Norfolk Chamber head warns that complex rules are stifling small business growth

Small businesses are held back by employment regulation, a report by the British Chambers of Commerce released today has said.

The survey of more than 2,000 businesses found that almost two thirds (60pc) want to take on more staff, but rules around dismissal, health and safety and sickness absence are a barrier to growth with one in five firms threatened with an employment tribunal.

Chief executive of Norfolk Chamber of Commerce Caroline Williams said: 'The majority of the Norfolk's small businesses want to grow. They want to invest and take on more employees, but they are also pessimistic about the UK labour market's skill level and flexibility. Businesses tell us that their ambition to grow is severely frustrated by the difficulties they face in doing so.

Mrs Williams added: 'Dismissal rules are too complex, tribunal cases are endemic, and the vast majority of small firms are buying in extra external resource to ensure they are compliant with employment regulation. The more staff they take on, the more likely they are to face claims. The risk is that one bad recruitment decision could wipe out a whole year's profit, or worse.

She said: 'We recognise the government has taken some steps towards improving the tribunal system, but with new agency rules, parental rights and pensions changes all coming down the track before 2015, the net result for our small firms will be negative. The more flexible the employment market is, the more jobs will be created. Business owners want to recruit, so the government must provide a simplified and stable regulatory environment to encourage them to do so.'

The national survey of more than 2,000 small businesses, found that one in five businesses (21pc) has been threatened with an employment tribunal, and one in two (54pc) firms find rules around dismissal burdensome. One in two (53pc) businesses found rules around health and safety a barrier to growth, with rules around sickness absence identified as burdensome by over a third (39pc) of firms.

Small businesses employ more than three million people in the UK, and generate 15pc of private sector turnover. The report said that when faced with a tribunal, a large proportion (37pc) of small businesses opt for settlement. and for many firms the cost of settlement is lower than defending a claim. This drives a culture of settlement, encouraging spurious claims and undermining the cases of those employees who have a fair claim to compensation.

Most Read

The majority of small firms (61pc) believe that employment tribunals are weighted unfairly against the employer and these results suggest that the employment tribunal system is a barrier to job creation.

The survey also found that more than 80pc of small firms use external expertise to help them comply with employment regulation, illustrating the complexity faced by small businesses.

The report also found that more than one in two small firms find it difficult to recruit the right staff to fill a vacancy with more than half (56pc) of small firms perceiving the UK's labour market as less flexible than the rest of the EU. The figure grows to 62pc in comparison to the US.