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What would “Brexit” mean for Small Businesses?

Following the recent Conservative majority win at the 2015 General Election, an in-out referendum with regards to Britain’s membership of the EU is looking ever more likely.

Although there is uncertainty surrounding the possible consequences of a “Brexit” for the UK economy, business uncertainty seems to be the one thing we have become experts in creating. Initially with the Scottish referendum, then the general election and now Europe.

You could be forgiven for wondering if the UK is ever likely to see a period of economic stability where our businesses are able to interpret the challenges facing them, so they can to plan and strategise accordingly.

It seems that public opinion, like the political landscape is in a constant state of flux, which is certainly not helpful for either our economy or our businesses, regardless of any other issues at hand.

From a stability perspective, the recent Conservative victory will ensure the continuity of previous policies, which have helped to move the economy out of recession faster than many of our European counterparts. However, there is still a considerable way to go.

Changes in the law

When analysing the potential changes that a “Brexit” is likely to bring about, perhaps the simplest place to start is the law and the potential changes in UK legislation that a break up with the EU is likely to facilitate.

The law plays an integral part in how businesses are run in the UK and how our society functions as a whole. Several of these laws have been introduced or adapted to comply with wider European Directives and Regulations, which as an EU member state, we are obliged to implement within our own legislation.

Needless to say, withdrawing from the EU would mean that we no longer face these obligations, but would this mean we likely to see any immediate and substantial changes following an exit from the Union?

The answer, in short, is most probably not; it is doubtful that we will see any significant change in the first instance, so it will be business as usual for the majority of the UK’s SMEs in the event of an ‘out’ vote.

Should this happen, any EU legislation that is not already implemented into UK law is likely to fall away, as the requirement to introduce it would cease to exist. However, it is unlikely that a significant portion of our existing law will change as a result of leaving the EU.

As a rule, commercial contracts refer to English law rather than European law, so these will not change if the law does. However, it would still be necessary to take EU laws into account in contracts between UK and EU domiciled companies, such as data protection laws.

In contrast, Consumer law has been largely based on EU legislation in recent years, so if any EU laws are abolished in the UK, it is possible that a degree of legal protection that consumers have become accustomed to could be lost.

In the event that Britain leaves the European Union, Parliament will need to distinguish between the principles of EU law that have on-going value, and those which are unpopular. Opinions on this matter will undoubtedly vary from on political party top the next, but with a Conservative government, it could be speculated that changes in working hours legislation and employee rights in the workplace (influenced by the Working Time Directive) could be diminished.

Immigration

A key topic on the run up to the election was immigration, and this is almost certainly an area where we would see changes following a break up from the EU.

David Cameron is under increasing pressure from voters to cut net migration, particularly after defaulting on a promise to slash net migration to “tens of thousands” under the coalition government. In fact, recent figures showed that net migration had actually risen to 318,000 in 2014, which is the second highest figure on record, behind 2005.

The Prime Minister has already announced proposals to restrict non-EU migrants, which make up a fraction of total figure, but Mr Cameron’s hands are currently tied with regards to the EU, because a fundamental principle of the Union is the ‘free movement’ of labour between member states.

If the law is changed to restrict EU migrants, businesses that employ EU workers, on either long term or seasonal contracts, could suffer as a result and will need to think carefully about how to deal with the situation should it arise.

The UK must remain an attractive place to do business

Considering the substantial economic uncertainty that Brexit would give rise to, the UK government would need to do everything possible to make the UK an attractive place to be based and do business in.

The government is likely to repeal certain EU legislation and introduce laws that will give UK businesses a competitive advantage over other EU countries. However, there is a risk that Brussels will seek to counter this strategy, by making it more difficult for UK businesses to operate in Europe.

This uncertainty has already led to a number of significant companies (including HSBC) threatening to withdraw operations from the UK, so in the event of a potential Brexit, the UK will need to ensure that the UK remains a compelling and attractive place to do business.

If businesses pull out of the UK in the event of Brexit, several countries stand to gain. There is already talk of Frankfurt replacing London as the number one financial community in Europe.

An obvious way to respond to these issues is to create a more competitive environment in the UK. Possible legislative changes could include the removing restrictions on working hours, reducing competition legislation and removing employee protections.

How would Brexit affect our relationship with the EU going forwards?

There would be several options available the UK following a potential Brexit. One option is to follow remain within the European Economic Area (EEA), which would mean that certain EU would still need to be complied with. Another option is to become a European Free Trade Association (EFTA) member like Switzerland, which also involves modifying certain laws to be compliant.

Associated states, such as Turkey, must still comply with sections of the Community acquis to maintain a simple trade connection, so it might be hard to escape EU law entirely.

Although it is difficult to anticipate whether the UK economy and its citizens will be better off as a result of a Brexit, one thing remains clear. That is if large multinational companies withdraw from the UK in anticipation of or as a result of Brexit and if fewer companies set up in Britain as a means of accessing the EU, the knock on effect will certainly be felt by smaller businesses.

The government and voting public need to think very cautiously about the consequences of Brexit, as even the uncertainty surrounding a referendum impacts negatively on small businesses.

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