Making Brexit work for small businesses

The raft of issues facing small businesses as the UK leaves the EU is significant. Cross-border trade, access to skills and labour, the loss of EU funding and regulation are just some of the major areas.

FSB has undertaken a series of research reports, setting out both the risks and opportunities facing small businesses with regard to Brexit. The latest of these focus on two key questions: How will Brexit affect small firms’ access to the workers and skills they need? And what should happen to replace EU funding?

Small businesses often rely on a small number of key individuals, and it has been argued that it is crucial that the new minority Government prioritises addressing the concerns of those who rely on EU workers. 

An FSB report, A Skilful Exit: What small firms want from Brexit, reveals that 59 per cent of small businesses with EU workers are worried about being able to access the skills they need after the UK leaves the EU. 

Across the UK, a fifth of small business employers have EU workers, with 72 per cent recruiting them when they were already living in the UK. FSB National Chairman Mike Cherry says: “There is real concern among small firms with EU staff that they will lose access to the skills and labour their business needs to survive and grow. Employers need to be able to hire the right person, for the right job, at the right time. 

“Alongside risks, there are also opportunities,” he adds. “The Industrial Strategy reflects a unique opportunity to revamp our education and training systems, particularly in relation to the development of technical skills.” 

Skills support

The report found that 95 per cent of small firms had no experience of navigating the UK’s points-based immigration system. “Restrictions on immigration will be felt more acutely by small businesses,” adds Mr Cherry. “Most small firms don’t have HR departments to deal with complex immigration procedures. They are least well placed to cope with losing staff, or dealing with a burdensome application process to retain and hire new staff. Any future system must take this into account.”

The issue of EU workers is particularly acute in Scotland. The study shows 26 per cent of Scottish small employers currently have a member of staff from the EU, with this figure rising to 41 per cent in the Highlands.

“Our data shows that our members predominantly recruit non-UK EU citizens because they’re the best candidates,” says Andy Willox, FSB’s Scottish Policy Convenor. “Any future system needs to work for the real economy, and needs to adapt to the needs of all sectors and geographies.” 

In Northern Ireland, small businesses stand to lose thousands of workers should free movement from the Republic end. “Special consideration needs to be given to businesses in Northern Ireland, the only part of the UK which has a land border with another EU member state, as tens of thousands of people commute over this border on a daily basis,” says Wilfred Mitchell, FSB Northern Ireland Policy Chair. “Any restrictions could have a direct impact on small firms’ ability to recruit and retain the workers they need.” 

The funding issue

Loss of European-funded support schemes for SMEs is another important issue. The EU has previously committed £3.6 billion to growing small UK firms’ competitiveness, which ends in 2020. There is no regional development spend budgeted at a national level beyond 2021 to fill the gap. 

The latest FSB report, Reformed Business Funding: What small firms want from Brexit, found that 78 per cent of small firms have applied for business support services in the last year; 68 per cent of applicants for EU funding say it has had a positive impact on their business. 

However, 44 per cent of those who had not made an application said they were unaware of the funding schemes. For those that do apply, the process is time-consuming, with 59 per cent expressing frustration with the amount of information required. This highlights that there are opportunities for the UK to use its future EU exit to create improved funding arrangements to support small businesses’ growth and productivity ambitions. 

In addition to proposing an enhanced role for the British Business Bank, FSB 
is proposing a single Growth Fund for England that would cut bureaucracy and allow firms to access support services through Local Enterprise Partnerships. 

“If the new Government is serious about developing an industrial strategy that delivers prosperity across all areas of England, it must replace EU funding dedicated to small business support and access to finance,” says Mr Cherry. “Ensuring that all small firms are aware of business support schemes should be a top priority.”