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01
JUN
2016

What Does The EU Referendum Mean For Small Businesses?

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Red tape

One of the main arguments made by small business groups in favour of Brexit is the perennial bugbear of ‘red tape’. The argument goes that huge swathes of regulation originate in Brussels, and that they are holding back British businesses. Red tape consistently ranks amongst the biggest concerns reported by UK SMEs.

One Leave group, Better Off Out, cite an EU report apparently suggesting that EU regulations ‘cost’ British businesses some €40 billion per year.

However, this doesn’t tell the whole story. Writing in City AM, Labour politician Chuka Umunna insists that British businesses gain far more than they lose from membership. He points out that, of the UK SMEs who export, 88 per cent do so from Europe, and benefit from the tariff-free trade that membership provides.

There is also concern about the tone of the argument concerning regulation. Workers’ rights groups point out that much of what is deemed ‘red tape’ is actually vital for maintaining the safety of the workplace and employees’ rights.

Finance

One topic that hasn’t been covered as extensively is the potential impact of Brexit on SME finance.

Writing in the Guardian, Daniel Gros, Director of the Centre for European Studies, suggests that the impact would be limited. He says: “The EU has some special programmes for SME financing, which would of course no longer be available if the UK leaves the EU. But these programmes, operated via the European Investment Bank, have not had a large impact on SME lending.”

However, there may be longer-term impacts. Many commentators have warned of a spike in interest rates in the event of Brexit. This would make borrowing more expensive for both businesses and individuals, in part as the UK is deemed less creditworthy outside the EU.

Immigration

Immigration is another hot topic when it comes to Brexit – indeed, for many campaigners, it is the main argument in favour of leaving. These campaigners insist that immigration from the EU, and particularly from Eastern Europe, has driven down wages, especially in lower paying professions, and has made it more difficult for Brits to get jobs.

Again, in reality the argument isn’t that clear-cut. In fact, most economists agree that immigration has been good for the UK – it props up key industries like housebuilding, and it has also meant a rise in consumption, which is good for both British businesses and tax receipts. A reduction of the labour pool could also spell trouble for SMEs looking to hire.

Spending power

The impact on household spending is one of the major arguments put by Remain campaigners. According to the Treasury, households would be over £4,000 worse off in the event of Brexit, and this figure hasn’t been contested by Leave campaigners.

A reduction in spending power of this order could case significant problems for B2C companies, especially in an environment in which the UK’s economy remains so fragile. That £4,000 figure represents almost a fifth of the median annual salary – a huge drop in spending power.

 

 

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