Russell Smith, of Russell Smith Chartered Accountants, discusses for CEO Today the results of a poll run by his firm, and questions the current focus on Brexit politics.
I have always argued that Brexit was an economic decision fought on political grounds. While the majority locked their gaze on immigration and changes in governing policy, those who would be most deeply affected, the businesses of the UK, were fixated on the often overly-emphatic discussions involving trade deals.
There was a lot of talk of trade with powerhouses of intercontinental industry, such as the US and China, during the Brexit vote campaigns, and a lot of talk since. Potential deals with the Trump administration have lined the papers daily, attempting to further the point of the pro-Brexit majority that the country could gain greater prosperity through cutting ties with the EU and opening up better channels of trade with large, individual economies. Yet, as it turns out, while this type of trade deal does sound impressive, and may have swayed voters towards the Leave choice, it’s not something those involved in actual trade have much interest in.
We recently ran a survey among CEOs, directors and small businesses across the UK, and found that 88% of those currently trading with EU nations would continue to do so after Brexit.
This figure was quite a surprise. With all the talk of ‘big and exciting’ post-Brexit deals with the UK, the SME community on the whole has seemingly rejected the notion. Despite the threat of rising tariffs and increased red tape, business owners seem set to ignore any trade deals struck with intercontinental partners — should they indeed be struck. In actuality, only 5% would be interested in such an opportunity, with the remaining 7% heading back to the UK to source their trade domestically.
From an outward perceptive, this may seem odd, but for those CEOs reading, it is likely to make complete sense.
Trade with European Union member states is not simply advantageous because of our current single market status. European nations are close and easy to travel to, and they offer high-quality resources. Many SMEs also have long-standing agreements across the continent with good cultural trade understanding, and vast contact networks are well established in the region. Trade with the UK for many EU nations is business as usual — simple to set up and progress with. For small businesses with limited budgets, swapping this stability and mutual-assurance for the untested waters of intercontinental trade appears to be thoroughly unappealing.
Once again, it doesn’t simply come down to the cost of imports and exports. It means expending resources on securing new partners, building networks, establishing links to new markets and adapting to different business cultures. For titans of industry with global links, intercontinental trade deals promise cheaper ways of doing bigger business, but for the small businesses that make up 99.3% of private sector companies and the bulk of our economy, the cost overall appears too great to overcome the benefits of sustained EU trade.
So what does this mean for small British businesses? Right now, as with all matters Brexit, it’s pretty much impossible to say.
SMEs are set not to budge on their standpoint, which means weathering the storm of increased tariffs and costs associated with EU trade for countries beyond the single market, if no agreement with the EU is made. Rising costs for businesses would result in increased prices for consumers and financial difficulties for many companies. Indeed, our survey revealed that the majority of business owners cast doubt on their future, with as many as 40% also claiming to have suffered financially already, before any sort of separation has taken place.
In the event an agreement is reached with Europe, such as that akin to Norway’s access to the single market, we could see trading benefits for the country. Bigger businesses and the minority of SMEs interested would have better options for overseas trade, and the 88% of UK businesses that plan to maintain their EU relationships shall remain unaffected.
There is a big hurdle in this ‘best of both worlds’ option for UK trade, however. As mentioned already, Brexit was an economic decision fought on political viewpoints, and that fact still weighs heavily on negotiators in Brussels. Maintaining single-market status, and therefore freedom of movement, is something that will certainly aggravate Leave voters concerned with immigration. Economist Jonathan Pores has spoken of how a modified freedom of movement agreement could curb immigration fears while maintaining single-market access, although given how current talks seem to be progressing, it would seem the stars would have to align for this to occur. No Brexit agreement could possibly appease everyone. However, it is now time for the government to find an option that is best for its people, its trade and its economy. Given the findings of our survey, the message to No. 10 is clear:
British business is Eurocentric, and will be Eurocentric for years to come — make sure we don’t suffer as a result