Brexit may have negative impact on SMEs

22 January 2018, 11:30

Small and medium-sized businesses thought to be the most significant for boosting productivity and economic growth may be the most negatively affected by Brexit, new research suggests.

In terms of its future impact, Brexit is likely to result in lower levels of capital investment, reduced access to external finance and lower levels of growth, the University of St Andrews study found.

It is also likely to lead to reduced product development and lower levels of business internationalisation.

The study of nearly 10,000 UK small and medium sized enterprises (SMEs) found that future plans for capital investment within innovative SMEs seem particularly likely to be impacted.

Dr Ross Brown, reader in entrepreneurship and small business finance at the University of St Andrews, said: "The results of our analysis suggest that Brexit-related concerns could result in a range of negative consequences for UK SMEs, especially the impact on reduced capital investment, which critically weakens and undermines their ability to grow and prosper.

"Most worryingly, these perceived negative impacts appear to be foremost in the minds of entrepreneurs and managers located in the types of innovative and export-oriented companies, which are often viewed as the high growth 'superstars' of tomorrow.

"In other words, SMEs thought to be the most significant for boosting productivity and economic growth may be the most negatively affected by Brexit."

The analysis suggests that Brexit-related uncertainty is likely to affect larger, export-oriented firms and those operating in hi-tech and service-related industries the most.

Innovative SMEs in particular seem particularly concerned by Brexit.

Th study was carried out by researchers led by Dr Brown and Professor John Wilson from the Centre for Responsible Banking and Finance, University of St Andrews, in conjunction with Dr Jose Linares Zegarra from the University of Essex.

The independent research draws upon detailed econometric analysis of the UK government's Longitudinal Small Business Survey, one of the largest attitudinal surveys of SMEs undertaken in the UK, encompassing around 10,000 firms.

Following the result of the referendum, the UK government inserted a number of Brexit-related questions into the survey which enabled the new analysis.

In terms of geographic location, SMEs based in Scotland and Northern Ireland view Brexit more negatively than their counterparts located in England and Wales, the study found.

Researchers said this may reflect voting patterns of households given that these territories voted "emphatically" to remain within the EU, but may also reflect the greater reliance on EU trade within Northern Irish SMEs.

Dr Brown said: "There appears to be a deep-seated uncertainty permeating UK small businesses about the ramifications of Brexit.

"Owing to its highly complex, contested and indeterminate nature, Brexit is unlike most other types of institutional instability because it has the potential to fundamentally re-write the rulebook for how firms do business in the UK.

"These concerns seem to be most acutely felt within certain types for firms. By and large, the larger, more innovative, more export-oriented and hi-tech you are the more likely you are to have concerns regarding Brexit for your business."