In a post-Brexit business era, we seem to have more questions than answers. Business owners in particular are trying to prepare for what Brexit will mean for them, their businesses, and their employees, but answers can be hard to come by.
Let’s start with what we know:
What is a hard Brexit?
A ‘hard’ or ‘clean’ Brexit (as supporters prefer) is a shorthand way of describing a scenario in which the UK completely gives up its membership of the EU in exchange for full control over its own budget, its own laws, and its own immigration policy. The downside to a hard Brexit would be that the UK would then need to renegotiate its trade agreements with the EU, which would presumably fall under World Trade Organization (WTO) rules and result in imposed tariffs.
What is a soft Brexit?
A soft Brexit on the other hand, would see the UK maintain some form of access to the EU single market without tariffs, but this would likely mean that the UK would have to continue to contribute to the EU budget, follow some EU laws and rules, and allow some freedom of movement for workers across its borders. This is similar to the agreement Norway has which makes it a member of the European Economic Area, but not of the EU.
What will a hard Brexit mean for small business?
10 things to consider
Because no country has ever left the EU before (hard or soft), it’s impossible to know exactly what it will mean for anyone. But here are some considerations for small businesses if we have a hard Brexit:
1. Housing prices will remain flat. This affects the prices of real estate in general.
2. Smaller companies are less exposed to overseas markets. Of the UK’s 5.4 million companies, the government estimates only about 11 percent export, according to the FT.
3. Manufacturers who do export are seeing a boost right now from the falling pound. A CBI survey of 500 manufacturing companies found that orders were at a 2-year high.
4. However, if the UK must negotiate new trade deals with WTO rules under a hard Brexit, it will be facing tariffs that its EU competitors do not.
5. In addition, British companies who import goods from the EU are already feeling the problems of the falling pound and will likely continue to do so. Any business that sells goods imported from the EU will be forced to raise prices in the UK.
6. Importers and exporters will also need to build in additional time and costs for new customs procedures that will likely go into effect.
7. Companies who rely on skilled and unskilled labour from EU immigrants may face serious labour shortages if workers are no longer allowed to move freely from the EU to Britain.
8. Tourism is expected to suffer if EU citizens are no longer allowed to move freely to and from the UK. Any business that relies on tourism could be impacted.
9. Businesses that rely on EU investment could be deeply in trouble. The Bank of England suggests investing will stagnate at best, and the EU predicts investment will ‘decline sharply’ over 2017.
10. Some experts are predicting that Brexit will produce a major recession for the UK, which would affect all businesses across all sectors.
In short, it’s very hard to say how small businesses in general will be affected by a hard Brexit, depending on the business and the sector, but the general consensus seems to be that almost every business can expect to be affected in some way.
Is there a middle ground?
There is a long negotiation period ahead and the question of whether we will have a hard Brexit or a soft one may be moot. The greater likelihood is that there will be concessions on both sides. Prime Minister May has said she wants a ’bespoke’ deal for the UK, custom tailored to our unique position and relationship with the EU, and some version of that is likely what we will get.
But small business owners would be wise to take a hard look at the repercussions of a hard Brexit and conduct scenario planning to prepare for any such eventuality.
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