Consultants’ fees for compliance costs spiralling

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Prevention is better than cure, says Phil Orford, FPB chief executive
Prevention is better than cure, says Phil Orford, FPB chief executive

Shop around for more affordable business services, says FPB

Small firms pay almost £6bn a year to outside consultants for support on complying with regulations, research from the Forum of Private Business (FPB) has shown – a month before a raft of legal changes take place.

The FPB said the cost reaches more than a third of the £16.8 billion annual red tape bill.

With the latest ‘common commencement date’ for new regulations coming on October 1, more than two thirds of respondents (67%) to the FPB’s latest referendum survey have seen consultancy costs rise since 2009, when the previous ‘cost of compliance’ research took place.

The research shows the following:

  • small firms pay external contractors £5.8bn for regulatory compliance services, while internal time costs total £11bn;
  • On average each firm hands over £4,900 per year to companies offering legal guidance, including advice on employment, health and safety and tax – over double the £2,100 average annual bill in 2009;
  • the combined amount paid each year to consultants and accountants for tax advice is in excess of £3.3bn; and
  • external health and safety support costs almost £986m per year and employment law consultancy services come to £752m

“Small businesses face a constant struggle to control costs – particularly in the current economic climate – but are being thwarted by the mounting tide of red tape they have to negotiate every day,” said Phil Orford, FPB chief executive.

“With just a month to go before October’s common commencement date there is no hiding from the fact that red tape compliance costs – including steep consultancy fees – are hindering job creation and, by extension, economic growth.

“Unlike large firms, small firms do not have internal resources dedicated to complying with regulations, so either the business owner or a senior manager is forced to devote time to this task, an average of almost 40 hours per month, or they have to pay for a costly outside consultant.”

Orford added: “Compared to other industries, at present we are seeing a relatively robust services sector, including business services, which suggests that more struggling small firms are seeking out external support. Perhaps some companies providing commercially driven business services are exploiting this demand by charging high fees. It is always advisable to shop around for a better deal.

“There are also steep legal costs incurred when businesses are charged with breaching regulations. The answer is that prevention is better than cure – it is so important put in place internal processes geared towards complying with the law in the first place.”