‘Small businesses will be the most negatively impacted by Brexit’

An EU flag flies in the face of Parliament
An EU flag flies in the face of Parliament
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Small and medium sized businesses may be the most negatively affected by Britain’s leaving the European Union, with Brexit predicted to harm investment, growth and development.

A major study of some 10,000 firms across the country conducted by the universities of Essex and St Andrews showed the potential impact of the uncertainty caused by Brexit was likely to result in lower levels of capital investment, reduced access to external finance, lower levels of growth, reduced product development and lower levels of business internationalisation.

The research, the first of its kind and led by Dr Ross Brown and Professor John Wilson from the Centre for Responsible Banking and Finance, University of St Andrews, draws upon detailed econometric analysis of the UK government’s Longitudinal Small Business Survey, one of the largest attitudinal surveys of SMEs undertaken in the UK.

Following the result of the referendum, the UK government inserted a number of Brexit-related questions into the survey which enabled this analysis.

While the research painted a gloomy picture among many company bosses, the mood was not uniform across the population of UK SMEs, both in sectors and geographically.

The results suggest that Brexit-related uncertainty is likely to affect larger, export-oriented firms and those operating in hi-tech and service-related industries the most.

Concern over SMEs. Picture Scott Merrylees

Concern over SMEs. Picture Scott Merrylees

One extract from the combined study, published today, reads: “In other words, firms thought to be the most significant for boosting productivity and economic growth may be most negatively affected by Brexit”.

In terms of geographic location, SMEs based in Scotland and Northern Ireland view Brexit more negatively. In part this mirrors the differentiated voting patterns during the referendum in which English and Welsh voters backed Brexit in greater numbers than seen in Northern Ireland and Scotland. However, the researchers also said that the findings may reflect the greater reliance on EU trade within Scottish and Northern Irish SMEs.

Dr Brown, reader in entrepreneurship and small business finance at the University of St Andrews, said: “The results of our analysis suggest that Brexit-related concerns could result in a range of negative consequences for UK SMEs, especially the impact on reduced capital investment, which critically weakens and undermines their ability to grow and prosper.

“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.

“In other words, SMEs thought to be the most significant for boosting productivity and economic growth may be the most negatively affected by Brexit.”

The study has produced a number of important findings which are highly salient for policymakers, government departments, financial providers and industry bodies in the UK and across the rest of the EU tasked with monitoring the effects of Brexit on SMEs and the economy more generally.

“There appears to be a deep-seated uncertainty permeating UK small businesses about the ramifications of Brexit,” said Dr Brown.

“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 re-write the rulebook for how firms do business in the UK.

“These concerns seem to be most acutely felt within certain types for firms. By and large, the larger, more innovative, more export-oriented and hi-tech you are the more likely you are to have concerns regarding Brexit for your business.”