Blog: Brexit – what now for SME’s?

Jul 6th 2016 Author:

Caroline Belcher

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It is very easy to get fixated on exactly what the terms of any Brexit deal are likely to be, and therefore what kind of market access our goods and services are likely to enjoy. We can though be relatively certain that a deal will be worked out that gives UK businesses, whether exporting goods or services, or raising capital from investors, access to the EU. This is because whatever early rhetorical positions are adopted by negotiators on either side, the fundamental truth is that a deal will be done that delivers this, because it is in everyone’s interest.

But as this process gradually unfolds, and indeed both sides are coming to the conclusion that a rush job is in no-one’s interests, we should not forget the parallel process that will take place, and that is what the Government will do to ensure that the UK itself remains a good place to do business. This is certainly something the business community should speak out on, because whilst Brexit negotiation remains vital to business interests, there is plenty that can and must be done to improve the landscape here.

We have already seen the beginnings of a policy response with the Governor of the Bank of England announcing measures to boost lending by £150bn, with likely announcements on interest cuts and more quantitative easing to follow. The Chancellor has chimed in, with his welcome announcement that corporation tax will be cut from 20% down to 15% by 2020. It was telling that this was greeted with dismay by some other EU Member States. The SME community now needs to come forward with a sensible manifesto of what else can be done to burnish our credentials as the best place to do business. From our experience working with businesses, here are a few suggestions.

Business Rates have long been the bane of SME existence in the UK and the Budget announcement of doubling the relief for small businesses so that 400,000 properties are exempt till 2017 is to be welcomed. But now is the time to lock this in for the long term. What was valuable before the referendum is doubly so now, in giving small businesses the confidence to invest and grow.

Venture Capital Trusts and the Enterprise Investment Scheme have been hugely valuable in helping to raise capital for our start-ups and indeed the last parliament could fairly be characterised as the time when the UK became Europe’s capital for entrepreneurship. Yet these were also schemes that were somewhat restricted by EU State Aid rules. Now whatever deal is worked out on State Aid, we must ensure we continue to use these schemes and others, as an opportunity to cement our reputation for enterprise, so that even outside of the EU, the UK is still the best place to start a new business, and raise capital to help it grow. Other nations such as Italy have introduced similar schemes to ours so this is no time to take our foot of the pedal in attracting investment.

Many small businesses, especially tech-start ups, may become concerned about being able to hire the right people, when Britain eventually operates outside of the EU. But this is as much an opportunity as it is a threat. Skills shortages for tech businesses are nothing new and now is the time for the Government to re-evaluate their system of visas, so that whether from inside the EU or the rest of the world, UK SMEs have access to the talent they need to help them innovate and grow. At the same time, we need to improve our education system so we can provide school and university graduates with the tech skills most valued by entrepreneurs and SMEs. Business should be vocal now, in what their needs are in this important respect.

So what then is the overall outlook for corporate finance and SME growth? Well right now we know that there may be opportunities for M&A as overseas investors look for bargains created by the pronounced slide in Sterling which is also providing a considerable upside for UK exporters. But more importantly, buyers, sellers and advisors need to look beyond the immediate market froth, to the fundamentals of the UK as a place to raise capital and grow a business. Only last Tuesday, my firm, Cavendish Corporate Finance, announced the sale of Tristar to Addison Lee, a regular UK M&A deal, duly completed three working days after the Brexit referendum, with a confirmed Asian under-bidder firmly in place to boot. This is evidence that even for businesses that have an EU exposure, the fundamentals both within the UK economy, and crucially in our current and future relationship with the EU, are sound. Life, and M&A, will go on. Indeed if the SME community can come together to make the argument that now we have voted to leave the EU, the Government must double down on measures to make the UK more attractive for business, we can improve our competitive position still further. If we do this, we can replace initial Brexit uncertainty, with the knowledge that Britain is still by far the best place in Europe for SME growth.