Is your business ready for a no deal Brexit?
SMEs in the UK started this year with a somewhat promising outlook. There was a majority government in power and Brexit started to seem a little clearer. Having made the political exit, we had a whole year left to negotiate an economic deal before we make our transition on 31st December 2020. However, with the impact of COVID-19 suddenly felt in March, the past four months have thrown up a lot of uncertainty.
We recently surveyed 2000 businesses, ranging in size from just one or two employees to companies of over 250, and asked them how in control they currently feel. While the results were mixed, with 62% feeling either a little or entirely out of control, 15% of businesses felt in total control. However, three-quarters of SMEs said they haven’t made any plans for a ‘no deal’ exit – which looks like the most likely route to our formal economic departure at the end of the year.
With intensified Brexit negotiations underway since 29 June, and the Prime Minister saying he’s certain we’ll have a deal by the end of the month, what does Brexit mean for SMEs in the wake of coronavirus?
In January, a YouGov survey found that 4 in 10 SMEs didn’t feel ready for Brexit. Of those surveyed, 46% import from outside of the UK – with almost half of businesses in retail, manufacturing, IT and telecoms relying on this kind of import. Leaving the EU with no trade deal in place would mean we’d have to follow World Trade Organisation rules and regulations.
No deal could therefore have a variety of impacts on British businesses, with those whose supply chains or operations rely heavily on EU countries particularly at risk. The extent to which it will make an impact is uncertain. In an ideal world, imposing tariffs on EU goods may make them less competitive and allow British businesses to prosper. However, tariffs will work both ways and sales of UK products and services to the EU might drop off entirely if they’re too costly. The risk of excess supply could mean a drop in prices.
A deal will give us an outline of customs formalities, regulatory checks and what inspections on UK goods there will be entering the EU single market. The trading environment with the EU may well be very different to the one we’re currently operating in. Without knowing exactly what to prepare for in the future makes it tricky to plan financially and strategically for 2021 onwards. This uncertainty could prove a catalyst in certain sectors for divestment and offshoring but, right now, it’s too difficult to say.
A no deal outcome would most likely require some kind of fiscal or monetary stimulus. The cost of the government’s economic support for businesses affected by coronavirus is set to run into the hundreds of billions, and interest rates have been slashed to almost zero. With this level of expenditure and debt, and the possibility of further recession, the worst case scenario could result in very low level GDP growth – and trickier business conditions, at least in the short-term.
The latest round of negotiations is the first to take place in person since COVID-19 shut down most of Europe. After the government rejected the idea of asking for an extension to negotiations, the urgency of getting a deal is more apparent. However, the way that other EU countries feel about Brexit right now may be overshadowed by their own, urgent issues related to COVID-19. And the cynics amongst us might argue that the effects of a no deal Brexit could be hidden by current economic trouble anyway.
It’s understandable that SMEs may be feeling stuck in limbo at the moment. There’s no clear picture of the business landscape and what our relationships with EU businesses will be like. Owners don’t yet have an indication of the tariffs they’ll have to pay, the extra paperwork or changed shipping routes (leading to longer lead and delivery times) – alongside what will happen to the value of the pound. This makes it incredibly hard to make concrete plans.
But that doesn’t mean you can’t plan at all. If a lot of your suppliers are based in the EU, explore your options outside of those member countries. Now’s a crucial time to make those relationships, and with the acceleration of digital business communication, there’s never been a better moment to do so. Without finding alternatives, you may have to pay a lot more than you bargained for on import tariffs.
Focusing your services or goods either at home or in non-EU countries will help you if we leave without a deal. Any crisis can bring opportunity. COVID-19 has forced many businesses to pivot and redefine their customer appeal. If you’ve managed to pivot successfully then use the same creative, industrious energy in this next phase.
If you have employees that are EU nationals, help them with the relevant paperwork to apply for the right-to-remain in the UK. Any workers you’ve trained are worth retaining, so see how you can help here.
Finally, try not to worry too much. There’s a lot out of our control right now but there will always be opportunities to survive and thrive. Keep an eye on any deal updates as well as fluctuations in markets to give yourself a more solid idea of how things are changing and where they could go.
We’ve gathered together advice and analysis to help you weather current business difficulties in one place. You’ll find everything from updates on the latest Government measures and what these mean for your business to articles on where to focus your efforts going forward.