So the United Kingdom has decided, for better or for worse, to leave the European Union. For that reason and the fact that over one million small and medium-sized enterprises (SMEs) are involved in exporting to countries within the EU, we thought it would be useful to provide some details on what changes SMEs should be on the lookout for.
We only can provide short, brief and simple overviews on what to look out for at this current moment as much is still up in the air. However, as any news comes in, we hope to keep you updated. So here’s a few changes that you could expect.
Protectionist trade policies
Due to UK Brexit, SMEs that export to consumers and business within Europe may face a series of international trade barriers and protectionist policies. Some of these policies to be aware of include, tariffs, loss of export subsidies, increased export subsidies from foreign governments to producers within the EU, import quotas, voluntary export restraints, local content requirements and more.
However, it’s important to keep in mind that protectionist policies can be set by foreign governments or by our own.
Some protectionist policies are outlawed by the General Agreement on Tariffs and Trade, so SMEs don’t need to worry about the harshest of policies. Although, it’s important to keep a lookout as protectionist policies are likely to impact your costs and competitiveness.
Tariffs out of all other protectionist policies are the most likely to be introduced. If your business is exporting consumer goods or parts of larger foreign final manufactured goods, then foreign tariffs may pose a problem to your business. Tariffs, unlike regular taxes, are set in mind of their ‘effective rate of protection’. That means that the tariff rate will be set in a specific way or degree to protect domestic industry and reduce or eliminate foreign competition.
In short, now the UK has left the EU, it is more important than ever to keep an eye out on the changes relating to tariffs and international trade policy.
Loss of EU subsidies and business grants
Due to Brexit, UK SMEs will lose the subsidies and business grants that are provided by the EU. In this event, our government may decide to attempt to fulfill many of these grants. However, it is not guaranteed.
If you are currently receiving an EU subsidy and grant for your small business it’s best to prepare some form of a plan of how to cope without it and keep checking to see if the government is doing anything to help you.
Loss of access to EU SME financing
As I’m sure many of you will know, there are specific banks set up by the EU involved in funding UK SMEs. Just a few, for example, include The European Investment Fund and the European Investment Bank. These two banks alone in 2015 invested over £6.1 billion in infrastructure projects and lent over £520 million to SMEs.
SMEs who currently use these banks should be aware of the possible financial implications that may be caused by our position outside the EU. Those SMEs looking for extra funds from institutions like the EIF and EIB, whether that be in order to start up or expand their business, may have to look elsewhere for financing.
Changes to business and employment regulation
The eurosceptics within the Conservative Party have stated that leaving the EU will lead to changes in business and employment regulation. Priti Patel, the minister for state for employment, has implied that employment and business regulation could be cut by ‘half’.
Because of this and the fact that the UK will have to untangle itself with regulations, SMEs will see vast changes in business and employment regulation.
However, if your SME is still trading goods and services with countries in the EU, then your business will still have to comply with all the EU customs unions regulations whilst complying with the UK regulations, whatever they may be.
This is a change increasingly likely to occur, so it’s something very important for SMEs to keep on top of.
Every economic forecast predicted that leaving the EU would see a drop in the value of the pound. This is what we have witnessed this morning, with the pound dropping by over 10%.
Due to exchange rate changes, exports are likely to be relatively cheaper. However, imports relatively dearer. Additionally, if your business undergoes significant financial transactions using the global reserve currency (USD) then such transactions also are likely to be more costly.
Other areas to keep a keen eye on
When looking at the impacts of the Brexit that has occurred, the list could be endless. Here is just a few more areas to be aware of, decisions made in Chancellor George Osborne’s ‘Emergency budget’, issues over work visas for many of EU national employees (if they come into play), changes in UK VAT rates and also increases to the cost of travel and transport.
So these are just some of the changes that SMEs should be on the look out for post-Brexit. This will be a rapid changing time for business throughout the UK and so it’s important to keep up-to-date. We hope we can keep you up to speed with all the concrete and technical knowledge such as changes do in fact occur.
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