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Ministers found no evidence Truss’s ‘red tape-cutting’ will aid businesses

Exclusive: The government’s own expert has warned that the prime minister’s deregulation could hamper growth

Adam Bychawski
3 October 2022, 4.50pm
Ministers were told that deregulation was "doomed to fail" without more evidence
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PA Images / Alamy Stock Photo

Even the government has found no evidence that Liz Truss’s new ‘red tape-cutting measures’ will benefit businesses, openDemocracy can reveal.

Yesterday the prime minister said 40,000 large companies will be given the same exemptions from regulations as those with fewer than 50 staff.

Truss claimed the changes – which come into effect from today – are “aimed at boosting productivity and supercharging growth”. 

But research previously commissioned by the government found there was not enough evidence to support the deregulation – with one researcher telling openDemocracy it could actually hinder growth. 

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A paper published by the Department of Business, Energy and Industrial Strategy (BEIS) in 2018 concluded: “There is very limited empirical evidence on the firm-level effects of regulation on small and medium-sized enterprise (SME) growth”.  

The authors warned ministers that not understanding this would doom government plans “to failure”. 

Unions said the research uncovered by openDemocracy was proof that Truss’s changes are “all about blinkered ideology, with no regard for the evidence”.

Businesses with fewer than 250 employees were already exempt from certain regulations, including requirements to produce reports on gender pay gaps and executive pay ratios and to keep records on what personal data they hold. They can also file abridged annual financial accounts, which allow them to reveal less information and do not have to be audited.

Now, businesses with fewer than 500 staff – including many that were previously categorised by the government as ‘large firms’ – will also be exempt from “all new regulations under development as well as those under current and future review, including retained EU laws”.

Announcing the change, ministers said that “over half of all businesses consider regulation to be a burden to their operation”, citing the results of a 2020 government Business Perception Survey.

In fact, the survey found that just 37% of businesses agreed that “regulation is an obstacle to success” and only 11% said it was their greatest challenge. 

One of the authors of the BEIS research warned that Truss’s deregulation plans may even hinder businesses’ growth. 

“For me, a concern is that tinkering with regulations, cutting regulations, as well as always adding new regulations creates instability and uncertainty. And it’s uncertainty that is going to get in the way of growth,” Oliver Mallett, a professor of entrepreneurship at the University of Stirling, told openDemocracy.

He added: “We can probably all think of some examples from the past week or so that have created forms of uncertainty.”

Mallett said he had not seen any conclusive evidence backing the government’s decision to focus on reducing regulations for businesses over other policies and suggested that the plan could even backfire.

“Compliance with regulations has benefits for growth. The biggest obstacle to increases in productivity in particular, but also growth, is management ability in SMEs. And regulation is actually one of the things that helps to develop management capabilities,” he said.

The changes have also been criticised by unions, who have accused the government of having “their sights set on employment protections”.

TUC general secretary Frances O’Grady said: “Yet again we are seeing reckless and cynical deregulation being pushed through with no consultation and no real thought for the impacts on working people.

“Not content with throwing the economy into turmoil, Tory ministers now have their sights set on employment protections too.

“Let’s be clear. It’s not regulation that’s holding business back – it’s botched Tory economics which has led to low pay, depressed demand and continuous uncertainty.”

A BEIS spokesperson said: “Government research is clear that most businesses say keeping up to date on the regulations they must comply with is a burden."

"These measures will harness the freedoms the UK has since leaving the EU to remove bureaucratic and burdensome regulations on businesses, making it easier for them to comply with existing rules and ultimately saving them valuable time and money.”

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