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Learn lessons from COVID pandemic to stop regulatory confusion

A new study from Newcastle University, the Federation of Small Businesses (FSB) and the University of Birmingham shows how lack of regulatory clarity over lockdowns added to strain on firms.

27 June 2022

More than a third (35%) of small businesses found it quite or very difficult to understand the regulations relating to COVID-security, according to the joint study, which was funded by the Economic and Social Research Council (ESRC), as part of UK Research and Innovation’s rapid response to COVID-19.

Published today, the ‘Navigating the COVID-19 Regulatory Landscape’ report highlights that one in five (22%) of the close to 1,000 small businesses surveyed say the line between advisory guidance and regulatory requirements during the pandemic was “totally unclear”. 

That lack of clarity led to a tendency to “gold plate” by some small firms –going beyond minimum requirements for fear of falling short – which comes at a cost in terms of worry, time and money.

The FSB - the UK’s largest business group - and academics are urging the Government to learn lessons from the implementation of COVID-19 health measures in order to create a commercial regulatory environment that will steer the economy away from recession. They recommend that governments and regulators across the UK should:

  • Clearly communicate the distinction between actions that a business must take, and the steps that a business might choose to take, when changing or introducing regulatory requirements. 
  • Make effective use of intermediary bodies when communicating changes to regulation.
  • Publish illustrative examples of compliance to help small firms understand what good practice looks like
  • Introduce grace periods after regulatory changes are introduced to avoid penalising those doing their utmost to comply.
  • Minimise restrictions or red tape on schemes that are designed to help businesses, like furlough.

Dr Paul Richterfrom Newcastle University Business School was the project’s Principal Investigator. He said: “The onset of the COVID pandemic presented the whole of society with a set of immense challenges. Governments were forced to act to protect public health while, simultaneously, minimising negative impacts on the UK economy. The regulatory response undoubtedly shook the UK’s small business community. Business leaders had to take decisions with far-reaching consequences for their employees’ livelihoods, public and employee health, and the viability and survival of their businesses.”

“Many businesses found it difficult to understand how to comply with the raft of new and changed regulations. And many felt that more clarity was needed in terms of whether regulations were legally required or recommended. This acted as an additional draw on small businesses’ already stretched resources.”

“However, the regulatory shock experienced by small businesses which, for many, meant shutting down operations initially, appears to have opened up the space for some to re-think how they did business and make positive changes for the future.”

The health and education sector struggled most when it came to compliance with COVID measures – four in ten (39%) reported difficulty in taking the appropriate action. Significant numbers of hospitality, sports, arts and entertainment firms (30%) as well as manufacturing (28%) and wholesale and retail businesses (27%) also struggled.    

One small firm interviewed as part of the study expressed their frustration around continued lack of certainty when it comes to negotiating working from home arrangements with employees.  

Some 18% of small firms ranked furlough as one of the most useful and at the same time, one of the most difficult pieces of regulation. The move to flexible furlough helped, as it removed unnecessary restrictions that prevented some small businesses from taking advantage of this vital lifeline.

Highlighting the resilience of the small business community, some found that, having adapted to the initial shock of engaging with a raft of new regulations, their new circumstances opened up novel opportunities to implement changes/innovations that they would maintain post-pandemic.

The overwhelming majority (82%) of businesses relied on more than one source to find out about regulatory changes during the pandemic. Nearly three quarters relied on GOV.UK while half relied on business representative organisations such as FSB, which were reported to have tailored their language and regulatory information so that it was more useful to small businesses.

FSB National Chair Martin McTague said: “With economies now thankfully unlocked, this is the moment to step back and assess what broad regulatory lessons can be learned from the pandemic.

“While it is understandable that governments and regulators had to act at great speed as the circumstances of the pandemic evolved, some of the regulatory shortcomings were consistent with problems encountered in more normal times, including around clarity and communication.

“The gold plating trend that we saw over the lockdowns is not confined to health measures, this is a wider issue that drains firms of the resources they need to innovate, upskill and recruit as we work to secure our economic recovery.

“Constructive, clear regulation is a boon for small firms – ensuring they can excel in safe, productive environments. Complex red tape, by contrast, is a constant drag.

“The Government rightly set out its regulatory reforming zeal in the Queen’s Speech, and after Brexit it now has full control on this agenda. We’re now urging it to learn from best practice and adopt the British Columbia model, where they successfully reduced regulatory requirements on business by over a third in three years. This was done through a new smarter approach to remove red tape, and implementation of new regulation only where it is strictly required and effectively communicated.

“By taking forward the recommendations we’ve set out today, government and regulators can reform our compliance landscape so that it helps, rather than hinders, those looking to start-up, invest and expand.”

FSB surveyed 991 small businesses between 3 and 18 August 2021, the vast majority of whom are FSB members. Newcastle University and the University of Birmingham undertook in-depth interviews with 23 of the survey respondents and were responsible for data analysis. 

Dr Richter added: “We are grateful to the hundreds of business owners who took time out of their business to participate in our research. It is their experiences of navigating an unprecedented period of regulatory change that inform the report’s recommendations for those tasked with designing and implementing business regulations that are fit for a post-COVID landscape and for the response to any future crises.”

Press release adapted with thanks to FSB.