A report from the Federation of Small Businesses estimates that SMEs collectively spend £36 billion and around 379 million hours every year complying with regulations.
For founders and business owners, that translates into countless hours diverted away from growth, innovation and customer service and instead spent interpreting rules, completing paperwork and responding to compliance requests.
The findings suggest that while regulation plays a vital role in protecting consumers and ensuring fair competition, the current system is often not designed with smaller businesses in mind.
A £9 billion opportunity for reform
The Government has pledged to reduce the regulatory burden on businesses by 25 per cent during the current Parliament.
According to the research, achieving that goal could deliver a significant boost to the SME economy. Cutting compliance requirements by a quarter could save small and medium sized businesses around £9 billion and return roughly 95 million hours each year.
For many businesses, those reclaimed resources could be redirected into hiring, product development or expansion.
In an environment where many entrepreneurs are already grappling with rising costs and economic uncertainty, reducing the time and money spent on red tape could provide a meaningful lift.
A system that small businesses struggle to navigate
Beyond the financial cost, the report highlights deep frustration among small business owners when it comes to dealing with regulators.
Many businesses say that simply finding clear guidance is a challenge. Around two in five small businesses report that regulatory guidance is difficult to understand, while a similar proportion say it is hard to locate in the first place.
Getting help when problems arise can also be slow and complicated. Only a small minority of businesses say they receive prompt responses from regulators when they seek assistance, and just one in ten say it is easy to resolve complaints or raise concerns about regulatory issues.
For founders juggling multiple roles, this lack of clarity can quickly turn compliance into a major drain on time and energy.
When regulation stifles growth
The complexity of regulatory systems can also create an uneven playing field between large and small businesses.
Bigger organisations typically have dedicated compliance teams that can interpret rules and manage reporting requirements. Smaller businesses rarely have that luxury, meaning founders themselves must absorb the administrative workload.
In some sectors, the cumulative effect is beginning to reshape markets. Rising compliance demands can discourage new entrants and push smaller operators out of certain industries, reducing competition and ultimately limiting consumer choice.
Rethinking how regulation works for SMEs
The report argues that both regulators and Government departments have a role to play in improving how rules are designed and implemented.
Among the recommendations are calls to include tax administration within the Government’s regulatory reduction target, strengthen independent scrutiny of new regulations and ensure that clear, practical guidance is available for small businesses navigating compliance requirements.
There are also suggestions that regulators should work together more closely in sectors where multiple authorities oversee similar areas, reducing duplication and simplifying processes for businesses.
A chance to unlock growth
For many business leaders, the conversation around regulation is not about removing rules altogether, but about ensuring they are proportionate and workable for companies of all sizes.
If reforms can successfully reduce unnecessary complexity, the potential upside is significant. Billions of pounds and millions of hours could be redirected from paperwork and compliance into investment, innovation and growth.
At a time when policymakers are searching for ways to boost productivity and strengthen the UK’s entrepreneurial ecosystem, tackling the regulatory burden on small businesses may prove to be one of the most effective places to start.
