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What’s the future looking like for SMEs post-Brexit?

By Contributing Author


No matter which side of the political fence that you sit on, Brexit is likely to bring about big changes for the UK economy.

Yet, as the economic arguments surrounding Brexit are coming to the fore, it’s important not to forget the role played by SMEs.

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There are about 5.5 million SMEs across the UK, and they account for almost half of all private sector turnover. In many respects, these businesses are the heartbeat of the UK economy, and every bit as important as the giants of financial services and car manufacturing that have attracted most of the headlines since the vote result.

So, what will Brexit mean for SMEs?

Securing the immediate future

As we approach March 2019, when the UK formally leaves the European Union, the most pressing concern for small businesses is to protect and secure the trade that they current carry out on the Continent.

Nine in ten small businesses that export goods and services do so with the European Union, and it’s self-evident that smaller companies would have less capacity to soak up the impact of tariffs or non-tariff barriers.

A Harvard Kennedy School study suggested that most medium-sized businesses would prefer the UK to stay in the Single Market. While this currently looks unlikely, it certainly seems that SMEs will lobby the Government to keep trade with EU countries as free as possible to avoid any drastic action that damages this lucrative trade.

Replacing EU support in the long run

It isn’t just trade with the EU that SMEs benefit from, however. Many companies have relied on European funding to get off the ground or to develop innovative new products and services.

Bodies such as the Federation of Small Businesses are calling for this to continue in some form after the UK leaves the EU. Chairman Mike Cherry said: “The European Investment Fund has provided almost £500 million annually to support smaller British firms aspiring to grow and scale-up. More than half of FSB members believe that EU funding for access to finance should be prioritised and maintained post-Brexit. It is critical that this level of investment activity is replicated after the UK leaves the EU.

“Whatever model is adopted by Government, the British Business Bank (BBB), which already plays a leading role in promoting access to finance in the UK, should be at the heart of it.”

Without access to the current levels of funding, SMEs will struggle to invest, expand and grow at their current rate. The number of SMEs is at a record high – a statistic which has contributed to low unemployment – and any loss of support to keep this progress going will be bad for SMEs and the wider economy.


Exploring new export opportunities

Pro-Brexit campaigners have long-argued that leaving the EU will open up greater trading opportunities for business across the globe. If this is to be the case, SMEs will need to be encouraged to explore new markets overseas.

Elliott Haworth, writing for City AM, suggested that this might involve greater trade with the US. America accounted for about 15 per cent of all UK exports in 2015, importing more goods than any other single country.

New rules to allow goods worth below $800 to bypass formal customs procedures have had a positive effect – and should be welcomed by SMEs in particular. The amount of tax levied on UK goods sent to the US averages at about three per cent – and there’s the potential for this to fall further with a post-Brexit trade deal.

Not that ‘breaking America’ is easy. While UK businesses aren’t constrained by linguistic or cultural barriers when looking ‘across the Pond’, there are other considerations. Right from tax laws to the customs over paperwork and the way business is conducted, trading in America is alien for UK businesses and takes a lot of skills, time and effort to manage.

This is just one example – but there are similar hurdles to overcome with other nations, and the impact of ‘distance’ and ‘geography’ as trade factors will be keenly felt by SMEs.

SMEs need the Government to negotiate a favourable relationship with the EU that isn’t too dissimilar to the current arrangements with the Single Market. In the medium-term, they need new sources of investment funding and in the longer term will need help to be able to find and develop new trading opportunities.

SMEs certainly face challenges in the coming years. Only once clarity is found on these short, medium and long-term priorities will we know for certain whether the future, post-Brexit, is a bright one.




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