Posted: Wednesday, 4 May 2016 @ 15:59
Most voters say they don’t feel they have enough information
to make a reasoned decision on whether or not to opt for a Brexit. The only
ones who appear certain on the issues are the politicians on both sides who
repeat so-called facts, which are nothing of the sort.
The simple fact is that no country has exited the EU and so
there are no precedents to follow. No one knows for sure what the effects will
be but it is likely to affect different businesses in different ways.
I believe the main factors that directly affect SMEs are EU red
tape and exporting to the EU.
Regulation has been a bane of SMEs for many years and most
of the burden of regulation comes from the EU. Nearly all SMEs complain that
there is too much red tape but it is difficult to say what the cost to UK
business is. Firstly, there are the costs of complying with the regulations
themselves: the time and expense involved in businesses changing their
practices whenever new regulations come into effect, keeping up to date with
regulatory changes, and the cost of the regulators. But there are also the intangibles:
how much business is lost as a result of owners and managers spending valuable
time dealing with regulatory issues rather than building and growing their
I’ve seen a lot of figures banded about as to the costs of
red tape on business. A recent EU report put the figure at around €40 billion per year and the highest
I’ve seen is a figure by the economist Patrick Minford who put it at £90
billion per year for UK business.
What is clear is that there is too much of it and that SMEs
are affected disproportionately compared to larger businesses, and an awful lot
of it is unnecessary.
EU regulation comes in different legal formats. ‘Regulations’
are passed by the EU and automatically form part of our domestic law. These would
disappear in the event of a Brexit. ‘Directives’ need to be passed by
Parliament to become part of our law, and therefore those that have already
been passed will remain, and those which have not yet been passed will fall
It will then be up to Parliament to decide on what
regulation is needed by UK business. Some will be retained, some abolished and some
varied, and it will all depend on the view of the government as time goes on. Once
we are out of the EU, the government could introduce measures, for example, to
make the UK more attractive to investors compared to the EU. Whatever is
decides, at least we would be able to hold the government to account as they
could not continue to blame the EU for the amount of red tape strangling SMEs.
The second main area that will be affected will be on
trading relationships with the EU countries and the rest of the world.
I think it is fair to say that most SMEs do not export, or
do not export in sufficient volumes, for this to be significant. However, many
do and those who export to the EU in particular could be affected.
The main issue with exporting to the EU after a Brexit is
uncertainty. Clearly, nothing will change overnight, but exporters are likely
to face increased complexity and cost with exporting to the EU. There is also
the risk of tariffs, and the question on whether they are likely to be imposed
has become a live issue among the politicians. However, the government’s own forecast
is that tariffs of around 3% could be imposed for goods exported to the EU.
But, at the same time, the exchange rate is likely to fall and probably more
than 3%. Therefore the net result is that the price of exports could be
cheaper, which would benefit exporters.
Potentially, a Brexit could have a positive impact on those
exporting to countries outside the EU as the UK will then be free to enter into
free trade agreements with these countries, which it cannot do while in the EU.
Those who export to India, as an example, could well benefit in the medium
Are there any conclusions that can be drawn?
The only thing that’s certain is the uncertainty. No one can
say for sure what the future will look like outside of the EU or, for that
matter, if we stayed in. The EU is not a static body and one of the
consequences of the Euro crisis is that those countries in the Eurozone are
likely to integrate further. It is difficult to say what the UK’s place would
be in such an EU if we remain outside the Eurozone, and I think it is likely
that decisions will be made that favour the Eurozone countries above countries
that remain outside, such as the UK.
My view is that most SMEs would be better off if we left the
EU as a result of there being less red tape to cope with.
Those who export to the EU may be worse off primarily due to
the initial uncertainty over terms of trade.
Ultimately, though, there are many questions that will
remain unanswered this side of any Brexit.
Do you agree with me? What are your views?
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Blog by Gary Pascual
Gary has been providing legal advice to shareholders, directors and business owners for over 25 years. Specialising in dispute resolution Gary is based in Birmingham with clients throughout the UK and overseas. View profile
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