Government is loading SMEs with too many costs and regulations

We see this again with new policies which make it easier for parents to share time off to care for new babies and to boost savings for retirement. Both are sensible in themselves but they will inevitably hamper many SMEs that we rely on for employment growth.

While I have no doubt that some parents will welcome the flexibility sharing parental leave will give them, this same flexibility is going to make resource planning harder for SMEs. They will no longer have a clear idea when new parents are likely to be back at work. And unlike larger companies, they won’t have the staff available to move around to cover for temporary and unexpected gaps.

Big firms, too, will far more easily soak up the extra cost of contributing to pensions for their staff under the National Employment Savings Trust. In contrast, the added financial burden will make some small businesses think twice about taking on more staff.

This is not, of course, what those who devised these policies intended. But they do show the danger of mixing only with people who share your salaries and world view.

From the perspective of a Cabinet minister, the small extra cost of such changes might not make much difference. But the reality of life for many SMEs is that they work on very thin margins.

Even successful companies in the hospitality sector – which provides work for 2.7 million people and nearly one in three jobs created between 2010 and 2012 – might be lucky to make a profit margin of £1,500 an employee.

Adding extra costs can make the difference between taking on extra staff or going out of business altogether. We need to look no further than economies such as Spain, with their exorbitantly high social costs on top of wages, to see the disastrous impact on employment levels.

I know it might disturb easy stereotypes about private equity but I find trade union leaders have a better understanding of what’s happening in the real economy than most politicians.

We work very well, for example, with the workers’ representatives on the boards of our German businesses. And here in the UK, we are coming up to the first anniversary of our ground-breaking voluntary recognition agreement with the unions representing the 30,000 staff in our Four Seasons care homes. It has proved good news for the residents of our 500 care homes, our staff who enjoy better conditions and, of course, our business which competes on the service and value we provide.

The agreement also demolishes the damaging and frankly offensive fallacy that freeing firms from regulation will inevitably lead to a race to the bottom in standards. This is simply not the case. If politicians of all parties trusted businesses to take the right decisions rather than trying to regulate every aspect of what they do, then the promises in the Budget to support SMEs – another ritual of every speech – would this time be more than warm words.

Guy Hands is founder and chairman of Terra Firma Capital Partners

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