Regulators hit innovation hardest in EU as costs rise

THE WORLDWIDE cost of business regulation is set to hit $1.2 trillion (£742bn) across ten major economies this year, while a large portion of chief executives believe their innovative potential is being restrained.

According to a report released by law firm Berwin Leighton Paisner (BLP) today, UK firms alone estimate that regulation costs them $81bn (£50.1bn), with $18bn in financial services alone.

The report also finds that while 97 per cent of chief executives think innovation will be a key part of their business growth, many see regulation as a barrier.

Top-level management in the EU’s five biggest economies (Spain, Italy, Germany, France and the UK) are most likely to think of government legislation as a roadblock to innovation, with 58.5 per cent agreement.

In the US and Asia (covering China, Japan, Singapore and Hong Kong), the proportions are lower, with 40.2 and 43.2 per cent of executives holding the same view.

Across the EU, 6.2 per cent of average turnover is spent complying with regulation, compared to 6.1 per cent in Asia and 6.6 per cent in the US.

Despite a lower proportion of turnover spent on regulation, Asian firms are most likely to be considering moving operations to benefit from a “lighter touch” climate of regulation.

In those four nations, 58 per cent of businesses are contemplating a move, while only 38 per cent in the US and 30 per cent in the EU say the same.

BLP’s Neville Eisenberg said: “The majority of companies told us innovation was critical to their business growth, and this is also what our clients are telling us. However our findings show that in some cases the cost of complying with regulation is acting as a brake.”

Perhaps predictably, western firms are most concerned about breaking into new markets, with fears about China’s regulatory regime especially. In the US and EU, 88 per cent and 76 per cent respectively say entering new markets is important or critical.