How crucial is SME growth to the UK economy post-Brexit?

SME growth and the challengesSMEs are often described as the backbone of the UK’s economy and it has been said that their future success will be crucial post-Brexit.

There are an estimated 5.7 million SMEs in the UK accounting for around 99% of all private sector businesses and providing 60% of UK employment. The CBI (Confederation of British Industry) believes that the UK’s economic growth depends on them.

Analysis by the Centre for Economic and Business Research has suggested that helping some 22,000 high-growth small businesses to flourish could close Britain’s productivity gap with its rivals.

On these figures one can conclude that SMEs are vitally important to the UK economy, both now and in the future, and especially their ability to compete in foreign markets to bring in the needed income to replace Europe once tariffs are in place.

Yet, it is also alleged that SMEs’ are not being given sufficient attention by the Government during the ongoing negotiations about leaving the EU.

What are the potential challenges facing SME growth post Brexit?

Investing in R & D is a significant challenge for many smaller SMEs.  Many rely on pooling their resources by using centralised research facilities for their sector. However, much of the current research funding comes via EU grants and such applications require considerable lead time.  This has already had some impact in SMEs scaling back their research plans, according to the CEO of the Materials Processing Institute.

A second worry is access to talent.  The European Start-up Monitor calculates that 51% of UK start-up employees come from outside the UK and the FSB has also highlighted that one in five small businesses rely on skills and labour from the EU.

A third concern is access to and ease of dealing with foreign markets. SMEs need help with investing in and establishing sales abroad, they are wary of the significant upfront costs and existential risks.

Then there is the SMEs’ position in many supply chains. Given the uncertainty about future post-Brexit tariffs it is worrying that the CIPS (Chartered Institute of Procurement and Supply) has calculated that 46% of EU businesses currently working with UK suppliers are in the process of finding local replacements.

On the other hand, the CBI has found from its own research that the supply chain ties between the UK and EU “could go in the other direction”. It has calculated that strengthening supply chains could add £30 Billion to the UK economy by 2025.

While questions have been raised about the UK SMEs’ preparedness for Brexit, it is difficult to see how they could make themselves readier given that there is so much uncertainty about the final outcomes of various aspects of the ongoing negotiations.

Plainly, the ability to innovate, and therefore access to R & D, to foreign markets and to attract the right talent are among the most crucial concerns.

But essentially, while there is a lot of growth potential in UK SMEs they are going to continue to be hampered in making plans unless more attention is paid both to their needs and their concerns than currently appears to be the case.

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