In or Out? That is the Question

The EU referendum on 23^rd June 2016 will be one of the most significant votes of our generation, but with not enough information on the impact of a ‘Brexit’ vote, many remain undecided. How would leaving the EU affect businesses and what are the benefits of remaining?

On June 23^rd 2016, we will all be making a decision: in or out? Whether to remain in the European Union or leave will be a significant choice for the UK to make, but people all over the country are still unsure as to the consequences of that choice. Not only is this a dangerous prospect, but it is also surprising, given the enormity of this task ahead of us. This is a decision that will change the way that people live their lives; the way that businesses run their companies; how we as a country trade our goods and services; and even how we travel.

A recent report from the Federation of Small Businesses (FSB) revealed the results of a snap poll from over 4,000 small business owners on the UK’s membership of the EU. The research found that 42% of small business owners’ were still unsure of their vote, stating that they could be swayed over the UK’s membership of the EU. The findings implied that new information was the key to changing their minds, however at this point, just over half (52%) of members surveyed said they do not feel informed about the EU referendum at all. When asked what members needed to make an informed decision, almost half (48%) said they needed more details as to the economic impact of leaving versus remaining in the EU on the UK; 38% noted they needed more detail on the administrative burden of complying with regulation; and 33% asked for more detail on the cost of EU membership.

Another recent survey of 470 UK-wide owner-managed businesses commissioned by accountancy firm, Moore Stephens found that 60% of SME owners, at this point in time, would vote to stay in the European Union, with only 17% supporting a ‘Brexit’.

Andrew Henshaw, Partner at Moore Stephens South commented: “Owner-managed businesses are concerned that future growth will be disproportionally hit by a UK exit as they would no longer compete on a level playing field in the EU. Economic and political uncertainty is already impacting trade for some SMEs, and there is a fear that leaving the EU could severely destabilise business growth in the long-run.”

Andrew explained the dangers of leaving the EU: “The pound is already under pressure following London Mayor Boris Johnson and other political heavyweights coming out this week in support of ‘Brexit’ – which could lead to volatile financial markets in the run-up to the referendum. A ‘Brexit’ is also likely to rekindle the Scottish independence debate which SME owners predict will further impact business – as we saw in the run up to the referendum in 2014. Small businesses currently benefit from unrestricted access to the large European market and many could find increases in tariffs and potential trade restriction difficult to overcome, stifling international growth potential.”

Not all SME owners object to leaving the EU though. Business owners are tempted towards the ‘Brexit’ vote, in some cases simply due to the seeming tax benefits it creates for SMEs across the UK. But is it all benefits, or are there also hidden negatives? The loss of free trade agreements is one of the biggest dangers of a ‘Brexit’ vote and there may be more complications with cross-border jurisdiction also. Andrew Watters, Director, Thomas Eggar explained: “In the event of ‘Brexit’, the UK will of course be free to do exactly what it wants on tax. However, one area of tax where there will be less control is where the amount of tax payable in any one jurisdiction is as a result of cross-border transactions.

“Much of the tax planning by large international companies relies on mismatches between the rules of different jurisdictions. The EU made a statement earlier this year about work being done with national governments to have a more ‘joined up’ approach to counter this sort of tax avoidance. If Britain is not part of the club, it will be more difficult to be part of such cross-border initiatives.”

Ease of trade is one of the biggest benefits of remaining in the EU, with import and export activity a main contributor to the overall economic growth of the UK. The EU as a bloc is by far the UK’s largest trading partner, accounting for 45% of exports and 53% of imports of goods and services in 2014. Both the Conservative – Lib Dem Coalition government and the previous Labour government stated that over three million jobs are linked, directly or indirectly, to exports to the EU. Equally, the Confederation of British Industry (CBI) has estimated that 3 million jobs in Britain are linked to trade with the rest of Europe – a fact that pro ‘remain’ campaigning websites, such as Britain Stronger in Europe, strongly pronounce.

There are major worries among UK-based (but international by nature) businesses about a ‘Brexit’ vote diminishing that free access to trade within the EU, particularly between the UK and France. However, some believe a membership of the European Economic Area would allow companies to access the key benefits of Europe without having to deal with EU bureaucracy – similarly to countries like Iceland.

David Glass, Partner at Thomas Eggar shared his view: “My strong impression (particularly based on discussions with other members of the French Chamber of Commerce in GB) is that there is real concern amongst French businesses trading with and/or having operations in the UK that a ‘Brexit’ could mean the raising of trade barriers by restricting freedom of movement, goods and services and by the imposition of discriminatory anti-foreigner tax legislation.

“I have received comments from non-EU clients that they would consider putting their investment plans for the UK on hold if there were a ‘Brexit’ because they would no longer be able to regard the UK as a ‘gateway’ to Europe. By the same token, I believe that French business would see a ‘Brexit’ as a reason for strengthening their domestic operations or diverting their overseas investment away from the UK. I have even had one UK client telling me yesterday that they would consider relocating to France or Switzerland if the ‘Brexit’ took effect. There is no doubt that the French business in the UK would prefer the UK to ‘Bremain’ than to ‘Brexit’.”

The main point in all these debates – specifically the debate to leave the EU – is that the future is worryingly uncertain, in particular for UK businesses. The question is, do we take that blind risk?
The UK Foreign Secretary, Philip Hammond commented on where a ‘Brexit’ vote would leave us: “A vote to leave on June 23rd would trigger a two year window, under the terms of the Treaties, for the UK to negotiate the terms of our exit from the EU. And in the meantime, we will be able to offer British businesses no assurance at all about their future access to EU, or for that matter, to other markets. We will have nothing to say to American, Japanese, Chinese companies looking for a base in which to invest to supply the EU market. Our economy would literally be on hold, whilst our competitors, including our European competitors, forge ahead. And at the end of two years, there is no guarantee at all that we would have reached agreement, but our exit would be automatic unless every single member of the remaining EU agreed to an extension.

“Our access to the Single Market would cease. Our trading agreements with more than 50 markets around the world would lapse, with an immediate and negative effect on confidence, on growth, on investments, and on jobs. Years of uncertainty for Britain, just as we are getting back on our feet.”

David Cameron has made his stance on the EU referendum very clear, and is campaigning to ‘remain’ as best he can. On 23^rd February, he set out his reasons for remaining in the EU as the best possible course of action, stating his belief that we would be ‘safer’ inside the reformed EU, and ‘better off’ in terms of jobs, livelihoods, investment and success: “This is the wealthiest, strongest market in the world, and we have privileged access, without tariffs, the ability to trade and invest right across the EU.”

Many voters will be basing their decision on 4 key areas, as the Prime Minister pointed out in a recent letter to Donald Tusk: competitiveness within the EU, Eurozone changes, shifting power from Brussels and controlling immigration into Britain.

Under pressure to revitalise the UK’s relationship with the EU and ensure a ‘remain’ vote, David Cameron agreed a deal in Brussels at the beginning of the year, which ensures that the UK can remain in the EU with a special status: outside the Euro; outside Schengen; with an opt-in on Justice and Home Affairs matters, an exemption from ‘ever closer union’ and a new mechanism to limit access to our benefits system for EU migrants.

Surely, this creates the best of both worlds; in the EU but with independent powers? But many disagree, saying that the ‘reformed’ EU won’t in fact make any difference to the issues we face. However, at the beginning of March, Philip Hammond spoke out on Mr Cameron’s negotiations, explaining the overall benefits it creates: “It will boost EU competitiveness by completing the European Single Market, prioritising international trade agreements, and cutting the burden of EU regulation. And it provides an emergency brake to limit access to our benefits system for EU migrants and gives us new powers to exclude criminals and to stop exporting child benefits at UK rates. I think that’s a good deal for Britain.”

What do our local MP’s think?

It may be early days, with a lot of debating, contemplating and researching to do between now and late June, but we got in touch with some local MPs to shed some light on their opinions on the EU referendum.

 Caroline Ansell, Conservative MP for Eastbourne said: “We are now only a few days into what is going to be an intense, complex and four-month long campaign. Like millions of others, I have not yet made up my mind how I will vote and I very much want to hear a great deal more before I do decide.

I am also chairing an EU Referendum debate in Eastbourne in May where I will be listening to more views and I don’t see how I could effectively be involved in that event if I indicated now which way I am going to vote.

I understand that people may want to know my opinion, but this is an extremely important issue that will have consequences for generations to come, and I want to be in possession of all the facts I can before going in to the polling booth on 23^rd June.”

Amber Rudd, Conservative MP for Hastings was a bit more decided: “My decision is to vote to remain in a reformed EU. Staying in a reformed EU will make us stronger, safer, better off.  I believe that the advantages of being in the EU outweigh the frustrations that are also part of being in it. Last Friday I attended an event for businesses of Hastings and Rye at the Hastings museum. These were entrepreneurs and owners of small local businesses, such as IT, hotels and security. Proprietors of these businesses were quick to share their views with me that we need to stay in the EU. They told me that their success depends on continued membership. Their success provides local employment, which means jobs and financial security for working people and their families. This is the core of my support for staying in the EU – jobs and security.

She added: “Now I know that this is not a view held by everyone. There will be plenty of employers who find the additional regulations of being in the EU are greater than the opportunity. They would like to take the Brexit risk. There are honestly held differences of opinion in this debate.  MPs and Ministers whose views I respect take different positions to me. But having weighed it up, I have made my decision. Constituents have written to me asking for the “facts”.  They want clarity on whether in or out would be better for them. That’s like asking 20 different economists a question and expecting the same answer. There will be plenty of facts available but, ultimately, everyone will have to make their own judgement.

Her conclusion was to give some uncontroversial advice to all: “Make sure you are registered to vote.  This could be the most important vote you make in your lifetime.”

It seems that information really is key here. No matter what your position, there will always be arguments for and against a ‘Brexit’ vote and, as a business owner it is essential that you understand the implications of both a ‘remain’ or ‘leave’ decision. How will it affect your business, and more importantly the future standing of the UK within the highly competitive world market?

SBT would love to hear your opinion on this matter. Tweet us @SussexBusiness using #SBTEURef