Influencing policy and practice through examining UK small business understanding of and response to COVID-19 regulation and guidance

As the COVID-19 pandemic took hold in early 2020, governments across the UK were forced to react. They were faced with the considerable challenge of striking a balance between protecting the health of the UK population while mitigating the negative impacts to the economy. One element of the response was a regulatory one and Government actions compelled business leaders to take decisions with far-reaching consequences for their employees’ livelihoods, public and employee health, and the viability and survival of their businesses. This report sets out the impact of the new and changed regulations arising from the pandemic on the UK small business community.
As is well understood, regulatory compliance presents small businesses in particular with a significant challenge given their relatively constrained resources. Hence, pandemic conditions presented those businesses with a stern test. This report provides an account of how small businesses from across
the UK responded to that test. In so doing, it demonstrates the severe difficulties that many business owners faced in adapting to how the rapidly changing regulatory landscape affected their business. At the same time, the report evidences the resilience and innovation exhibited by business owners
as they sought to adapt their businesses to survive pandemic conditions and thrive beyond them.
This report draws on the insights and experiences of nearly 1000 UK small businesses, the vast majority being members of FSB. The research comprised a large-scale online survey in addition
to follow up interviews with individual business leaders, which added depth and explanation to the patterns revealed by the survey.
The detailed findings of this research are set out in several sections. The initial sections report
on small businesses’ engagement with new and changed regulations arising from the pandemic, identifying those which businesses found most difficult to comply with and those they found most beneficial. The report then interrogates business leaders’ experience of complying specifically with COVID-security regulations, something that the overwhelming majority of businesses were affected by to some degree. Research findings identify differences in the impact of regulations depending on factors including: the number of employees, the sector, the business model, and the type of premises. The report also concludes that the impact of regulations varied over the course of the pandemic for individual businesses depending on the nature of the business and its regulatory experience. Some reported that the shock of having to engage with a raft of new regulatory information prompted them to implement innovative changes to their business operations which they intend to keep. Many of those changes have highlighted the importance of small businesses growing their digital capacity. Finally, the report identifies businesses’ views on the clarity, consistency, and timing of regulatory communications as well as the sources that they relied
on to take responsive actions.
This comprehensive picture of UK small businesses’ experience of navigating an unprecedented period of regulatory change informs a series of recommendations for those tasked with designing and implementing business regulations. The insights set out in this report should inform regulatory responses to future public health and, potentially, other widely felt crises, and to regulation more generally in a post-COVID landscape.

Regulatory engagement in broad terms
n Regulations relating to the protection of public health dominated engagement by small businesses, although businesses also had to engage with new or changed regulations relating to employment, tax and finance and other regulatory areas. Businesses within the Health and Education, and the Hospitality, Food and Beverage sectors were engaging with significantly more regulations than sectors such as Professional and Support Services.
n In terms of specific regulations most commonly engaged with during the pandemic, those relating to social distancing, hygiene and cleaning practices, and the use of PPE came
out on top. At the same time, a majority of small businesses reported involvement with processes relating to the furloughing of employees, while just over a quarter reported having engaged with regulations concerned with tax filing/payment extensions.
n Taking the size2 of the business into account, businesses with no employees engaged, on average, with around 3 of the 21 new or changed regulations the survey listed, while those with 10 or more employees engaged with around 9 on average. So, in general terms, the more employees the small business had the more regulatory engagement it had to manage.

Regulations found to be ‘difficult’ or ‘beneficial’ to engage with
n Regulations most frequently ranked within the top three most difficult to comply with were requirements to close premises or reduce capacity; social distancing; and those relating to the furlough scheme, which was reported to be insufficiently flexible, especially
when first introduced.
n Furlough was most likely to be ranked within the top three most beneficial regulations (leading to what the report terms a “furlough paradox”) alongside other regulatory changes specifically designed to assist businesses, including extensions to tax filing deadlines/ extended terms for tax payments.
n Interviews revealed multiple benefits businesses associated with the furlough scheme, including: the ability to retain staff and avoid redundancy procedures; providing time to adjust to the pandemic conditions; protecting vulnerable employees or those with vulnerable family members; and dealing with reductions in business levels after re-opening.

Complying with COVID-security regulations
n 35% of businesses found it quite difficult or very difficult to understand the implications of the regulations and guidance in relation to ensuring the COVID-security of their business. Difficulties in this area, in part, related to the number of changes that were made to the UK Government’s “Working safely during coronavirus (COVID-19)” guidance.
n The size of the business impacted participants’ experience of complying with COVID- security regulations – the more employees, the more difficult businesses found it to understand what the regulations implied for them, the greater the amount of action they took to comply, and the more difficult it was to take such action.
n The sector also had an impact. Two-thirds of hospitality businesses, and slightly fewer health and education businesses stated that they had to take considerable action to make their business COVID-secure. By contrast, only 28% of professional and support services businesses did. In terms of how easy or difficult it had been to take such action, health and education businesses reported having had the most difficulty even though most businesses across all sectors stated that it had been easy to take the required action.

Impact of regulations over time
n The research found that regulatory impact can vary over time for businesses. Some businesses expended considerable financial and management resources early on to achieve compliance with COVID-security regulations, for example, but after a period of time these compliance processes became normalised within everyday operations. This is not to say that regulatory impact disappears; rather, that the experience of managing how a business responds to regulations is not necessarily constant.
n Having managed to adapt to the initial shock of engaging with a raft of new regulatory information, some businesses found that their “new” situation opened up novel opportunities to implement changes that they would maintain post-pandemic. Such innovations related to activities such as implementing hygiene practices, home working, operational changes (e.g., new office layout), developing new products, services, and sales channels, and introducing virtual working practices (e.g., virtual meetings). In relation to digital innovations, businesses who had invested in digital technology prior to the pandemic were more able to withstand the disruption caused.