Regulation as a Tax

For the past few years Arboriculture has been subjected to an almost never ending tide of regulation. Much of this has been regulation that applies to working practise across the UK in all industries, but has been tweaked to apply to Arboriculture, some would argue unfairly.

Whatever the regulations are, one thing is for certain - more regulation means more administrative pen pushers, and more inspectors out in the field looking to catch someone out and levy some sort of penalty. A level of regulation is necessary and desirable. Without it we would exist in a state of commercial anarchy that would benefit no one. However, it is difficult not to see the current regulatory burden on UK businesses is becoming little more that a revenue raising exercise. In short regulation is becoming a tax on doing business when it should be a facilitator for the same.

The idea that regulation brings in a tax revenue is not as strange as it sounds, especially when you remember that regulators need to keep inventing problems and then regulations to solve those problems, in order to maintain their jobs and index linked civil service pensions. Hence the draconian implementation of almost any rule even for the most spurious of reasons. Consider for a minute the Work at Height Regulations 2005, in particular its overriding principle:

You must do all that is reasonably practicable to prevent anyone falling.
Which translates into a simple hierarchy consisting of the following principles.

• Avoid work at height where you can.
•Use work equipment or other measures to prevent falls where working at height cannot be avoided.
• Where you cannot eliminate the risk of a fall, use work equipment or other measures to minimise the distance and consequences of a fall should one occur.

Of course, the regulations are more detailed, but they are neatly and concisely encapsulated above. Few would have a great argument with them and indeed they would seem to have been accepted by the arboricultural trade without too much complaint. No one wants to see themselves or their colleagues suffering from unnecessary injuries, which in some cases will prove to be either permanently disabling or fatal.

The problem comes in the implementation and enforcement of these and other similar regulations. In almost every case compliance means spending money. Whilst at one level these extra costs are simply passed on to the customer at another they have to be absorbed by the contractor. A good example would be where a contract exists for the maintenance of trees around a borough or district. Any additional costs to the contractor will be added to the contract costs. This does not alter the dynamics of the quotation procedure, as all those bidding for this type of work will need to offer the same degree of professionalism in relation to Health and Safety and risk management. The various quotes received for the works may differ, but no one is disadvantaged by the Health and Safety, or indeed, insurance requirements as they will be the same for all those tendering. The disparity only becomes apparent when the contractor is working for a customer who does not demand an equal level of compliance and instead simply opts for the lowest price. The contractor who has an appropriately trained and properly equipped workforce is disadvantaged immediately as he has a higher outlay that has to be recouped. In the course of outlay a significant amount of tax has to be paid. This will most usually take the form of VAT, but could possibly include Insurance Premium Tax and National Insurance contributions, which is tax in all but name. Whether it is paid on the purchase of equipment held as an asset, or is included in the quotation for work as part of the cost, most typically for the hire of specialist machinery e.g. MEWPs, it will place a premium on the quoted price. The same situation exists with training; VAT is payable on training costs. This situation plays into the hands of the unregulated businesses that have little or no need to exercise compliance. Put simply, if they have no need to demonstrate their compliance they can safely disregard those elements and price accordingly. The only time they can be called to account is if an accident occurs and then only if they can be traced. The tax take from regulation affects every business in the UK, and an atmosphere of oppressive regulation is designed to increase that tax take. The fear of being caught out is a powerful incentive to ensure that a legitimate business has all bases covered – especially when it is only the legitimate business that is likely to be inspected or in some cases reported. We should not forget as well that the agencies charged with enforcement are almost always agencies of the state. Whilst they are funded from tax revenue, they also must show that they provide value for money and can act where they is a need. In this they can only really act in two scenarios.

1. When an accident or transgression has occurred.
2. Where an accident or transgression may be likely to occur

In both cases fines and other sanctions can be imposed. These sanctions would typically involve spending money, with an element of tax added. Regulation itself actually has a polarizing effect. The companies that are best able to deal with an ever-increasing bureaucratic burden tend to be the larger business entities. They will have the ability to absorb any new regulatory requirements at minimum cost – the economies of scale. This is a trend that regulators are often happy to encourage. Fewer, but larger, companies are easier to monitor and the process of enforcement becomes more economic and straightforward, both from the perspective of tax gathering and the implementation of further new regulations.

One important example of regulation being used as a tax-gathering tool is Insurance Premium Tax (IPT). In most cases insurance is purely optional - think of holiday insurance or income protection insurance or your home insurance. Nobody forces you to take out this cover it’s entirely up to you. When the insurance industry raised its rates a few years ago the net result for arborists was a massive increase in premium levels. Some were reporting increases of 600% and more! These increases were being applied to Employers Liability Insurance in the main, which is a type of insurance that an employer has a legal duty to have. Now, if your IPT is set at 5% of the premium cost its not too bad to swallow if that premium is say £1000 per year. If your premium is raised to £6000 or even higher the tax take increases accordingly. If you want to stay legally in business you have no choice but to accept the increased premiums and the proportional tax element. It goes without saying that the uninsured and therefore unregulated element are unaffected by any such increases. All of these forms of regulation as tax are essentially a tax on profit. They are unavoidable if you trade legitimately, but are only enforceable because we accept such a burden of regulation on businesses. We are the only country in Europe that has a dedicated Health and Safety Executive - no other EU state has any equivalent. Often health and safety issues are dealt with on a far more local level and in some instances with particular regard to local situations.

We need to exercise some caution in calling for blanket bans on certain practices and perhaps the use of some types of machinery, bearing in mind that those that any such ban is designed to affect would almost certainly ignore any such ban. We need to regard organizations which press for ever more stringent regulation with a healthy degree of skepticism, and ask whether their enthusiasm for regulation has to do with a genuine desire to improve Arboriculture and the condition of those employed in it, or if it the simple furtherance of their own narrow agendas. This is particularly true of commercial entities which sell the solutions to compliance issues, and have vested interests in increasing the regulatory burden. We also need to ask whether the slavishly precise interpretation of EU law into areas of black and white is appropriate, when the real world environment is always ‘shades of grey’. Above all we need to ask how long we are prepared to subsidise government agencies that are charged with making the workplace safe and yet studiously ignore the worst elements of unregulated roguery under their noses.