Eight ways the referendum vote could affect business costs
British history is about to be made, and despite the 23rd June Referendum being on the horizon, we have no clue as to which way the public will be voting.
This uncertainty extends into all areas of life, with research showing that the UK’s small businesses are evenly split on whether Britain should remain in the European Union.
According to a poll of more than 500 SMEs, 37% of them favoured a ‘Brexit’, whilst 38% said they preferred to stay in the single market.
Perhaps somewhat worryingly, however, the research also revealed that one in four SME owners had not yet decided which way they would be voting, with many stating that they did not feel well informed about how a Brexit would affect them.
With the big day drawing closer, Love Energy Savings is aiming to educate small business owners across the country about how a decision either way could affect their day-to-day operations. Read on for both sides of the argument, and how to keep your business costs down whichever way the vote goes.
How a Brexit could affect your business costs
1. Pound vs. the Euro
As the referendum draws closer, and with the outcome being no clearer, the value of the pound against the Euro has already started to decline. Despite this, there is no way to say exactly how a vote to leave the European Union would affect our currency long-term, although respected institutions such as the Bank of England have stated that the pound’s value could drop sharply and lead us back into a recession. On the other hand, a vote to remain in the EU could strengthen its value.
Alison Steed, founder of The Business Powerhouse, said, “The uncertainty around whether the UK will vote to leave or remain in the EU is causing serious concerns for businesses who, quite frankly, are finding it hard to plan ahead. The impact of the uncertainty on the value of the pound is already being seen, but if we vote to remain in the EU then we could see the pound respond with a sharp strengthening against the Euro and US dollar again.
“Whether we vote to remain in the EU or not, and since no-one really knows that the outcome is going to be until June 23rd, it is best to simply control what you can control now. Whichever way the vote goes, taking these actions now will help stand your business in good stead for the future, whatever that may bring.”
One of the most fundamental principles of membership with the European Union is the freedom of movement, which allows citizens to look for another job anywhere in the EU and to move there for the purpose of working. Because of this, Europe is one of the biggest talent pools for companies of all shapes and sizes in the UK.
In February 2016, it was reported in The Guardian that the number of workers in Britain that are originally from other EU nations had reached more than 2m. This has allowed businesses to fill the skills gap, showing that skilled migration has numerous positive benefits, such as transfer of knowledge, increased innovation and higher productivity.
An exit from the European Union for the UK would put this sort of recruitment at risk.
Simon Conington, founder of BPS World, explained, “The landscape for recruitment has changed quite dramatically. Employers and candidates are now looking beyond their borders for work and talent. Employers have to. Europe is a rich source of talent and I don’t believe our economy would have thrived like it has done without access to professionals from the EU. Of course you can resource from other countries too but it takes longer and is far more difficult for everyone.
“A vote to leave would exacerbate a skills crisis in the UK that has been ignored for too long. Leaving the EU will make a challenging situation much worse.
“Organisations can prepare themselves for this potential situation by attracting the best talent available ahead of their competition. They need to do this by establishing and maintaining their employer brand; this is essential for the war on talent. The smart employer will capitalise on its brand’s strength to attract the best candidates. Make sure you communicate your purpose, mission and values as this defines who you are as a company and your culture.”
3. Increase in energy prices
One of the biggest expenditures for small businesses will be their energy, and the UK public have been warned recently that leaving the EU could have negative consequences on our bills. In March this year, energy secretary Amber Rudd claimed that energy bills would increase by £500m a year if the UK were to leave the European Union, stating that membership has “helped to keep our energy bills down”.
In her speech, Rudd then went on to cite a report conducted by the National Grid: “If we left the European Internal Market, we’d get a massive electric shock because UK energy costs are likely to rocket by half a billion pounds a year - the equivalent of British bills going up by around £1.5m each and every day.”
Phil Foster, managing director at Love Energy Savings, said that when faced with such uncertainty, SME owners should plan ahead accordingly. He said, “With the possibility of rising energy prices, small business owners should look to cut back wherever they can. This can include introducing some energy efficiency policies for your office, whether that’s greener LED lightbulbs, installing bigger windows for more natural light or adding movement detectors to turn off your lights automatically. There are so many small changes to be made, and they all add up to save a great deal of money for SMEs.”
4. Changes in airfares
The past few years have seen low-cost airlines becoming more and more popular throughout the EU. Thanks to the European Common Aviation Area, you can travel to numerous locations across the European Union for a fraction of the prices being charged in years gone by. This agreement, orchestrated by the European Union, has seen the removal of restrictions on air services in addition to more competitive routes between member countries.
For small businesses who are looking to grow outside of the UK, airfares will be crucial. But if prices spike following an exit from the EU, entrepreneurs who may already be keeping a close eye on their bank balance may struggle to afford the journeys to the mainland.
But thanks to modern technology, travelling hundreds of miles isn’t the only way to conduct a successful business meeting. There are dozens of different programs available to hold voice and video conference calls - all you need is a strong internet connection. If the UK votes for a Brexit on June 23rd, consider investing in some decent computers, internet and software packages to ensure you keep communication with your clients, partners and customers a top priority.
How staying in the EU could affect business costs
1. Red tape remains
One of the biggest reasons many UK businesses want a break from the EU is that it would free them from a lot of red tape. Although the majority of independent SMEs don’t actually do trade with other member countries, they still have to abide by certain regulations from the EU - many of which are deemed to be draconian. An example of this is complicated tax procedures that required time, money and a lot of paperwork.
According to a report from the Centre for Economic and Business Research conducted in 2015, small businesses can spend as much as 28 hours per week following procedures put in place by the EU. The report also suggests that an additional £4.7bn could be put back into the UK economy if business owners were able to reinvest this time back into their business instead. A vote to remain in the EU would mean that these regulations stay in place with many arguing that it will hold back small business growth.
If this is the case, small businesses should consider how they might be able to balance the expenditure of dealing with such procedures. Depending on the type of business and the number of employees, it may be more cost effective to outsource, or to train in-house staff to create processes that ensure the organisation adheres to the EU’s regulations.
2. Missing out on talent
Whilst we have already highlighted the benefits that free movement can bring to SMEs in the UK, it can create somewhat of an uneven playing field for other skilled workers looking for jobs. A Brexit comes with the possible benefit of opening up a much wider talent pool for businesses.
Eastern countries such as China and Singapore have a reputation for producing graduates who are skilled in engineering, manufacturing, computer sciences and website coding; all skills that the UK and other European countries are lacking.
As an EU member, the UK must grant free movement to people from other member states, which inevitably means that the country has to be extremely careful when issuing work permits to talented workers from outside the Union. There’s only so much room and infrastructure to accommodate migrants after all.
Whether there is a decision to stay or go, it is essential that SMEs consistently prioritise the quality of hires above all else. This will mean that better people are taken on (regardless of where they are from), and are more likely to last longer and will cost you far less money in the long run. According to Oxford Economics, it can cost a business upwards of £30,000 in lost productivity to recruit and replace a single member of staff.
3. Tied into the EU
This one goes without saying, but considering that the economy of the European Union isn’t necessarily in the best health right now, it’s worth mentioning. Recent headlines surrounding the Greek economy in particular don’t always fill people with confidence when thinking about the future. With so many individual economies contributing to the EU’s overall success, a great deal can hang in the balance.
By remaining in the EU, the UK would remain tied to that current state of uncertainty. Whilst we don’t have the single currency, the health of the pound is closely linked to the Euro, and fluctuating exchange rates can often play havoc with imports and exports.
Although there isn’t a great deal that businesses can do to counter this, it is wise that owners are always on the lookout for more efficient ways to send their money abroad by fixing rates for certain periods of time. It’s not a permanent solution, but planning ahead can help to take some of the pressure off.
4. Limited market opportunities
There are some who argue that a separation from the EU would liberate the UK and afford the government greater freedom to pursue deals with other countries across the world - ones whose economies appear to be flourishing.
Speaking to Grant Thornton, chief financial officer of EA Technology Limited, Neil Harris, said that a Brexit could open up new and exciting opportunities for UK-based businesses, “The UK would have greater freedom to sign other free trade agreements with countries where we could probably do more work. One of the biggest inhibitors for us in some countries is withholding tax and the lack of mitigation through effective double tax treaties.”
The view that businesses should not limit themselves to the EU market is one that is widely shared. On 7th June, JCB chairman Lord Bamford wrote to every one of his UK employees explaining why he favoured a Brexit, and worldwide trade featured very heavily.
“JCB is a global company selling to over 150 countries. Today EU countries account for 22% of our turnover; the other 78% comes from the UK, India, the Americas, Russia, the Middle East, Africa, Asia Pacific and the Far East. In fact, as a nation, over 53% of all UK exports go to non-EU countries.”
Outside of the EU, countries such as China and India are establishing themselves as powerhouses with strong rates of growths, as well as countries within Africa and Latin America. So whilst it is true that the EU is currently our major trading partner, does maintaining our membership stop us from pursuing these avenues of trade, and the financial benefits that come along with it?
When it comes to voting in the referendum on 23rd June, the potential implications for businesses either way are not to be taken lightly. At Love Energy Savings, we recommend that SME owners undertake as much research as possible in order to find out exactly how a vote either way could affect their day-to-day business costs, and to prepare accordingly.