Predicting the Effects of a Brexit on UK Business

By Kevin Morgan

A potential British exit (“Brexit”) from the EU has dominated the news in recent weeks. Predictably, UK businesses have been a focal point for the discussion. The effects of a potential Brexit on UK business are clouded with uncertainty, and there is heightened speculation amongst business owners, investors and the media as to what the possible outcomes might be.

The Brexit debate is entering its most critical moments to date this week as Prime Minister David Cameron looks to close on his deal and push through his demand for EU reforms to European integration, business competitiveness, benefits restrictions and the operation of the Eurozone.

With this comes rampant speculation as to the implications of a “Yes” or “No” vote at the EU referendum, which is expected to be called on Friday should Mr Cameron secure a final deal with EU leaders at the Brussels summit.

Red tape

Many feel that legislation within the EU is an existing problem that could be fixed by a Brexit. Business leaders feel that current EU regulations add an extra layer of legislation for small businesses in particular, which may well be mitigated by the UK being able to set its own standards. From a legislative standpoint, a successful EU exit would appear to benefit smaller enterprises.

Conversely, some fear the possibility of greater legislation as a result of Brexit success – particularly small businesses, who would most likely be affected by an increase in the amount of red tape and legislation. While larger enterprises are more likely to absorb such an increase with little disruption, smaller businesses will likely struggle to implement the required processes.

Immigration

Immigration is a particularly thorny issue for those for and against Brexit and it is one of the challenges David Cameron has to contend with when attempting to push his proposed changes past EU leaders. For small businesses the greatest question mark resides over the migrant workforce – in particular, the flow of skills and expertise between member states.

Businesses who import labour from Europe could stand to lose the most in the event of a “No” vote, as uncertainty abounds about the ease of travel and ability to find work. Particularly pertinent on the question of immigration is our ability to maintain relationships with other EU states, and whether knock-on effects from any decisions made will impact trade and perceptions of Britain as a whole.

Going green

Another key point of speculation is EU green targets. Heavy industry in particular considers these a heavy burden, arguing that they cannot legitimately run their business on a zero-carbon budget. Over the past few months, ‘green fines’ have been issued to businesses and EU countries with “heavy” energy usage or those failing to meet green targets. This has become a high and unwelcome cost.

Whilst the UK is likely to implement its own system to prevent energy usage at a high level, a withdrawal from the EU would likely prevent businesses from receiving such heavy fines – or at least bring the control over such decisions back to Westminster. This is certainly a strong argument for a successful Brexit from a business standpoint.

The obvious question is that of stability. All businesses, whether big or small, have been crying out for stability, regardless of summit deals or the EU referendum decision. The Scottish referendum has contributed to this sense of tension. Businesses would no doubt be grateful for a break from the seemingly continuous turmoil, in order to fully assess the pros and cons of a successful Brexit.

This call for stability is widespread, but is unlikely to be fulfilled by a Brexit, at least in the short term.

London’s financial authority

The Brexit raises doubts over London’s financial authority and whether it will be able to maintain its status should its position change in relation to the EU. “A Conservative government has generally been good news for the City, but fears of a Brexit has made businesses wary of the potential this could have for closing markets and reducing London’s financial authority,” argues Phil Foster, Managing Director of Love Energy Savings.

“In all sectors, we are a small nation with limited resources; we cannot be expected to compete with the likes of the Netherlands and Germany,” he added. “Trade links and business confidence are likely to decline if we pull away from the EU, so this will need to be monitored when decisions are being made.”

This will no doubt be the biggest concern on the minds of business and financial figures in the UK. London’s position as a financial authority is unlikely to be wholly compromised; however, it will certainly be reassessed. Enrico Letta, the former Prime Minister of Italy, had a warning for the United Kingdom about a potential Brexit: “Today the strength of London is because it is the door to the biggest market in the world.”

How accurately can we predict Brexit effects?

Whether you’re in favour of exiting the EU or against, predicting the effects of the outcome is a difficult task. This difficulty in making accurate predictions breeds uncertainty, and where uncertainty thrives, businesses are likely to suffer. A potential Brexit offers a number of possible outcomes and opportunities for businesses, as the many predictions are testament.

Opinion is becoming more polarised as the referendum draws nearer and Letta’s analogy of opening or closing the door to Europe feels very apt. Do we take the good with the bad or shut ourselves off from it and (re)forge our own path?

David Cameron has until the end of 2017 to call the EU referendum, so the decision on a Brexit is unlikely to come any time soon. Idle speculation will no doubt fill the void, so we can expect to see considerably more predictions over the coming months. While uncertainty reigns, UK businesses can only adhere to the most British of advice: keep calm and carry on!

Kevin Morgan

Kevin is the director of London & Zurich and has 15 years of experience working with a variety of businesses in a broad range of sectors, securing and streamlining payment operations.