Xero has recently published a study which finds that 44% of small and medium businesses (SMEs) are concerned about Brexit uncertainties. Why is this, and what are the main factors driving these concerns?
The political climate
There has been significant political uncertainty in recent times, partly due to the Brexit timelines continuing to extend, and partly due to the early December election. On the lead up to the election, the level of uncertainty for UK SMEs was significant; not only did we not know when and how Brexit would happen, but we also had no clarity on who would actually lead the country to leave the EU. Now, with the landslide victory for the Conservatives, businesses at least have some clarity as to the policies that will impact the economy, and a rough plan for Brexit. However, this hasn’t eradicated all uncertainty. The Brexit deadline has been pushed back so many times now, it’s difficult for businesses (or anyone else, for that matter) to have any kind of faith in these deadlines. This makes it increasingly difficult to plan for Brexit (without a timescale, how can we know what we are aiming for?). While we have certainty that the Conservatives will lead the UK out of the EU, the promises made in their recent election manifesto suggest that this will be done the quickest way possible, rather than the approach that is most beneficial for the country. This creates the potential for there to be a ‘hard Brexit’ or a ‘no deal’ scenario, both of which would cause significant issues for UK businesses trading throughout the EU. There has been progress with the withdrawal agreement, which will hopefully lead to greater certainty as to how the economy will look after Brexit. Fundamentally, however, we still just don’t have enough answers.
Businesses don’t know where to start
A recent survey, carried out by the British Chamber of Commerce, found that 41% of British firms (of 1,500 sampled) but not yet undertaken a Brexit impact assessment. The reason? They have no idea where to begin. There are a few things we know for sure:
- UK businesses need to obtain an EORI number if they import from the EU
- EU workers must apply for settled status to remain in the UK after Brexit
- UK businesses will need to start considering paying VAT in other EU countries
Aside from the above, we know very little else, and this makes it increasingly difficult for businesses to carry out any kind of impact assessment. Take GDPR, for example. We know that GDPR doesn’t allow transfers of personal data outside the EEA without adequate safeguards being put in place. UK will be outside the EEA. We know UK businesses, therefore, probably need to put those safeguards in place for Brexit but, as part of the deal negotiated with the EEA, personal data may be able to be transferred from the UK to the EU (as we have implemented GDPR, just like every other European country). This has resulted in UK SMEs operating on a “wait and see” basis, expecting more clarity to come from the Government but not, as yet, receiving it.
A pessimistic outlook
The issue with uncertainty in the economy is that it creates a generally pessimistic outlook. What does pessimism lead to? Decreased activity. And decreased activity results in a slower economy. We have seen that the uncertainty over Brexit has weighed significantly on business spending and productivity – businesses are not clear on the level of funds they will have available in the next month or the next year, and so are more cautious about making decisions to plan for the future. The most significant step businesses can be taking right now is to carry out an impact assessment. It is extremely difficult to know which issues to focus on, and how matters are going to be played out, but carrying out this exercise will at least highlight the most important matters for each business to focus on. This will allow some clarity in a particular unclear time.
The author of this blog post is Barbara Jamieson
. Barbara Jamieson is qualified in Scotland, New York and California, and has worked at top Scottish law firms Maclay Murray and Spens LLP and Brodies LLP. Barbara also spent three years working in-house at investment management firm Martin Currie, advising on financial services and commercial contracts.