SMEs likely to be worst affected by Brexit

SMEs likely to be worst affected by Brexit

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In the crowded atrium of the East Wintergarden, Canary Wharf, the annual Business Funding Show is underway. Scores of business owners and start-up CEOs have set up their respective stands before bee lining towards their intended targets. As they introduce themselves to one another, hands are shaken and business cards are exchanged in a mesmeric display of corporate symbiosis. Known as ‘networking’, these exchanges continue for another hour until guests are ushered towards their seats for the first panel of speakers.

As talks begin, the initially buoyant tone is quickly dampened: “There is no question that Brexit has changed everything,” says Keith Morgan, CEO of British Business Bank. “We have no idea what is going to happen next and that is the biggest killer: uncertainty.” Unfortunately for UK businesses, there is no indication that this uncertainty will dissipate; Theresa May and her government have been hampered by discussions over whether the UK should remain in the customs union after 2019 and after voicing her support for leaving the union, the threat of bipartisan rebellion in Parliament may force a rejig in government policy.

Most affected by this political uncertainty are small and medium-sized enterprises (SMEs), who represent 60% of all private sector employment in the UK (16.1 million). According to a study by researchers at St Andrews this year, Brexit will likely result in lower levels of capital investment, reduced access to external finance, lower levels of growth, reduced product development and lower levels of business internationalisation.

The fall in small business confidence this year reflects the sobering results of this finding, with a record one in seven (14%) planning to downsize, close or sell their business over the next three months. 73% of SMEs have also reported a rise in their operating costs, which is at a five-year high and this rise has had a marked effect on their profitability: over one-third (41%) saw a fall in profits, the highest figure since 2013.

In response to these alarming figures, a spokesperson for the UK Government Department for Exiting the EU said: “We recognise the importance of providing certainty for businesses, which is why we want to reach agreement with the EU on an implementation period as soon as possible.

We have already made good progress, agreeing in December to move talks onto our future relationship. The EU has said they will offer their most ambitious free trade approach and we are confident of negotiating a deep and special economic partnership.”

It is unlikely that opaque political statements such as these will settle the nerves of SME owners but as the customs union question approaches a critical juncture in Parliament over the coming weeks, there should be a much clearer indication as to what type of Brexit the UK will adopt. SMEs are the backbone of economic growth in the UK and serve as a vital source of innovation for the country. It is imperative that the UK government protects SME interests during Brexit negotiations so that the nation can continue to attract the finest minds from all over the world.

 

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