The EU in-out referendum continues to pepper the news, with the intensity of discussion and debate increasing week on week. The negotiations, led by David Cameron, look to have set the tone for the run-up to the referendum as intense and determined. The agreed reforms will have brought Britain closer to resolving some of the grievances it has with the EU and its governance. However, the ‘Leave’ campaigners remain resolute that the best solution would be to leave the EU altogether. Whilst there are reports that the Brexit would bring about seismic change; such comments are unlikely to be more than a scare-tactic to gather support.
The Brexit referendum appears to have pushed us into a period of political, economic and financial uncertainty. If we have learnt anything from the Scottish Independence referendum and the General Election 2015, the British public are expected to maintain the status quo. Yet Boris Johnson’s announcement that he will be supporting the ‘Leave’ campaign has, arguably, made the conclusion harder to predict.
At present, the UK contributes £24 million a year to the EU; however, many SMEs are calling for these funds to be redirected to support the SME market more effectively. There are strong views within the SME market that the government needs to take further action to support small businesses who are currently struggling to trade beyond Europe. Some SMEs are already reporting limited growth predictions due to the uncertainty surrounding the Brexit. SMEs are calling on the EU Commission to make legislative changes with the hope of creating an optimal environment for business growth.
With reports of “seismic” change, it would be reasonable for SMEs to be concerned about a Brexit. The impact on the economy continues to be a hot topic of discussion, particularly as Britain exports £19 billion of financial services each year. A report published by Capital Economics states the effect the Brexit would have is only a small net benefit or small net loss. If the exit negotiations are favourable, the GDP could rise by 1.6%, however, should the agreement be less favourable, it could cost the economy -2.2% per GDP. Although economic concerns are understandable, the profits and dividends of global companies such as Glaxo Smith Klein and BP are unlikely to unsettle the British economy or greatly impact the day-to-day costs of SMEs. Similarly, costs to businesses such as pensions will see little change, because they are influenced by the global market and should not affect the UK SME economy. The suggestions of economic instability should be taken as little more than scaremongering from either campaign.
Ease of Trade
SMEs are expected to see a greater impact to trade access than to the economy because currently 63% of UK exports are to Europe. The SME market relies heavily on access to European trade, whilst a Brexit might not have an immediate impact on finances, the changes to trade and manufacturing could greatly impact SMEs trade deals. The EU currently invests £11 billion a year on innovation programmes, should this funding stop SMEs would no longer have access to industry-leading research and support. If the referendum does result in a split from the EU, trade deals for SMEs are likely to be harder to secure. Already SMEs are struggling to trade beyond Europe and further separation from this market is expected to increase competition. SMEs are calling on the government to amend the way in which the EU provides trading opportunities for the SME markets. Should the result be to leave the EU, deepening the UK’s engagement with the G8 and G20 might go some way to securing routes to market and free trade agreements with major trading nations.
Legislation prescribed by the EU is one of the main sticking points in the decision process for many SMEs, with many calling for the government to relax controls in the emerging markets to encourage free trade. It is hoped that the negotiations lead by the Prime Minister will help to create a position whereby SMEs can be championed. The current single EU market is difficult for SMEs to penetrate and is not complementary to the strategies of entrepreneurs looking to achieve rapid growth. The intolerant barriers and bureaucracy mean many businesses find themselves restrained by unnecessary regulations, often where large businesses would be unaffected. Ultimately, the demands of SMEs are the same as large businesses; access to marketplace, free movement of people and ability to access finance and trade deals; however for SMEs, the red-tape remains a hurdle.
The consequences of a referendum are difficult to predict. Whilst leaving would see SMEs free from EU regulations, the access to market could be challenging. If the UK stayed, there would be calls for government to negotiate a reduction to red tape to assist SMEs achieve further growth. The next frontier for SMEs to conquer is EU-US because this trade route promises to bring an increase of £7 billion in GDP growth.
Since 2012, the rate of migration has doubled; the movement of people in Europe safeguards British jobs because businesses can readily access 500 million consumers. Leaving the EU would dramatically impact the free movement of people and therefore affect SMEs’ ability to recruit. This could be problematic, as many SMEs are already struggling to employ the right candidates. The possible limitations to growth and development could also see considerable changes to the UK labour force and productivity. Again, we see that economic consequences may come as an indirect result of other changes, but ultimately, the immediate financial situation of SMEs should not be impacted too greatly.
It seems safe to assume that the, arguably, hysterical claims about the impact of the Brexit will continue for months yet. Whilst scaremongers are likely to focus on the economy, the actual impact to finances is not expected to be too damaging. It is the indirect economic impact which is of greater concern. The implications for trade, manufacturing and access to market are likely to have much wider consequences. Whether the eventual outcome is “in” or “out”, the net effect should not be insignificant.