Brexit is a merging word of Britain and exit. It is decided during EU referendum on 23rd June 2016 whether the UK should remain as a member of the EU or leave. The voters are from citizens of British, Irish and Commonwealth. Thus, 52% vote to leave and 48% is to stay. Both England and Wales choose to leave by 53.4% and 52.5% respectively. Larger majorities in Scotland of 62.0% and 55.8% from Northern Ireland vote for remain. The new UK Prime Minister who just took over from David Cameron, Theresa May (2016: 9) stated that: “As we leave the European Union, we will forge a bold new positive role for ourselves in the world, and we will make Britain a country that works not for a privileged few, but for every one of us”(Phinnemore, 2016). For leaving, the Article 50 of the Lisbon Treaty has been agreed between the two sides. It gives two years for UK and EU in deciding the terms of split and it means the UK will be expected to left officially by the end of March 2019. Leaving the EU gives the greatest uncertainty of outcomes because no country has ever done it before. It may affect the international trade, investment, immigration, employment and many more. The most concern is how the UK small and medium sized businesses (SME’s) cope in this situation. Then, as a purpose of this report is to evaluate whether the Brexit might give positive or negative effect to SME’s.
Based on the Lloyds Banking Group survey in June 2015, more than half of SME’s which is 51% stated that reduction in EU regulatory requirement should be their top priority. The director of Confederation of British Industry, Tom Thackray also supported this issue by encouraging the Government to bring down the red tape, so that SME’s could focus more on their firms’ growth (Dakers, 2015). Brexit is the best way for SME’s to lower the red tape that give a lot of difficulties for them to develop and achieve a rapid growth. SME’s have suffered to the red tape because it is highly cost, time consuming and restrained them to have a freedom in decision and movement. One of the regulations is the automatic enrolment that means the employer should enrol workers who are eligible into a workplace pension scheme (Cicurel, 2015). The SME’s need to follow the same needless rules as the big company and it seems they be treated unfairly with the intolerant bureaucracy because of their lack of capital to fund the legislation and the availability of staffs to deal with. Thus, Brexit is likely to give an opportunity for them to reduce the cost and focus on strategies that they looking to. However, it is unlikely for government to diminish the red tape. It is doubted whether UK would review and rewrite 160,000 pages of EU laws. The government might maintain the EU regulations because a few of rules are generally imposed to protect the employees’ right.
After leaving EU, UK is no longer being controlled by a restricted regulation by European Union. It allows the exporting SME’s to enlarge their businesses and become more competitive. Rory Broomfield (2017) stated that it gives more opportunities to the UK businesses to trade in more dynamic markets other than European countries. He reveals that The Freedom Association (TFA) will run a lot of campaigns in 2017 to help those people and firms in UK. He believes that after Brexit, UK will have a lot of new capabilities in leading the free trade throughout the world (Broomfield, 2017). So, the UK government can propose a new Free Trade Agreements (FTA) with other developed countries that have no EU negotiation history such as Australia and New Zealand. Britain also could start negotiating with the countries such as US or India that have the delay-agreement with EU before because of some issues and sensitivities. As what the Prime Minister said, UK has already started the negotiation with Australia, New Zealand and India. She also added that China, Brazil and the Gulf States also have interest in obtaining the trade deals with UK (Smith, 2017). However, to renegotiate for a new trade agreement, it takes a long period of negotiation and implementation. Especially with the countries that have good economies market. Probably there are a lot of another countries waiting to sign up the agreements with that countries. Therefore, it is unfavourable to SME’s in the beginning of Brexit.
After Britain leaving the European, both UK and EU citizens may face difficulty in passing the borders. It could be a risk to UK SMEs in recruitment. Since 2012, the immigration rate of people from the EU to UK has increased by 100%. The foreign labour force from EU has contributed 34% to UK economy after cutting the recruitment cost. The main reason why SME’s prefer to hire the EU immigrants because they have better skills and less wage demand than locals. The issue becomes worse because the market of high skilled workers is already limited before Brexit. This restriction also might affect the productivity and growth of SME’s in future. The Aldermore Bank survey proves that more than 40% of respondents who come from entrepreneurs of the UK SMEs agree that they already experienced the problem of employing the right worker (Owen, 2017). Restriction of passing borders would decrease the competition for British graduates and reduce the productivity and quality of workers to the SME’s. But, the Prime Minister decides to set a new system to fully protect the labours’ rights both local workers in Europe and EU workers in UK. Even the free movement is impossible anymore for both sides, British could impose some procedures for immigrants to work in UK or government can improve the training or education to ensure the availability of high skilled workers to the industry.
Based on Zurich’s latest SME Risk Index, out of over 1,000 UK SMEs, 49% vote to remain, 39% support the Brexit and the remaining is undecided yet. Those who against the Brexit campaign argue that by remaining in EU, they can benefit the absence of import tax within the European Union. It makes easier for UK SMEs to export to Europe because the cost of selling and distribution is cheaper. To support their argument, they state that 63% of UK exports are to EU. Exports of goods and services to European also contributed 30% to UK’s economy. EU also the main source of imported goods and services to Britain by almost half of the total imports (Young, 2015). It shows that the industry of UK SMEs is depended on the market of EU and by leaving the EU may give a big risk to the SMEs. Besides, the UK economy is worsened when pound dropped. The Office for National Statistics (ONS) has outlined there was a trade deficit of £4.2 billion. It is due to cost of imports exceed the increase in exports (Real Business, 2017). When pound is depreciated, it will affect the import because the imported goods become more expensive. It may increase the production cost to certain SME’s that use the imported raw materials. However, it may benefit the exporting SME’s because decrease in Sterling’s value make the local exports cheaper. It makes UK goods more competitive and attracts the foreign customers.
In conclusion, all the points above discussed whether the UK government’s decision of leaving the European Union is giving the opportunity or risk to the UK SME’s. Whether it is positive or not, Brexit is totally affect the UK SME’s in managing their businesses and minimising the costs. The entrepreneurs are mostly focus on how Brexit may impact on the regulation, international trade and recruitment of employees. Some arguments for SME’s who voted to remain are what the consequences of Brexit to their trading with the European countries and the European workers’ status in the UK. Based on the sources, Brexit is likely to lead more advantages and better economy chance to the SMEs. It is may be due to how the UK government attempt the problems to ensure the country achieve better economy as a single market. As what the Prime Minister has said recently, it is clear the EU-UK trade would be remain in future. The employment issue also will be handled properly by the government in maximising all individuals’ satisfaction. However, the different authors might give different prediction because of the outcome of Brexit is still uncertain and cannot be estimated accurately. The limitation is, the arguments are only being referred by the sources available at the moment. It may change because the negotiation between UK and EU is still on going. Therefore, whilst the government do the best in negotiation with the EU and propose the free trade agreement with some countries as a preparation to become the single market, SME’s should make every effort to prepare themselves, no matter what Brexit may affect their businesses.