The exit of the UK from the European Union marks the beginning of a new chapter in the story of this Great Island. It has the potential to singlehandedly turn upside down, the way commerce and culture has been exchanged between these countries for centuries.
But what news this new chapter brings for the Small and Medium Sized businesses, only time can tell. At Northants Accounting, we have discussed below the ways in which business will change after Brexit, which is why it is important to work with an experienced accountant as they will ensure you sail through harder times more effortlessly.
What SMEs mean to our Economy
Small and medium sized businesses are often referred to as the backbone of the UK economy. The statistics below should justify this analogy:
- There are 5.7 million Small and Medium sized businesses in the UK.
- Over 99% of private sector firms in the UK belong to the category of SMEs.
- They have been responsible for the creation of over 2 million jobs in the UK, which accounts for nearly 73% of the total private sector jobs that have been created since 2010.
What SMEs think about Brexit
Since we have already established how SMEs provide support and strength to the UK economy, should we not take into account what they think about Brexit?
The government recently conducted a survey reaching out to over 10,000 small and medium sized businesses to hear their side of the story. Their apprehensions surrounding Brexit were discussed and following were some of the findings:
Based on Strength
- 2% of medium sized businesses with a number of employees between 50 and 250 believe that Brexit will create an obstacle of some sort, the nature of which will not be certain until the Brexit negotiations come to an end.
- 4% of small scale businesses that have hired between 10 and 50 employees believe that Brexit will have a negative effect on the operations of their business.
- 9% of micro sized businesses that have strength of not more than 9 employees believe their business may suffer due to Britain’s exit from EU.
As is clearly evident, it is the medium sized companies that have shown the maximum reservation regarding Brexit. Their opinion is likely to be influenced by the fact that it is usually the larger SMEs that are more likely to import and export goods or services.
Based on the Nature of Business
The businesses involving innovation of any kind, be it technological, medical or informational were sceptical of Britain’s growth post Brexit.
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23.9% of the SMEs that undertake the process of innovation for creating products believe that Brexit will impact some aspect of their manufacturing process.
Comparatively, businesses that are not required to innovate were less apprehensive of the effects of Brexit and only 12.2% of the companies feared negative consequences.
Businesses with Import/Export
Businesses that are required to import and/or export their products to other EU countries were naturally against the UK’s decision to leave the European Union. In their opinion, the free movement of people within a single market gives them access to 26 million businesses and over 500 million potential consumers.
Prominent businessmen have voiced their concerns against the alteration of an arrangement that facilitates business that is potentially worth £11trillion.
33.2% of such companies said there could be unfavourable changes in trade regulations that could lead to a reduction in business.
Non-exporter companies were found to be the most relaxed as only 13.6% of them believed that Brexit would affect their business.
Trade Relations Models and their impact on GDP
The type of trade model that is adopted during Brexit negotiations will influence to quite an extent the impact that Brexit will have on the GDP growth of the UK:
European Economic Area (EEA)
If the UK were to adopt the trade relations model that Norway has adopted, which is to not be a part of the EU but retain the single market condition, the impact on GDP growth will be kept to a minimum.
Free Trade Agreement (FTA)
In 2014, the European Union entered into a Free Trade Agreement with Canada. It has only been provisionally implemented but it has already waived off 98% of the tariffs that were previously applicable on the trade between them.
The impact on GDP growth will be more severe if the UK decides to sign a free trade agreement with the EU.
World Trade Organisation (WTO)
If the UK decides to have trade relations of the nature that exists between most international countries, which is World Trade Organisation, the UK economy will experience the slowest GDP growth by implementing this model.
The other Side
There is plenty of evidence to believe that Brexit is most likely to slow down the growth of the UK economy in the near future. However, despite the popular view of the economists and the statistics, which seem to be against Brexit, it may be too soon to arrive at a conclusion regarding the fate that Brexit will deliver.
Get in touch with us today to know more about how Brexit can impact your business and how you can make all the necessary provisions to be prepared for changes in the future.