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Goldsmiths' Official Student Magazine

How will Brexit affect small businesses?

June 19, 2016
Shaun Balderson, Senior Editor of [smiths] argues that leaving the EU will have a devastating impact on small and medium-sized businesses.

Brexit-EU-remain

Small and medium-sized enterprises (SMEs) are invaluable to the UK economy. According to recent statistics by the UK Department for Business Innovation and Skills, SMEs account for 99.9 percent of all UK private sector businesses, provide over 60 per cent of UK employment and have an annual turnover of £1.8 trillion.

SMEs also have strong trading links to the economic markets within the EU. Over one million SMEs are involved in exporting to the EU and according to the Western Union Business Solution International Trade Monitor, 80 percent of UK SMES that do export, do so within Europe.  

This is why it’s so important when casting our vote on June the 23rd to consider the impacts that Brexit may have on our SME’s.

Being a member of the EU gives our SME’s completely protectionist free access to over 500 million consumers. This is at risk if we leave. European economic history is one of conflict and protectionism, not kind words and liberalism. The president of the European commission Jean Paul Junker has already made it clear that there will be consequences if Britain leaves the EU. Ignoring the vendetta, for now, we can see that the UK still would have an incredibly hard time attempting to renegotiate boundary and borderless free trade. Whilst the UK does have some bargaining power, in that we do import a considerable amount, It’s just common sense to see our position in negotiating is not a match to the strength of the larger and wealthier trading bloc that combines the remaining 27 countries in the EU. If the likes of tariffs and other costly trade barriers and protectionist policies are introduced by foreign governments, then UK SMEs that do export goods and services will become significantly less competitive overseas. At the end of the day, that is the aim of protectionist policies, to protect domestic business from competition and force foreign competitors out of business.

Along with access to markets within the EU, our membership also brings us a series of huge subsidies and business grants across all sectors, something that many UK SMEs rely upon.  Quite simply, Brexit would mean the loss of these vital subsidies. Losing these subsidies would deprive many of our SMEs of their competitiveness and possibly push those infant industries under.  As Michelle O’Neil, the Northern Irish Agriculture Minister said a few weeks ago, “In terms of Agriculture and Rural Development, we will have drawn down over £1.9 billion of European funding between 2014 and 2020. I fear that a significant reduction in direct support would see production go into free-fall.”

Additionally as a member of the European Union, our small businesses have access to several special programmes for SME financing. Let’s just look at two of the many, The European Investment Fund and the European Investment Bank. Alone in 2015 these institutions invested over £6.1billion in infrastructure projects and lent over £520 million to SME’s. A loss of these funding streams and a restriction on the availability of finance will have a direct impact on those wishing to start up across the UK.

What about red tape? We’ve all heard about that damaging regulation from Brussels. Well according to the OECD, despite this burden, the UK is the second least regulated economy among developed states.  In fact, the World Bank in its 2016 Ease of Doing Business rankings places the UK sixth in the world. But still,  despite it not being a problem could we get rid of it? Again, probably not. British SME’s that trade goods and services with countries in the EU will still have to comply with all the customs union’s regulations. The only difference for these UK SMEs is that their governments won’t have a say on what those regulations are. Adding to this, the frustrating process of de-tanglement and re-tanglement between EU and UK regulation will bring years of uncertainty, chaos and confusion to SMEs. This is something that is sure to lower to the confidence of entrepreneurs hoping to start up or businesses hoping to expand.

Brexit will have further implications for the development of UK labour skills. For example, the EU currently provides several funding initiatives for the improvement of training and skills including the European Social Fund (ESF). The ESF has allocated around £3.2 billion to the Youth Employment Initiative and is already providing £305 million to UK schools and independent training providers.  As a member of the EU, we also gain access to the Grand Coalition for Digital Jobs which has seen the creation of around 300,000 training courses.  Plus we also gain access to the student heartthrob that is the educational exchange project, Erasmus+. The list of funding for training and skills is practically endless. In the event of leaving the EU, the UK would not have access to these funded training and skills projects, just as Switzerland right now does not. This limits the UK skills base and productivity, in turn harming our SMEs which rely on a decent, well-trained labour force to keep afloat.  

Add to the all aforementioned impacts, complications with work visas and VAT, increases in the cost of travel and transport, shaky exchange rates, financial uncertainty and more.

Is it really any wonder that Moore Stephens recent poll suggested that just 17 percent of SME’s back Brexit?