Benefits of Brexit – is there a silver lining for SMEs?

• The Office for Budget Responsibility says the long-term impact of Brexit will be worse for the UK economy than the pandemic
• Brexit is thought to be costing the average household around £870 a year
• Are there any benefits of Brexit – and how do they impact SMEs?

In January 2020, after months of bitter wrangling, the UK formally exited the EU, with an agreed 11-month transition period enabling both sides to negotiate a new trade deal.

In the following year, 2021, goods export hit an all-time low – dropping by 40.7%, the biggest tumble since records began. Import value then grew in 2022 by 11% to just over £53 billion with a rise in imports from countries both in and outside of the EU. However, this is widely believed to be predominantly due to globally rising costs, rather than signalling economic growth.

The UK’s Office for Budget Responsibility (OBR) warned that the long-term impact of Brexit would be worse for the UK economy than Covid-19 – predicting it would reduce GDP by as much 4%, with the pandemic cutting it by a further 2%. It’s estimated that , in Q4 of 2022, GDP had fallen by 5.5%. The Centre for Economic Policy Research estimated that Brexit raised consumer prices, costing the average household £250 more on food alone.

Meanwhile, 80% of SMEs say costs have increased since Brexit, particularly to import goods and recruit staff.

Other business challenges created by Brexit include tariffs for British exports, disruption in supply chains, decrease in EU workers, and unstable confidence in the UK market. The knock on effect of these challenges on businesses has been considerable – 2022 saw a rise in insolvencies, which has continued to surge into 2023, with insolvencies reaching their highest levels since records began.

What are the Brexit benefits?

So, are there any ‘silver linings’ for UK businesses post-Brexit?

The government has a 105-page document on the Benefits of Brexit, which was released at the beginning of 2022.

Former PM, Boris Johnson, was quoted as saying that Brexit will create: “A future in which we don’t sit passively outside the European Union, but seize the incredible opportunities that our freedom presents and use them to build back better than ever before—making our businesses more competitive and our people more prosperous.”

So, what are some of the possible Brexit benefits?

1. Reduced vulnerability to international shocks
   Former Treasury economist and fellow at the Institute of Economic Affairs, Julian Jessop, says that leaving the EU has “reduced our vulnerability to international shocks” in the market. The ONS agreed, saying the UK “may be more resilient to global supply chain disruption than other economies” due to supply chain changes made because of Brexit.
2. Increased use of domestic suppliers
   The ONS also released figures in 2022 showing that businesses had moved to using more UK suppliers since the end of the transition period that followed the country’s withdrawal from the EU – a big boost for UK businesses. This trend has continued in 2023, with nearly three quarters of businesses reporting that they were able to get all the goods they needed within the UK without any disruption.
3. Less EU restrictions
   After Brexit, the UK is less restricted by some EU regulations. It is argued that a positive result of Brexit has been an ability to trade more freely with non-EU markets – for example, the US and Australia. The UK is putting in place new trade agreements with many non-EU countries around the world.
4. Increased opportunity for growth
   Emerging markets such as Brazil, China, and South Africa account for more consumer spending every year. The fall of the pound makes British products cheaper for international markets, which could make them more appealing and benefit exporters.
5. Simplifying the reporting burdens for small and medium companies
   The government is reviewing the thresholds retained in EU law and the filing requirements for businesses that file micro-entity accounts, aiming to reduce the reporting burden on many small companies. In May 2022, it issued a press release saying that 350 EU rules were to be ditched “creating simpler, more flexible and transparent procurement.” The government said these would “level the playing field for SMEs and drive economic growth across the UK.”

Brexit impact fears continue

Brexit impact fears continue

While the government maintains its positive stance on Brexit, UK exporters remain cautiously optimistic.

“Brexit still remains a hurdle – it’s become a structural hurdle for UK exports,” said Allianz Trade’s Head of Economic Research, Ana Boata. She notes that in 2021, UK exports fell in volume at a time when most countries were enjoying a post-lockdown surge in trade.

With insolvencies in England and Wales at their highest level since records began, SMEs should be keeping Brexit consequences firmly front of mind, making business cash flow a top priority, and taking steps to avoid customer bad debt.

Find out how trade credit insurance can play a crucial role in removing potential sources of business failure, while improving peace of mind.