BREXIT – what does it mean for businesses…?

There is much discussion around Britain leaving the European Union. But are we any nearer to defining what a BREXIT would mean to UK businesses?

In broad terms, we cannot ignore that there will be some impact on UK business, regardless of which way the decision goes. We can see the uncertainty of the referendum already affecting some sectors, such as commercial property markets; which have slowed as investors wait to see if a BREXIT will alter values and rental returns.

Once a decision is reached, this turbulence will continue until the UK economy re-stabilises. The referendum result may change our economy, either way, improvement or not; there is no real way to predict this. Many economists are erring on the side of a weaker economy in the event of a BREXIT, some even predicting a return to recession, despite the lack of hard evidence to back up those claims.

What does BREXIT mean?

‘Brexit’ is a term adopted in 2016 after David Cameron decided to have a referendum about Britain’s membership of the EU. It is an abbreviation of “British Exit”, in the same way the possible Greek Exit was referred to as GREXIT. The referendum on June 23rd will decide whether Britain will stay in or leave the EU.

Even small changes and fluctuations in the UK economy can create instability, which could push some businesses to the point of insolvency. We anticipate some casualties before the issue is addressed on June 23rd.

There are many variable factors apart from trade; including immigration and the impact on workforces. Barriers to the free movement of citizens from other EU member countries would become restricted. Some companies rely heavily on overseas workers, and a cut-off of this labour supply may mean a rise in operating costs through recruitment processes, and higher wages to encourage UK employees into these jobs.

A BREXIT could create more bureaucracy affecting the flow of trade, with the return of cross-border paperwork for imports and exports. Under the current EU system, all 28 member states are entitled to trade freely, without trade barriers or import duties on their individual exports. For businesses who predominantly trade within the EU, such change could slow business or negatively affect profits.

Our membership of the EU has standardised laws and established common trade and human rights policies; a big draw to other countries’ residents who want to come and work here.

In the face of this uncertainty – why would the UK want to leave the EU? In simplistic terms, there are no certainties regardless of whether we stay or leave the EU.

Freedom of movement: a particularly divisive issue

Some argue the open-border Schengen Agreement, a policy facilitating movement without strict border control inside of the European Union, facilitates the movement of extremists and has helped develop the people-trafficking industry. Many feel the unrestricted volume of immigrant workers to the UK from Europe places strain on social infrastructure, and leeches welfare benefit from the UK to support families in foreign countries.

Counter arguments are that a small number of terrorists would infiltrate our borders anyway, assuming they are not already here. There is also the argument that the new breed of terrorism touted by the likes of Islamic State are doctrines spread via the Internet rather than a physical movement of people.

Arguments in favour of free movement also claim the UK has benefited from migrants. They provide a workforce in hospitals, the care industry and other low paid jobs not favoured by UK nationals. The same debate lists immigrants as productive contributors to our GDP, valuing the tax they pay on their incomes and VAT.

There is little to counter the overwhelming evidence of a people-trafficking rise across Europe, with EU immigrant numbers currently residing in the UK not measured. It is difficult to see whether there is a UK net benefit from this movement of people or not.

Free trade within the EU

The European Union creates almost 24 per cent of global nominal GDP, equating to approximately £18.4 trillion in 2014. This is a cornerstone of the business debate for ‘Remainers,’ with pro-EU lobbyists claiming we’d be weaker outside the market.

However, the European market is in decline. The BREXIT lobbyists look to growing markets of America, Commonwealth and tiger economies. An option our current EU membership places heavy restraints on through trade levies.

The trade growth Britain expected to gain from EU membership is significantly lower than predicted. Only countries trading with Europe which have increased their EU trade are countries outside the EU. With regards to the Euro, we have proven we don’t have enough faith in the currency to integrate and abandon Sterling.

There are many issues on both sides of the debate that will affect UK commerce

The UK pays more to the EU than it gets back, amounting to £350 million per week. Only France and Germany contribute more than ourselves. BREXIT campaigners argue the money would be better spent on UK industries and healthcare services. For ‘Remainers,’ the union provides benefits which strengthen the UK’s status in the global economy.

We share common laws with other EU countries relating to trade, consumer rights and worker welfare. For those wanting to stay, trading, and working within the EU is a safe bet. For leavers, red tape and associated costs caused by EU regulation cripples UK business and is likely to cause insolvencies. They argue many UK industries, such as agriculture and fishing, cannot compete with EU counterparts forcing them out of business.

Our influences as an EU member is a pivotal argument for some business leaders, lauded by many, including the current US President. The UK has a great influence for a small island group; this would diminish if we leave the EU. The leave campaign sees this is a hollow threat. They believe the UK’s influence is due to being the fifth strongest economy in the world.

The key points of the debate

We cannot say if the UK will be better off remaining or leaving the EU. Nobody has the information creating a debate based on political division, not commercial evidence.

Many businesses are voting to stay, due to perceived benefits or through fear of the unknown.

We know many businesses will vote to leave, seeing the EU as a bureaucratic burden; restrictive to business growth anticipating greater commercial possibilities outside of the Union.

The undecided vote

Many tactics are at play to vote remain, are we really at risk of war if we step out? This seems far-fetched. Regardless, the UK would remain a key part of NATO, the UN Security Council and a nuclear power, with a powerful global voice.

We cannot compare trade figures as there are so many variables. Our guarantee is that uncertainty damages confidence suppressing investment. The EU referendum takes place on Thursday, June 23rd. Whatever the outcome, the sooner we know a result, the sooner we can plan for the future.