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INSPIRE: The EU Referendum is on the horizon. What impact might it have on UK SMEs?

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The UK is set to have a referendum by the end of 2017 which will determine whether or not we will remain a member of the European Union. In this referendum everyone of voting age will take part, answering “Yes” or “No” to the question of whether they wish to remain a part of the EU. There’s no doubt that leaving the European Union would bring about quite a few changes in the UK, but how would this decision affect Small and Medium sized Enterprises?

According to recent research by Vistage, the majority of SME leaders will be voting “No” to leaving the European Union. Of the CEOs surveyed, 61% said that they would want to remain in the EU, whilst only 6% said that they would vote to leave. A survey of its members by the Confederation of British Industry (CBI), found that eight in ten want to stay in the EU. However, a poll of 500 small businesses by Sage One found that 66% of SMEs say that they think the UK’s membership of the EU will have no impact on their trading either way, also revealing that only a quarter of SMEs say that the UK quitting the European Union will have a bad effect on their firms.

Europe’s single market of 28 member states with over 500 million citizens, accounts for around half of all UK trade, so what are the arguments on both sides that feed into the EU debate?

In favour of leaving the EU

Many small business owners feel that the UK pays a lot into the EU but doesn’t get enough back in return. Also, some business owners believe that there are too many rules on businesses in the EU and they would be able to be more competitive if they were not subject to these rules. If the UK votes to leave the EU, some small businesses predict that there would be a reduction in red tape. They say it is a bureaucratic, undemocratic and wasteful institution that erodes national sovereignty, adding that the UK should break away and form its own individual trade deals with Europe and the rest of the world instead.

There is also the prospect that the cost reduction per person of not having to contribute to the EU budget – around £140 per person – could lead to tax reductions aimed at benefiting businesses. Leaving the EU could also allow the UK to strengthen trade relations with non-EU countries.

Against leaving the EU…

Some businesses feel that they will suffer if the UK leaves the EU, as they will lose out on the standard product testing and harmonisation of raw material tariffs that are currently benefiting them in their pan-European trade agreements. A lot of parts that are manufactured in the UK go into products that are then sold to Europe, so import duties would be a big issue when leaving the EU. Staying within the EU makes it easier for companies to move goods and services.

Many SMEs, as well as other larger businesses, hire immigrants from EU countries in places such as Lithuania, Hungary, Romania and Poland where there is a plentiful labour supply. Restricting movement would inhibit employing workers from these sources. Another issue is the impact that leaving the EU will have on England, Wales and Northern Ireland’s relationship with Scotland. The SNP would be in a very strong position to request a further referendum for Scottish independence, because remaining in the EU is one of the party’s key objectives.

In the run-up to the referendum, we may also start to feel the effects of a possible exit as other countries become more nervous about trading with us, and pre-referendum nervousness in the UK may grow when we don’t know what’s going to happen after 2017. Potentially a lot of risks that SMEs could do without!

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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