Blind Eye to Red Tape?

Written by Peter Chapman on Wed 26th Nov 2003

Peter Chapman was the part owner and director of a small business for nearly 20 years until 2002 when he sold it to a large PLC. Now he reflects on his scrapes with red tape over the years.

We hear a lot about red tape these days. It goes with decentralization, smaller government and a war on bureaucracy. I'm in favour of all those, but can anyone define red tape? I'm beginning to think that it's just a pejorative way of describing all official paperwork but, like it or not, the modern world simply doesn't function without its paperwork, particularly as so much of it is associated with personal and corporate taxation, national insurance contributions and VAT and none of those is going away in the near future.

My own definition of red tape is the whole panoply of legislation and regulation which affects business, every piece of which is well-intentioned and justified in its own right, but taken together represent a weight of straw sufficient to break many a camel's back unless its owner can offload some.

Red tape is said to be a particular problem for small business and that thrusting young entrepreneurs are being held back by red tape. If that means they don't like paperwork in general, then they will never be successful businessmen anyway. For one thing they won't know if they are making a profit or not until it's too late and they are bankrupt.

It has been proposed in a Liberal Democrat policy paper that start-up businesses should have a two-year "red tape holiday". How would that work? Keep no records? Pay no taxes? Not comply with legislation? At the very least it would invite fraud and it would cause a major outcry if new businesses did not have to meet equal opportunities or racial discrimination legislation designed to protect the rights of their employees and their customers, just to mention one example.

The fact is that one person's red tape is another person's essential legislation required to protect workers, customers, the environment, minorities, the old, the young, the poor, the sick and so on. There will always be a pressure group who will say "that isn't red tape, that is an essential regulation which we fought for years to get enacted".

If we are serious about a war on red tape, then we must firstly concentrate on not creating any more. I've just read a regional party conference policy motion which seeks to value and tax land zoned for development but not being used to its full potential. Sorry, guys, you can't have it! More bureaucracy, more red tape! We have got to get used to the implications of smaller government if we mean what we say about red tape.

I ran a small business for nearly 20 years and I saw some changes in red tape in that time. Starting with the good news, I would like to praise the Civil Aviation Authority, who were the regulators of my business, for their efforts to balance every request for new information with a relaxation of other data which they said were no longer as relevant as they used to be. Bureaucrats don't have a reputation for relaxing their grip on anything, even if it has become out of date and useless, but the civil servants at the CAA were a model of how to regulate a business. What they did was highly desirable, too, not just red tape, because there are plenty of cowboys out there ripping off their customers in the travel sector.

Now let's turn to the sad case of the Treasury. I always did my monthly payroll manually, filling in the figures on a spreadsheet of many columns which must have grown by 50% under Gordon Brown. New columns were added for Statutory Sick Pay, Statutory Maternity Pay, Working Families' Tax Credit, Student Loan Repayments etc and nothing was ever deleted. It has just got more and more complicated.

So how does a small business cope with all this? I quickly realized that it would be possible to spend 100% of my time reading and digesting all the "bumph" which came in the post, leaving no time for customers and employees so I had to be selective and ask myself the question "what might be the implications of ignoring this?" and then straight into the bin for about half of it. I particularly remember one occasion when the Inland Revenue sent me details of how to operate the Scottish Variable Rate of income tax. This was in response to the powers given to the Scottish Parliament to vary the national rate of income tax by 3 points either way and I reflected on all the resources and paper which had been devoted to telling me, a small business owner in the Thames Valley, what I might one day have to do if I should take on an employee with an address north of The Border. It went straight into the paper recycling box along with a load of other stuff.

I was discussing this attitude of mine towards red tape with a colleague recently. He reproached me for being no better than somebody who doesn't insure his car because he knows that the fine when you are caught will be less than the cost of car insurance. I don't think I am as irresponsible as that but there is some validity in his criticism. However it is an economic jungle out there for small businesses and there is no point being a red tape hero who gets eaten alive by predatory competitors. You do no service to your customers and employees if you go out of business because you were too meticulous about every regulation which might apply to you.

The important thing is to use your judgement to separate the important from the trivial. I always made sure that my returns to the Inland Revenue and VAT office were complete, accurate and on time. In consequence they left me alone most of the time, with inspection visits no more than once every five years or so. It's the businesses who can't get the essentials right who most frequently complain about the hassle they get from officialdom.

My own worst brush with red tape in terms of hassle and wasted time was the ease with which disgruntled employees could bring spurious claims against their employer to an Employment Tribunal but I know that reform of employees' rights legislation is not on anyone's agenda - in fact the Liberal Democrat policy paper "Setting Business Free" proposes enhancing employees' rights; it maybe wholly justifiable but it won't do anything to reduce red tape. All of us will have our own feelings on what is red tape which we would cheerfully sweep away but there is unlikely to be any consensus which would allow uncontroversial reforms to proceed.

I've had the interesting experience of discussing the black economy with an Italian hotel-owner who was explaining how he reduces his tax bill. Seeing my obvious disapproval, he explained that if he paid every tax imposed by the Italian state, his tax bill would be higher than his income; that is certainly an exaggeration but similar to my attitude to red tape.

When policies to reduce red tape are being proposed it will be important to specify in some detail what legislation is to be repealed so we have an idea of the trade-offs involved. Clearly there will be little benefit if the regulations have only a minor impact on business anyway or are already being widely ignored. Red tape, and legislation in general, is best enforced if 99% of the population comply with it willingly, because when they don't the resources of the state are inadequate to take significant action - take the motorway 70mph limit and possession of cannabis, for example. There are too few trading standards officers to enforce all the regulations they are responsible for, so they, too, have to concentrate on what seems important and ignore the rest. Legislators proposing new red tape would do well to reflect on what are the likely chances of enforcement

The moral of all this is that small businesses will survive the onslaught from government - it is in the nature of their owners to see to that - and so they should. Small businesses create jobs, generally have good employee/employer relations, and are a factor for stability in the economy. They are not as prone as large corporations to make abrupt policy changes. However their owners are forced to turn a blind eye to some of the red tape they find inconvenient or inappropriate.

Horatio Nelson famously put his telescope to his blind eye when he realized he was getting instructions which would turn victory into defeat from his admiral's flagship at the Battle of Copenhagen. It didn't do his reputation or his career any harm. And I think that Nelson was not so much of a rebel that he wouldn't have insured his car. I think he got the balance right.