FSB research highlights Brexit concerns and opportunities for SMEs

The Prime Minister famously said that “Brexit means Brexit”. But what does that mean for small businesses? In a speech in January, Theresa May offered a bit more detail: namely, exiting the single market and some form of new relationship with the customs union, as well as commenting on future free trade deals with overseas markets. 

FSB National Chairman Mike Cherry responded to the Prime Minister’s 12-point plan, saying: “We wanted to see the Prime Minister begin to sketch out a ‘pro-business Brexit’ by addressing trade, talent and transitional arrangements. Our members want to see this bold and ambitious free trade agreement so that they can continue to trade and operate within European markets. However, we will push the Government to guarantee whatever transition process is put in place ensures there is no cliff edge or gap in trade.”

Just over a fifth (21 per cent) of FSB members export, and 92 per cent of these businesses do so directly with the single market. The Prime Minister’s words “I want tariff-free trade for Britain” are reassuring, but remain just aspirations until the conclusion of the Brexit negotiations following the triggering of Article 50. 

FSB has undertaken a comprehensive research programme to analyse the potential opportunities for small businesses upon the UK leaving the EU, and to define the areas that members most want FSB to lobby for in its negotiations with Government.

Following extensive engagement and focus groups with members across every nation and region of the UK, FSB is in the process of publishing the following four reports, as part of our Brexit series: 

1. Access to EU single market and non-EU markets 
2. Access to skills, labour and the ease of doing business within the EU
3. What’s next from EU funding? 
4. Regulatory framework post exiting the EU

In January, FSB published an initial snapshot of its research and key findings so far, offering a flavour of the work ahead. “As the UK negotiating team assembles, evidence from FSB’s Brexit research programme will inform their work,” says Martin McTague, FSB Policy Director. “We now know the future trading environment will change. Our job will be to make sure the voice of UK small business is heard in all areas.”

However, export is far from the only issue. “Nearly a fifth of our members who have employees currently employ EU citizens, typically due to acute existing skills shortages in their region,” he says. An FSB member in Scotland, working in the construction sector, is quoted in the report saying: “If I didn’t have access to my non-UK workforce I would close down”. FSB is calling on Government to guarantee that non-UK EU nationals who either run or are employed by small businesses in the UK be granted the right to remain.

Yet Brexit undoubtedly provides an opportunity to improve many areas too. The current delivery of business support and access to finance remain patchy at best. FSB research in 2015 also showed that 53 per cent of members believed that “reducing the regulatory burden” should be the top policy priority for the 2015-20 Parliament. 

“Much of the present regulatory framework has been heavily influenced by EU and wider international commitments, not least in areas such as employment law, health and safety and, most recently, in data protection,” says Mr McTague. FSB will lobby Government to keep the concerns and desires of small businesses top-of-mind among those sitting around the negotiating tables of Brussels. 

My Brexit: Tanja Lister Kylesku Hotel, North West Scotland

“We took the business over in late 2009. It is an 11-bedroom hotel and restaurant in the Highlands.

If the pound is weaker it does potentially encourage tourism from anywhere abroad. There is some evidence to suggest that across the UK there has been more interest. We have noticed some ‘freer’ spending from the West European travellers, such as buying a nicer wine or an extra glass.

Moving from freedom of movement for EU/EEA nationals to, for example, a work permit-based system is probably my biggest concern. While we have a high proportion of UK staff, our industry does rely heavily on other EU nationals. Recruitment is already difficult for us, partly owing to our location, so it’s important for us to be able to widen the pool from abroad. A reduction in regulatory burden following Brexit would be welcome. So I would not wish the employment of EU nationals to become a burden with new paperwork.

We have been given a £200,000 grant from Highlands and Islands Enterprise, which I believe is at least in part funded by the EU. Owing to the remote location, any project costs about 15-20 per cent more than it would do nearer to a city. This is why we needed the funding – it allowed us to afford a refurbishment and extension project that otherwise would have been too expensive.”

My Brexit: Lee Murphy Pandle, Upton, Wirral

“I established The Accountancy Partnership in 2008, providing services for more than 3,000 businesses in the UK and abroad, before recently launching pandle.co.uk – free cloud-based accounting software for small businesses.

I was initially concerned that we’d lose a lot of our EU clients if Britain voted to leave. However, since the referendum we haven’t lost a single one. 

Since then I have done some research into our clients and found that most of them are remote, technology-based, and aren’t reliant on exports and imports. For the most part it seems that they want to take advantage of the benefits of being a UK business, as it carries a low cost to start up, and has one of the lowest corporation tax rates in the world. For this reason I doubt that we’ll lose many clients following Brexit. 

On the specifics of Brexit, I’m not particularly concerned about freedom of movement as we have only UK offices. We did have discussions with a client that was looking where to position its EU business, and it ended up choosing Germany, but this was a one-off case. Many of our clients have multiple bank accounts across multiple currencies, and are now keeping more euros and dollars as the pound has been weakened.”

My Brexit Lars Andersen My Nametags, London

“My Nametags makes iron-on and sticker nametags for children’s clothes and equipment. I founded the business in 2004, and we sell nametags to more than 60 countries. We have websites in five other EU countries. We take orders on these websites, produce the nametags in the UK, and then post the products to the customers.
 
We find it easy to produce in the UK and post an order to Paris. There is a risk that Brexit would make it more work and more expensive to sell these products from the UK. We might consider setting up a legal entity or a production site inside the EU.

To sell into the other EU countries, we have hired EU nationals, particularly for customer service and marketing functions. All these individuals are employed and pay taxes in the UK. We hope there will be no problems keeping staff post-Brexit.

We also sell to about 45 countries outside the EU, and this will continue. New trade agreements could lower the duties or reporting requirements for selling to these countries. While we would prefer to stay inside the single market, I am sure we will be OK even if we have to leave. I hope the UK Government would keep a non-tariff and non-administrative export climate, particularly with the EU. 

As a Norwegian living in the UK for more than 20 years, I am confident that the UK’s sensible approach to supporting business will continue.”

My Brexit Ian Ross, Whitehead-Ross Education and Consulting

Whitehead-Ross Education and Consulting (WREC) is an education and social welfare business based in Neath, South Wales. 

When I started the business five years ago I received a £6,000 graduate business start-up grant and mentoring, funded by the European Regional Development Fund. I would like to see the future of similar schemes safeguarded. The return to the taxpayer pays off through supporting young entrepreneurs.

According to the Welsh Government, businesses and public and third sector organisations won more than £1.1 billion in contracts to deliver EU projects supported by the Structural Funds programmes between 2007 and 2013. 

I would like to see the Government, both at a Westminster and Welsh Government level, work together to plug the gap for the skills and training budget post-Brexit. Without Government-funded training opportunities, there will be less incentive for employers to upskill their staff. 

If the Government continues to invest in infrastructure projects, training, apprenticeships and higher education post-Brexit, the spending could have more of an impact, given there would no longer be EU constraints on how the money is spent.”