business owners is the employment tribunal system. With over half a million open claims and backlogs exceeding two years in some regions, an SME faced with a spurious claim must choose between a costly settlement or a protracted, sleepless-night-inducing legal fight.
The Final Nail in the Coffin?
Dier singles out the government's forthcoming Employment Rights Act as a measure that will "drive yet another nail in the coffin of SMEs." He contends that the regulatory pendulum has swung so far against small businesses that minor tweaks are insufficient. What is needed, he states, is radical deregulation to unshackle the sector.
Research from the Centre for Policy Studies identifies a plethora of red tape built up over decades, which clogs the arteries of smaller firms. Rules that are a minor inconvenience for large corporations become a severe burden for businesses without extensive legal and compliance departments.
Dier provocatively suggests that, as a first step, every MP should be required to start a small business in a simulated environment. Only by navigating the VAT cliff edge and experiencing the bureaucratic assault course firsthand, he argues, might they realise that "big government is the problem." The call is clear: to unlock growth and let 16.9 million workers reap the rewards of higher productivity, the state must get out of the way.
