An Owner managed business report suggests that businesses feel their concerns about the UK’s departure from the European Union and the shape of any subsequent trading arrangement are being largely ignored by the government, according to accountancy firm Moore Stephens.
In a survey of 653 owner-managed businesses (OMBs), 94% of respondents said the government was not listening to their views. Only 41% respondents believed their concerns were being addressed.
In the run-up to the EU referendum in 2016, Britain’s largest businesses were overwhelmingly in support of the ‘remain’ cause. Owner managed businesses – in particular, small and medium-sized companies – were more evenly split on the issue, with polls at the time finding that opinions divided roughly 50/50 for and against.
Owner Managed Business Report Suggests Uncertainty
Fast forward to 2018 and Moore Stephens’ Owner Managed Business Report suggests uncertainty over Britain’s trading future is beginning to worry large numbers of managers and owners, regardless of whether they were on the ‘leave’ or ‘remain’ side of the debate.
The concerns captured in the owner managed business report stretch across a broad range of risks and uncertainties, not all of them relating directly to the prospect of Britain’s impending divorce from the European Union. But more than half of those taking part (51%) said their biggest concern was Brexit. That compared with 29% who cited cyber attack and 28%, increased regulation.
Commenting on the findings, Moore Stephens’ head of owner managed business, Mark Lamb called on the government to take account of the views of SMEs when formulating its approach to Brexit.
“Business owners are hugely concerned about what Brexit might mean for them. The Government must take their needs seriously when negotiating the exit deal,” he said. “Whilst banks and other big businesses have the influence to lobby the Government for their own special Brexit clauses, there are concerns that small businesses will be forgotten about.”
Akin Onal, founder of organic baby clothing business, MORI agrees that the opinions of SMEs are being overlooked.
“I don’t think that small businesses are on the radar of the Government,” he says. “And I don’t think that we have the resources to get on the radar.”
As Onal sees it, businesses are frustrated by a lack of certainty.
“There is an ambiguity about the near future,” he says. “For the next few years, everything will be up in the air.”
In the absence of certainty, Moore Stephens found fear among SMEs that the negotiations would not have a good outcome. More than a third (38%) of managers said the introduction of trade tariffs was their biggest concern. While 28% said they worried about losing European customers.
Staff shortages also figure largely in the thinking of owner-managers. Once Britain leaves the European Union and a yet-to-be-agreed transition period runs its course, freedom of movement will come to an end and European citizens will no longer have a right to live and work in the UK. A significant minority of British businesses feel this will exacerbate a skills shortage in an economy that is already close to full employment. 30% of managers told Moore Stephens that loss of European Labour posed a potential problem for their companies.
What’s the Problem?
As things stand, the UK government has pledged to leave not only the EU itself but also the Single Market and Customs Union. Under Single Market rules, businesses within the EU can move goods and deliver services without having to pay tariffs. Equally important, because of common regulation across the EU, there are minimal non-tariff barriers. For instance, agreed rules on packaging and safety standards mean that products can be shipped from one country to another without falling foul of local regulators. Meanwhile, within the Customs Union, goods that come into the EU from outside are subject to a common tariff, which is paid only once, even when shipped elsewhere in Europe. This is a huge enabler of frictionless supply chains.
The UK aims to replace the Single Market and Customs Union with new bespoke arrangements but there are no certainties. Thus, UK exporters could find their goods subject to new duties and perhaps also regulatory barriers. And if the UK imposes much tighter controls on European workers, skill shortages could also be a problem.
“The whole issue of the single market has to be addressed,” says Onal. “Businesses need to know what kind of tariff system they will be working with.”
That much has been well publicised, but there are less obvious potential problems. As Moore Stephens points out, many UK businesses benefit from a range of grants and subsidies that are currently channelled from Brussels. It is by no means clear if these will be replaced.
There are perhaps also hidden problems once Britain steps out from under the regulatory umbrella of the single market. For instance, Akin Onal says the company is a UK trademark and has applied for similar status elsewhere in Europe. At present, he doesn’t know if his trademark will be valid after Brexit.
“And it will cost money and resources to sort the situation out,” he says.
Playing the Hand You’re Dealt
In the absence of clarity, businesses are preparing to play whatever hand they are given. For instance, Kris Gumbrell is the co-founder of Brewhouse & Kitchen, a fast-growing pub chain that brews beers on the premises. He acknowledges that his company and the hospitality industry generally will face challenges that must be addressed.
“The availability of skilled labour is important. In future, we will have to attract more people from within the UK. We can’t be so reliant on migrant workers.”
Christer Holloman is the co-founder of Divido – a fintech startup that enables consumers to borrow at the point of sale to spread the cost of purchases. His company currently operates in the UK and Germany and has plans to offer services in 10 European jurisdictions. He sees problems for businesses in general.
“There will be friction,” he says. “That’s inevitable when you have different currencies and regulations.”
But he doesn’t foresee huge difficulties for his own company.
“I would prefer if Brexit wasn’t happening. But we (Divido) take compliance with regulations seriously and we have offices in London and Sweden. I don’t think our business will be affected”
Brexit concerns were not universally shared. While only 6% thought the government was listening to their opinions, 33% said they had no Brexit worries whatsoever. However, for businesses that sell to, or buy from Europe, there is no doubt that customs checks and possible tariffs will hit competitiveness. The Moore Stephens report suggests that ongoing uncertainty is hitting the willingness of business to invest.
“Business owners are hugely concerned about what Brexit might mean for them. The Government must take their needs seriously when negotiating the exit deal.
“Brexit could potentially impact an enormous number of issues affecting owner-managed businesses in the UK, from import and export costs, to access to labour, and grants and subsidies. Businesses have been given very little clarity so far on what effect Brexit might have on any of these issues.
“Businesses thrive on certainty – it allows them to invest, scale up, take on more orders and expand their workforces. If the Government does not give them clear indications of what they can expect once the UK has left the European Union, it will be very difficult for many of them to invest in their growth.
“In their view, certainty has been in short supply during the Brexit process.”
To learn more about the issues discussed within our fifth annual owner managed business report, please click here.