Regulation can have both enabling and constraining effects on small businesses. It influences businesses directly through compliance requirements, but also indirectly through customers, suppliers and competitors. The effects are complex and depend on how businesses respond. Regulations may enable markets through property rights and stability, motivate compliance, or constrain through costs. For small firms, financial reporting rules aim to balance confidentiality and access to resources, but both options have opportunity costs. Building regulations aimed at safety indirectly constrained one electrical contractor by causing qualified staff to quit. Policy should recognize regulations always have multiple, unintended consequences for small businesses.

1. Burden or benefit?
The contradictory influences of regulation
on small businesses
John Kitching
Enterprising regulation? event, Kingston University,
November 8, 2013

2. Research context
 4 main types of study:
• perception surveys
• compliance cost studies
• cross-national surveys
• qualitative studies
 some problems:
• too focused on firm-level perceptions
• assumption that regulation imposes only burdens, costs,
constraints
• static focus - limited consideration of dynamic effects &
enabling influences
• exaggerate adverse impact of regulation

3. Regulation defined
The legal and administrative rules created, applied and
enforced by Government regulatory authorities – at local,
national and transnational level – that both mandate and
prohibit actions by individuals and organisations, with
infringements subject to criminal, civil and administrative
penalties.

4. Routes of regulatory influence
direct
indirect
Customers
Suppliers
Competitors
Infrastructure
providers
Regulatory
authorities
SMALL
BUSINESS

5. Regulation generates contradictory effects
 effects contingent upon exercise of agency by small
firms and their stakeholders
 regulation a dynamic influence, simultaneously:
• enabling action – eg property rights & contract; regulation
stabilises market agents’ expectations
• motivating action – minimal compliance or compliance plus
• as well as constraining action – substantive, administrative,
psychological costs & burdens
 so: no single ‘small business effect’
 awareness of regulatory effects partial – always more
than business owners (or we) can see, become taken
for granted

6. Small company financial reporting
 small companies can choose to file full or abbreviated
accounts at Companies House
 both confidentiality and public disclosure potentially
serve small company interests:
• personal/business privacy
• access to resources & markets
 opportunity costs associated with both alternatives:
• possible gains in lighter administrative burden & privacy have
to be offset against…
• costs of confidentiality, often unperceived (eg prospective
clients might not approach or offer trade credit), especially in
uncertain times
 implications for adoption of ‘Micros Directive’ (2012/6/EU)

7. Impact of Part P building regulations
 electrical contractor - 10 staff, £900k t/over, profit
break-even
 indirect constraining impact of regulation:
• Part P regulations requiring residential electrical installations
must be tested by a ‘competent person’
• 5 qualified staff quit on the same day
• employer had to go ‘back on the tools’ to cover contracts &
use more temporary workers
• less time spent on winning new business

8. Conclusions and implications
 no single ‘small business effect’ - regulation generates
multiple, contradictory effects via direct & indirect
routes
 managing these contradictory effects is the normal
condition of doing business
 policy – all regulatory interventions impact small firms in
multiple, contradictory ways, unintended consequences
are endemic