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Daniele Fraietta

Brexit: Threat or Opportunity for UK Businesses?

by Daniele Fraietta | Dun & Bradstreet Editor

October 23, 2015 | No Comments »

Should the United Kingdom remain a member of the European Union? In 2017 — or possibly sooner — the UK is set to vote on a referendum to answer this very question.

Popular opinion is mixed about a British exit from the European Union — or “Brexit.” About 43% of British people favor a British exit from the European Union, compared to 40% who back the status quo, according to a September 2015 YouGov poll. Those results suggest a shift towards euroskepticism.

UK businesses also disagree on the issue. Three-quarters of about 600 small and medium enterprises (SMEs) polled recently said they want Britain to take back powers from the EU so the country can negotiate its own trade deals. The poll, conducted by euroskeptic lobby group Business for Britain (BB), included sole proprietors as well as employers of up to 250 people.

Other key findings of the BB poll include:

  • 41% of SME leaders believe that the EU is hindering their business, while 20% say it’s helping.
  • SME leaders overwhelmingly want the UK to control employment law (84%), working qualifications (81%), and health and safety regulations (79%).
  • 42% of SME leaders think that if regulations were cut, they would be more likely to employ more staff; 45% claim they would increase the pay of good staff.
  • 54% of SME leaders would either like the EU to be a less integrated free-trade area or to completely withdraw from the EU. Just 25% would like greater EU integration.

As a whole, however, the British business community appears to favor remaining in the EU.

Some 63% of UK companies said that Britain leaving the EU would have a negative impact for Britain, up 4 percentage points from the previous quarter, according to an early 2015 British Chambers of Commerce survey of 3,800 UK companies.

Although over a third of firms argued that further integration with Europe would be a disadvantage, just over half said the most positive outcome for their business would be to operate in a reformed EU.

GDP and Exports

The UK’s GDP could take a hit from a Brexit, as the EU is the UK’s biggest trading partner. Official figures show that Britain exported about £174 billion worth of goods and services to EU countries in 2014. If Britain leaves the EU and fails to strike a deal with the EU or reverts into protectionism, its GDP could be 2.2% lower in 2030, according to research from Open Europe.

However, BB’s report suggests that the importance of the EU as a market for British exports is overstated, given that the majority of British businesses do not export at all. BB found in 2013 that less than 5% of British companies export to the EU.

The report reveals that while 50% of SMEs are ambitious to increase trade, only 33% are planning to target the EU. The bulk of SMEs are not planning to export at all.

Reasons to Stay

A major reason to remain in the EU is that membership makes it easier and cheaper for British companies to export their goods to Europe. Free trade between EU-member countries generates savings that largely outweigh the billions of pounds in membership fees Britain would avoid if it left the EU.

Additionally, the EU gives all citizens of member countries the right to travel, live, and work wherever they wish within the EU. The free movement of people makes it relatively easy for the UK to employ workers from other EU countries. Limiting this freedom would deter the “brightest and the best of the continent” from coming to Britain, according to Adrian Favell, professor of sociology at the Paris Institute of Political Studies.

Finally, some business leaders claimed that millions of jobs could be lost if global manufacturers move to lower-cost EU countries. In addition, British farmers could lose billions in EU subsidies.

Dun and Bradstreet believes that these key Brexit ripple effects — lack of free trade with the EU, less fluid movement of people, and lost jobs and subsidies — could seriously hinder business growth for the UK.

Daniele Fraietta has been a D&B economist for more than two years. He currently covers some Western European countries, notably Italy, Greece, Spain and Ireland. For D&B, Daniele has also developed the new econometric framework for commodity prices and exchange rates forecasting. He has an MSc in Economics from the University of Rome Tor Vergata, a Master in Business Administration from The Polytechnic University of Milan, and a Master in International Business from the Chapman College of Business.

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Photo courtesy of The Prime Minister’s Office, used under a Creative Commons license.

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