The Costs of Red Tape

The British Chambers of Commerce’s burdens barometer, published annually, shows Labour is not meeting its pledge to reduce the bureaucratic burden on business. While there have been tiny reductions in minor areas, this is balanced by the rising tide of regulation in others.

This represents a cost to firms which may be passed on to consumers as higher prices. It can also be viewed as a disincentive to entrepreneurship and a possible determinant of multinational companies’ location decisions.

The biggest burden is the working-time regulation, £1.8 billion a year or £16 billion in total since its introduction. It is followed by vehicle excise duty (reduced pollution) rules, costing £1.23 billion annually, or a cumulative £9.2 billion; amendments to the building inspection regime, £1.2 billion or £2.72 billion; and the Data Protection Bill, £667m, or £7.35 billion.

However, doesn’t such regulation also create benefits? Working-time regulation protects workers from possible exploitation and vehicle excise duties aim to internalise the externalities associated with travel and transport.

One vocal opponent of regulation in the retailing sector is Tesco. The following is taken from The Times.

Tesco, Britain’s biggest supermarket group, last night attacked proposals from the Competition Commission that could curb its dominance of retailing in towns across the UK.
In its long-awaited report into competition in the £120 billion groceries sector, the competition watchdog recommended a new “competition test”, under which authorities would have to take account of how many outlets a supermarket already has in a particular area. If it is deemed that there are too many branches of Tesco in a given area, for example, the council could support an application from Asda instead.

The test, which could give shoppers a wider choice of supermarkets in their local areas, will apply to all grocery developments above 1,000 sq m and will be overseen by the Office of Fair Trading. Supermarkets could be forced to fund the change, the commission said.

Tesco, which dominates the market, has fiercely opposed such a move. Last night it condemned the proposed test as “a growth cap on successful retailers whose activities in this highly competitive market. . . benefit consumers.”

Lucy Neville-Rolfe, director of legal affairs, said that the proposals would introduce “additional bureaucracy, costs and delays, which we estimate at up to £150 million a year”.