What will a Brexit mean for SMEs?

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.  

Red Tape  

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 businesses?  

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 out.  

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.  

Exporting  

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 term.  

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?

Blog by Gary Cousins
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
Call Gary on +44 (0)121 778 3212 or by email
This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.

Comments

  • Very interesting Gary, and much in line with my own thoughts. I just don't know enough to make an informed decision, therefore I won't be voting. There is one thing I am 100% certain of though - I don't trust the UK government. I've traded overseas since I got my business going in 2005 (I run online marketing campaigns for small and medium businesses from wherever I have an internet connection) so I don't think leaving the EU would make a single scrap of difference to what I do. Thanks for the article!By David Rothwell5 May 16, 7:55pm
  • I suspect we'll be worse off outside the EU - especially as no one has the faintest idea what would actually happen if we left, and in business uncertainty is usually the most damaging factor of all. I think there'd be more red tape, not less, as we'd still have to comply with European rules to export our goods while having no ability whatsoever to influence or ameliorate those rules. We're no longer a major power (sorry), but we can have influence in Europe if we behave as though we belonged there. Given the huge problems facing the continent at the moment we'd be picking the worst possible time to leave the debate (and to abandon whatever influence we have left). At the moment we sound like the annoying child who is constantly whining that he wants to go home just as the adults are most in need of time to sort out their problems.By Allan Scott5 May 16, 7:36pm
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Thank you. Your response is great, very straight to the point! Hopefully this will bring an end to the matter. I will certainly be recommending your services as I am very impressed with the prompt dealing of this matter.
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