Comment: Brexit strategy

Martin McTague, policy director at the Federation of Small Businesses, says concerns about trade barriers, a talent drain and access to finance must be addressed for the UK to make the most of Brexit’s opportunities.
Published —
29.07.17
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WHOEVER thought that after last year’s EU referendum, the triggering of Article 50 and another general election, we would be in a position where we have a minority government attempting to negotiate Brexit.

The key to negotiations now lies in the strength of political will from all parties in working towards the common goal of getting the best deal possible for trade and access to workers and skills.

This may be an opportunity for parliament to come together and ensure that the negotiations deal with the wide spectrum of what business groups and the general public want from Brexit.

If parliament works together and coalesces around a unified position, we stand a much better chance of striking a deal that delivers a successful Brexit.

At the heart of this approach must be the needs and concerns of the 5.5 million small businesses and self-employed in the UK who will be vital in driving growth, and productivity in the post Brexit economy.

Martin McTague

For the small business community, Brexit throws up a range of opportunities as well as risks. For many small businesses that export and import, Brexit could open up new avenues of trade with new markets or it could lead to higher and unsustainable trade tariffs and non-tariff barriers with the EU.

Without an employer-responsive immigration system and early clarification of the right to remain for EU citizens already in the UK workforce, it could lead to a talent drain with EU workers leaving after Brexit and access to future skilled workers at all levels hampered. In the longer term, it could also lead to unnecessary regulatory red-tape being cut which drives growth and productivity.

With this level of uncertainty surrounding the impact of Brexit, FSB ran the biggest membership consultation we’ve ever undertaken to try and get a clearer picture of what our members wanted.

This six-month research programme focuses on four key areas including access to markets, to skills and labour, funding – as well as creating the right regulatory environment that is not a barrier to business.

Generic image of shipping containers behind chickenwire

We know that Brexit will bring with it a change in the future trading environment with the UK looking set to leave the single market and the UK government pursuing an ambitious Free Trade Agreement (FTA) with the EU.

One in three (32%) small businesses are involved in overseas trade as an exporter and/or importer, with the vast majority trading with the EU single market (92% of exporting small firms and 85% of importing small firms).

This level of trade is driven by ease, cost and value – with ease being of particular significance. Small businesses want to maintain this and need to be assured that any new agreement with the EU doesn’t lead to additional administrative or financial burdens.

The trade agreement must secure barrier-free access covering both goods and services across all sectors. Additionally, we must give small businesses sufficient time to adapt to the new trading landscape. This could be achieved with a sensible transitional period agreed on during the negotiations.

Outside of the EU, priority should be given to securing FTAs with the US, Australia and Canada.

Our research shows that three-quarters (77%) of exporting small firms trade with these countries already. Furthermore, research shows that these three countries were all ranked within the top five priority markets that small businesses want UK trade deals with post Brexit.

This is on the basis of their shared language, similar culture and the size and maturity of these markets. This, in turn, means that these markets should also be the most appealing trade destinations in the short to medium term. Designing support – specific to country, region or sector – and a strong narrative around the ease of trading with these markets, should create an attractive and accessible proposition for small businesses considering exporting beyond the EU.

Our research shows that small businesses have benefited significantly from the contribution of EU workers to the UK labour force. A fifth of our members who employ staff currently have at least one employee from the EU, and 72 per cent of these businesses recruited all of their EU workers from the UK labour market.

These businesses are heavily reliant on mid-skilled staff, such as care, construction or production workers, who require specialist, sometimes technical education or training. There is also a significant reliance on highly-skilled workers, like engineers, software developers and managers.

It is clear that EU talent plays a big role in plugging chronic skills gaps in key occupations and sectors. The ability to hire the right people with the right skills for the job is fundamental to safeguarding small businesses’ survival and growth.

There is an opportunity to focus on improving skills training here in the UK, with a greater focus on vocational education and apprenticeships. But inevitably the results of that will only be seen long-term. And so it is important to avoid a situation in which small firms were to be faced with a sudden restriction on accessing EU talent and one that would have a significant impact on the economy.

The government has taken steps to offer some clarity to EU citizens already working in the UK over their rights to remain. There still remains, however, worry and concern regarding the cut-off date which is yet to be specified.

The Government needs to commit to not imposing an early cut-off date in order to ease the concerns of businesses and their workers. Furthermore, the system for application for current EU citizens to remain and work must be easy and either cheap or, ideally, involve no charge.

The next step is to put in place a transition period – wherein the existing immigration arrangements continue for a transitional period following our departure from the EU. After a new immigration policy is created it will need to be phased in over at least three years to give small businesses sufficient time to prepare.

Small businesses want an immigration system which is employer-responsive and allows access to the right people for the job without red tape.

EU-funded schemes have played a big role in supporting regional growth and economic development in the UK and particularly in the devolved nations. This funding has supported many small businesses with investments aimed at improving business conditions in regions which lag behind the rest of the UK in terms of economic growth. Additionally, it has helped small businesses access finance which they have been able to utilise to grow and scale their business.

The UK government and devolved governments will need to consider how they support regional economic development and safeguard avenues to finance.

In addition to the loss of EU funds, the Single Local Growth Fund is also scheduled to come to an end in 2020/2021. The simultaneous ending of these two sources of funds for regional economic development could pose challenges to many small businesses. However, rather than a threat, we view this as an opportunity to create a new way of delivering business support – which is truly aligned to domestic priorities and the needs of small businesses.

In these uncertain times, nobody can really be sure of what Brexit negotiations will bring or what a post-Brexit UK will look like. One thing is certain and that is that the FSB will continue to pressure government to get the best deal possible. A deal that does not inhibit growth but fosters it.

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