If the UK proceeds with leaving the EU on 29 March, Brexit will undoubtedly be a disruptive force for small businesses. But will it be a force for good or bad? And where will businesses feel its impact most?
Mike Cherry, national chairman of the Federation of Small Businesses, believes that the answer to that question hinges on how the UK leaves the EU. “Longer term, there are many questions in the air, particularly around what our future trading relationship with the EU will look like,” he adds. “All of these questions make it extremely hard to judge how Brexit will ultimately impact small businesses.”
In the meantime, we can look at a few key areas to see what action SMEs are already taking to prepare for Brexit, however best they can.
The end of free movement and tighter immigration rules post Brexit will force many small businesses to rethink both their recruitment and their skills strategies. In fact, statistics show that businesses are already feeling a squeeze on talent. According to the Chartered Institute of Personnel & Development, there was a 95pc fall in EU nationals joining the UK workforce between the first quarter of 2016 and the first quarter of 2018. Low unemployment and a continued appetite for hiring across all sizes of business has seen 44pc of employers experience recruitment difficulties during 2018, with another 34pc struggling to retain staff.
“Brexit-related uncertainty is causing a serious skills shortage right across the country,” says Mr Cherry. “If we crash out of the EU, those shortages will become more acute.”
Over the longer term, however, employers may get some respite from the Government’s proposed post-Brexit immigration system, which was set out in a White Paper in December. The proposals include the introduction of 12-month work visas for low-skilled immigrants and the scrapping of the current cap on the number of highly skilled migrants.
Affordable, sustainable finance underpins business growth. The Bank of England believes that UK banks are strong enough to survive a disorderly Brexit, nevertheless a period of market turmoil is likely to result in restricted lending to small businesses. “A chaotic no-deal Brexit would cause a significant shock to small business finance markets,” says Mr Cherry. “When times are hard for banks, lending to small firms often goes out the window as institutions flock to safe havens – we saw that in the wake of the financial crash.”
Conscious of the potential impact of Brexit on small business funding, the UK Government has committed to establishing a UK Shared Prosperity Fund (UKSPF). The UKSPF aims to tackle social inequality by raising productivity, particularly in the less economically advanced areas of the country. While UK SMEs benefit from EU Structural Funds today, the funds can be difficult to access. So, in theory, SMEs should find it easier to access finance through the UKSPF in future – just as soon as the Government publishes details of what it will look like.
Prior to the June 2016 referendum, the UK was one of the fastest growing economies in the G7. By the end of 2018, it was the slowest. Although the International Monetary Fund has predicted that the UK will continue to grow at a rate of just above 1.5pc in the coming years, its forecast is based on the assumption that the UK leaves the EU in an orderly fashion, with a broad free trade agreement with the EU in place.
In reality, how is Brexit likely to impinge on SME growth in the future? “The firms that seem most worried by Brexit are growth-oriented innovators,” says Dr Ross Brown, reader in entrepreneurship and small business finance at the Centre for Responsible Banking and Finance at the University of St Andrews. “These are the high-productivity, export-oriented and import-oriented firms.”
Nevertheless he believes that Brexit does present growth opportunities for SMEs. For example, some SMEs are opening offices in EU 27 countries, making it easier for them to tap new markets and access new talent pools. He also highlights that Brexit uncertainty is having a positive benefit on certain businesses due to manufacturers stockpiling both raw materials and finished goods.
Trade is the area where Brexit has the greatest scope to bring positive disruption, since UK goods and services continue to be sought after across the world. In 2017, the UK exported around £342 billion to non-EU countries and a further £274 billion to EU countries. As of June 2018, the UK’s exports were 4.4pc up on the same time a year previously, with the trade deficit narrowing by £6 billion over that period.
The shift towards an economy that is exporting at a faster rate than it imports should benefit UK SMEs, especially if the Government agrees new trade arrangements with the EU and other countries. But Dr Brown points out that it will take some time for the UK to negotiate numerous bilateral trade relationships, with the ongoing uncertainty potentially detrimental to exporters. In addition, most SMEs tend to export their goods and services close to locations near where they operate, which means they are still far more likely to target EU countries than more distant markets such as Brazil and China.
The 2019 SME Agenda looks at the core challenges facing SMEs in the year ahead. From Brexit to housing, how is the state of the nation affecting the businesses within it? To access a copy and find out, download the report.
Yorkshire Bank’s international trade solutions for SMEs – including helping them manage foreign exchange risks – is vital for SMEs that trade overseas, especially in light of Brexit and its impact on British and international business. That’s why the Telegraph and Yorkshire Bank are investigating how SMEs can look to the future without letting go of the proven principles of good business.
To find out more about why you may want to switch your business banking provider, or how you could better balance technology with a personal touch, visit secure.ybonline.co.uk/business
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