The over burdening of legislation and bureaucratic onslaught is weighing down the shoulders of entrepreneurs and SMEs EU-wide. The cost of adopting and adhering to legislation is stifling the stronger economic recovery that would be possible if the red tape surrounding start-ups was banished. In 2007, the European Commission set a deadline of 2012 to reduce by 25% the annual administrative costs on business from EU legislation. It aims to do this by implementing its Action Programme for Reducing Administrative Burdens in the EU. Together the measures – planned, proposed and approved – add up to more than €40bn, or 33% of the administrative burden. The estimated total annual burden on business from EU legislation and the resulting national laws cost companies about €124bn a year in red tape.

Needless expense
The EU measures come not a minute too soon; the general consensus among businesses and industry bodies is that red tape is a needless expense that reduces competitiveness across the 27 EU member states. According to the British Chambers of Commerce (BCC), in the UK alone, new employment legislation and taxes will cost businesses £26bn over the next four years, severely affecting their ability to employ new staff and create jobs. David Frost, director general of the BCC, said: ‘The cost of employing people must be reduced if future governments are serious about giving businesses the freedom to create jobs and drive our economic recovery.’ A recent survey carried out by private bank Investec and Entrepreneurs Organization (EO) among UK-based entrepreneurs also revealed widespread disillusionment with the UK regulatory and tax requirements for small and medium-sized businesses. One in 10 respondents said they were planning to move their operations away from the UK. Ed Cotrell, a director at Investec, said of the results: ‘It would appear that [entrepreneurs] feel there is considerable room for improvement in the overall regulatory and tax environment in the UK. These people will be key to helping the country recover from the recession, so it is alarming to see many considering moving their operations abroad to more favourable environments.’

Cutting red tape is key to the Commission’s strategy for boosting the economy post recession, giving business a welcome lift at a time when access to credit is still a big problem. Many of the measures are tailored to small businesses, which provide most of the jobs in the EU. These firms often struggle with administrative hurdles and difficulties securing financing. European Commission President José Manuel Barroso said: ‘Better regulation is a job that never ends. Further streamlining European and national regulation – without compromising on protecting the public – is a key to the Commission’s drive to promote sustainable economic recovery.’

Cutting costs
Based on a Commission proposal from 2007, the EU has set its target of cutting administrative costs for businesses arising from EU legislation by 25%. The reduction measures encompass sectoral reduction plans for 13 priority areas, including annual accounts/company law; cohesion policy; environment; financial services; taxation and customs; and working environment/employment relations. The two most significant priority areas, taxation and company law, account for more than 80% of the total burden measured as they cover most of the businesses in the EU. They also represent by far the largest savings in administrative costs already proposed by the Commission. In addition, the Commission set up the High Level Group of Independent Stakeholders on Administrative Burdens, chaired by Edmund Stoiber, to advise on and monitor the implementation of the programme. The original measures of the programme stemmed from 42 EU legal acts, but in January 2009, this was increased to 72 texts. The requirements imposed by these acts account for an estimated 80% of the administrative burden on companies adhering to EU legislation. The programme could potentially be expanded in future to include further priority areas and legal acts.
Barroso is optimistic about the programme’s implementation saying: ‘The Commission is fully on track to deliver on its goals to reduce red tape for businesses.’