Red tape may be costing business £30bn - and small companies bear the brunt

Philip Hampton, the man charged with reducing the regulatory burden on British businesses, yesterday said he could not yet be sure of the cost of complying with red tape.

Mr Hampton, who is chairman of the J Sainsbury supermarket group, says in his interim report that there is a large spread between different estimates of the overall burden "The review has seen figures, based on various methodolgies, suggesting that the total regulatory burden (policy and administrative costs) is £7bn, £30bn or even higher."

In setting up Mr Hampton's review, which is attempting to reduce the administrative burdens for business, the Government is hoping to fight back against criticism from bodies such as the British Chambers of Commerce, which argues that today's regulatory burden - £30bn on its estimate - is £13bn more than it was in 1998.

Mr Hampton's interim report finds that although reforms in recent years have increased the efficiency of regulatory enforcement, there is still room for improvement in a number of areas. He argues regulation has been skewed too much towards inspection and not enough towards advice and compliance; regulations have been applied inconsistently; the cumulative burden of paperwork has been disproportionately burdensome on small business; different regulators have had difficulty joining their systems and operations; and the penalty regime has been cumbersome, with few positive incentives for compliance.

Mr Hampton, who will be considering responses until early February, said yesterday: "I was concerned by the complexities and inconsistencies I found in the inspection and enforcement system, and the number of different interactions that a typical business has with its regulators."

In compiling his interim report he spent the eight months consulting with more than 200 businesses and stakeholders in every region of the UK on how 59 national regulators and 468 local authorities enforced regulations on business, he said.

The publication of the interim report was welcomed by the Federation of Small Businesses, which has 185,000 members representing some of Britain's small businesses. It said: "We are pleased that the report appears to be making significant progress."

The Conservatives disagreed, arguing that they see the report making little difference in the end to the administrative problems faced by small businesses and by business in general.

The Chancellor also said yesterday that the Inland Revenue chairman, David Varney, was creating a dedicated small business unit and consulting on the idea of allowing small companies to send in a single tax return covering all taxes and creating a single account for payments. The Treasury also published a discussion paper aiming to simplify the tax system for small companies.

The Government says there are currently "underlying tensions in the tax system" as it applies to those running small businesses. "In looking at these tensions the Government will want to ensure that the tax regimes strike the right balance between promoting enterprise and growth and ensuring that everyone pays a fair amount of tax and national insurance," it says.

The accountants BDO Stoy Hayward said: "The undertone of the discussion paper is that the Government clearly dislikes the fact that those entrepreneurs that operate their businesses through limited companies can gain certain tax advantages, particularly by extracting profits through dividends."

One suggestion in the document is to separate shareholders in an owner-managed business from other company owners for tax purposes.

"The stated purpose of this may be to iron out any unfairness in the system. However, the reality is that there a number of businesses that may have incorporated for good commercial reasons and who would view any change as onerous and unnecessary," the accounting firm said.