UNDER EMBARGO UNTIL 13 June 2016 07:00

Comment by Alex Littner, Managing Director, Boost Capital.

JUNE 23rd is nearly upon us, and, with it, the referendum to decide whether Britain leaves the European Union (EU). With just days to go until the Brexit debate is decided, many small business owners are still wondering which way to vote. What should SMEs be considering? Here, we look at the key arguments to determine what is relevant, what is rhetoric, and what is plain wrong.
- Costly European red tape would be slashed under Brexit. If the UK were out of Europe, we could decide our own rules and regulations, say Brexit supporters. They also suggest Britain could negotiate membership of the European Free Trade Association, like Norway, to deal in the common market. But, if so, the majority of the most expensive EU-derived regulations would stay in place for the UK at almost the same cost, admits Open Europe (http://openeurope.org.uk/intelligence/britain-and-the-eu/top-100-eu-rules-cost-britain-33-3bn/ ), itself a Eurosceptic organisation. Also, by leaving Europe, the UK loses its power to influence how regulations affecting it are formulated, which somewhat counters the argument that a standalone UK would have greater sovereignty. Overall, it is unclear how Britain’s regulation burden would be reduced.

- Immigration from EU member states is damaging Britain. Despite suggestions Britain is swamped by welfare-claiming migrants, EU arrivals have higher employment rates than native-born citizens, official data shows (http://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/latest ). Incomers tend to claim fewer benefits than Britons, with those from the EU - Bulgaria, Hungary, and Poland, in particular - the least likely to use welfare. Brexit campaigners insist EU migration to the UK is greater than official figures suggest. This assertion stems from National Insurance numbers issued to EU nationals, which the No camp says exceed the number of EU migrants. However, the Office for National Statistics puts the disparity down to NI numbers issued to short-term migrants, such as those studying in Britain for less than a year. Those seeking to close UK borders also ignore the economic benefits of immigration to the UK economy, such as British firms employing EU nationals. Those importing services from Europe, and companies operating partially on the continent would also be damaged by leaving.

- Trade with countries outside of the EU would be better for a standalone Britain. A pro-Brexit argument is British trade with non-EU countries is hindered by remaining in Europe, but there is scant evidence for this. In fact, the UK already exports more to the BRIC economies than the EU does relative to total exports, according to BCA Research. EU members such as Germany and Sweden have also seen international trade improve, which counters this assertion.

- A vote to leave would be bad for importers. The Bank of England (http://www.bankofengland.co.uk/publications/Documents/inflationreport/2016/may.pdf ), Goldman Sachs (http://uk.reuters.com/article/uk-britain-sterling-brexit-idUKKCN0VD0Q8 ), and HSBC (http://uk.reuters.com/article/uk-britain-brexit-hsbc-idUKKCN0VX0QJ ) all predict a fall in sterling of as much as 20 per cent if Britain votes against EU membership. This would be bad news for those importing into the UK, as prices would go up, and these higher costs would also likely increase inflation overall. Fixing the cost of international money transfers via forward contracts is a good idea for importers to give some degree of certainty until the outcome is clear.

- Leaving the EU might be good for exporters. Conversely, a drop in the pound’s value could be beneficial to British exporters, as their products would look good value. Some even argue (http://www.cityam.com/241649/brexit-its-the-final-poundown- ) this competitive edge could offset the UK not having a free trade deal with Europe. But British exporters still overwhelmingly trade with the continent – more than 60 per cent of Britain’s goods exports are linked to European membership. Pro-leave commentators insist the EU is bound to prefer maintaining an agreement with one of its most established trading partners – or that we can cope without one. However, experts in the Remain camp (http://www.eulerhermes.com/economic-research/news/Pages/Economic-Insight-Brexit-me-if-you-can-Companies-to-suffer-the-most.aspx ) warn an EU exit could see the UK lose £30 billion worth of exports, a gap that could take a decade to close.

- Voting to leave Europe could result in recession. Sterling being weakened after a vote to leave would mean slow growth, plus there’s the possibility the UK could go into recession, as recently threatened by the Treasury (http://www.bbc.com/news/uk-politics-eu-referendum-36355564 ). Any economic slump would evidently threaten the wellbeing of British businesses. But Brexiteers dismiss such forecasts as scaremongering, saying they ignore the advantages of leaving Europe, such as money saved from not being part of the Common Agricultural Policy, or adhering to EU regulations.

- Brexit would help to solve Britain’s trade imbalance with the EU. It is true the UK runs a huge trade deficit with Europe, partially due to the EU Services Directive, which has been poorly implemented. Britain has welcomed EU goods, but many continental countries are more protectionist, not deregulating to allow competitive British industries, such as financial services, to gain a toehold. It’s unclear how leaving the EU would solve this imbalance, and some argue integration is more likely to improve the situation. Equally, it is less than evident how leaving the union will remedy the currency advantage the Euro area gives countries such as Germany over the UK, as some Brexit supporters suggest. Germany will remain in the EU regardless of the referendum outcome, German manufactured goods will still appear cheap, so as long as it stays in the currency union it benefits.

- A vote for Brexit would wreck UK businesses from June 24th. Under the Lisbon Treaty, any country separating itself from the EU has two years to negotiate a withdrawal agreement, so businesses such as exporters, for example, will not suddenly find themselves out of business should Britain opt to leave. For those two years, the UK would effectively still be part of Europe, giving British businesses access to the single market for that period. It could take even longer to unpick the UK from Europe, so SMEs would have opportunity to adjust and find new markets for business.

- Only big businesses want to stay in Europe. The Vote Leave campaign claims that when the Confederation of British Industry (CBI) says (http://news.cbi.org.uk/news/cbi-to-make-economic-case-to-remain-in-eu-after-reaffirming-strong-member-mandate/ ) eight out of ten of its members want to remain in the EU, they only speak for large corporates, while smaller businesses are keen on Brexit. This isn’t entirely true. The CBI has SME members, more than 70 per cent of whom want to retain EU membership. Those linked to the Institute of Directors and the British Chambers of Commerce are also greatly in favour of remaining. The Federation of Small Businesses’ (FSB) membership narrowly backs staying in the EU, though research in February (http://www.fsb.org.uk/media-centre/press-releases/small-firms-speak-out-on-eu-referendum-vote ) indicated 42 per cent were still undecided.

- Britain needs a stable business environment. No one would argue with this statement. But while both the Remain and Leave camps produce questionable statistics to demonstrate how their desired outcome would be better for the country, neither group is addressing small business owners’ real concerns. The undecided FSB members said their uncertainty about how to vote was because existing arguments for and against have been inadequate and unhelpful. SMEs must look past the hyperbole and headlines to decide themselves how Brexit might affect their individual firm – and the country. But re-establishing a stable business environment in Britain is what we really need – and swiftly - to ensure smaller companies can operate, grow, and thrive long into the future.

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