THE most “dynamic” businesses from the sector thought most significant when it comes to boosting productivity and growth will be worst hit by Brexit, according to new research.
“Superstar” small and medium enterprises (SMEs), which total 5.5 million in the UK, could struggle the most as Britain quits the bloc, according to work by the Centre for Responsible Banking and Finance and St Andrews University.
The team, which also included members of Essex University, said: “How these SMEs respond to the uncertainty arising from Brexit has significant implications for the UK economy.”
The study, based on Longitudinal Small Business Survey (LSBS) of 10,000 firms by the UK’s Department for Business Energy and Industrial Strategy, is thought to be the first of its kind.
Dr Ross Brown, from St Andrews, who helped lead the project, said: “SMEs, thought to be the most significant businesses for boosting productivity and economic growth, may be the most negatively affected by Brexit.”
More than 99 per cent of all UK companies are SMEs as a result of a surge over the past two decades in the number of people setting up on their own. They account for 60 per cent of all private-sector employment and have added two million jobs since 2010.
Companies surveyed for the LSBS said the change is “likely to result in lower levels of capital investment, reduced access to external finance and lower levels of growth in SMEs” and “likely to lead to lower levels of internationalisation, innovation and new product development”.
The paper states: “Brexit may impact the most dynamic and important cohort of SMEs the most.
“This finding throws up some interesting potential implications from the EU departure process, suggesting that the firms most likely to play a crucial role in producing economic and productivity growth are likely to be most affected by Brexit.
“This is perhaps unsurprising as firms who are innovative and export-oriented are much more likely to be embedded within, and exposed to, the EU market on a number of different and inter-related dimensions, especially in terms of market access for products and services; sources of raw material and supply chain linkages; and as a source of human capital.” According to the findings, medium firms are most worried about the future, with concerns greatest amongst those in business services. Those in manufacturing, wholesale and retail, professional services and ICT also “view Brexit as more of an impediment to success” compared to companies involved in hospitality, construction and transport. Enterprises based in Scotland and Northern Ireland – both of which voted to stay in the EU – “view Brexit more negatively” than organisations in Leave-supporting England and Wales.
Brown said: “Most worryingly, these perceived negative impacts appear to be foremost in the minds of entrepreneurs and managers located in the types of innovative and export-oriented companies, which are often viewed as the high growth ‘superstars’ of tomorrow.
“There appears to be a deep-seated uncertainty permeating UK small businesses about the ramifications of Brexit. Owing to its highly complex, contested and indeterminate nature, Brexit is unlike most other types of institutional instability because it has the potential to fundamentally rewrite the rule book for how firms do business in the UK.”
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