Employment law exemptions are key to unlocking growth for Challenger Businesses


Press Release

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Housing and Planning

Mark Littlewood's recommendations for the government's Red Tape Challenge

Embargoed until 00.01 Thursday 20 September 2012 

To unleash growth for start-ups the government must create exemptions in employment law and simplify the enforcement of existing regulations, a new report, Red Tape Challenge – Challenger Businesses, suggests. Furthermore, the government must strive to remove unnecessary or unfair regulations and minimise the need for or impact of any new regulations.

The high risk nature of Challenger Businesses means that they may be disproportionately affected by inflexibilities in the labour market. Exemptions from employment law could have a considerable positive impact. An automatic right for some staff to be treated as self-employed, meaning staff would be exempt from usual employment rights such as wrongful dismissal, would mitigate a vast array of risk, expense and uncertainty for employers.

It is recommended that:

  • Staff could be treated as self-employed for a period of time from a company’s formation, for example for a period of three to five years.

  • A certain number of staff could be considered as self-employed by a company, for example, up to a dozen.

  • Staff could be considered as self-employed until the company achieves a certain annual turnover, for example £5million per annum.

There are also significant issues with the enforcement of existing regulations. There is no clarity over the speed with which one needs to comply with a certain regulation, the likely consequences of a failure to comply, or their rights to appeal. Attention must be given to what protections for a company can be built in at the level of enforcement.

It is recommended that:

  • A regulator be obliged to provide a written statement of the reasons compliance is sought.

  • A regulator must provide a written explanation of why any immediate enforcement action is necessary.

  • Companies have the right to have their point of view heard and considered before any non-immediate enforcement is actioned.

  • To complement in built sunset clauses, ‘sunrise’ clauses be added to new rules, giving companies a substantial period of time to prepare for any new regulation or regulatory change.

Commenting on the paper, its author, Mark Littlewood, said:

“It is easy for politicians, especially in opposition, to promise a 
bonfire of red tape. When they get into government, it is rare for there 
to be much more than a gentle smouldering around the edges.

“The coalition, through the Red Tape Challenge, deserves credit for 
taking some welcome steps down the path to a less tightly regulated

“Upstart, challenger businesses which provide alternatives to the 
established order too often find themselves in a sort of legal twilight 
zone, whereby regulations designed for a very different world simply
 aren’t appropriate or even comprehensible. It’s therefore important to 
ensure that radical new business models can get clear, timely guidance
 about the regulatory structures and challenges they face.

“The government has already taken some steps to reduce the number of 
employment disputes likely to end in a full blown tribunal. But further 
liberalisation in this area would be welcome, especially in assisting
 challenger businesses. If new start-up, high risk businesses were able 
to take on a certain number of staff designated as consultants rather 
than employees, this could encourage faster growth in this dynamic 

“There is much further to go in creating a truly modern regulating 
environment in which new businesses can thrive and employment 
opportunities flourish, but it is encouraging that the Red Tape 
Challenge has helped get the government moving in the right direction.”

Notes to editors:

1. This report has been independently authored for the Red Tape Challenge by Mark Littlewood. It does not represent the views of the Institute of Economic Affairs.

2. To arrange an interview with Mark Littlewood, please contact Stephanie Lis on 020 7799 8909 or [email protected]

3. The Red Tape Challenge was launched by the Prime Minister in April 2011 and is systematically examining some 6,500 substantive regulations that the Government inherited with the aim of scrapping or significantly reducing as many of them as possible. It gives business and the public the chance to have their say, by theme, on the regulations that affect their everyday lives. It has also asked the public what red tape holds back Disruptive Business Models and Civil Society Organisations. The Government announced on 10 September 2012 that at least 3,000 of the regulations examined will be scrapped or reduced. More information on the Red Tape Challenge is at