Brexit: what's at stake for businesses

Profit

Being Able to Minimise Extra Cost Burdens and to Maximise Income

Everyone in business knows to keep a close eye on the bottom line. Running a company brings many responsibilities, including contributing to society. But in that context avoiding unnecessary cost burdens is crucial if a company is to grow and thrive. There is much at stake here, in terms of markets, costs and funding.

Right now UK businesses have unfettered and privileged access – free of tariffs and of non-tariff barriers - to a market of 500 million people. Business in the UK also currently benefits from EU trade agreements with over 50 countries, including those that are being finalised and implemented for example with Canada, with more to come. The same applies to the imports our industries and retail need.

As the EU single market grows and as more EU trade deals are struck, the value of this trade will also grow. The market access in turn attracts large scale foreign direct investment, crucial for getting businesses going and growing. Companies benefit too from funding which can reduce costs of employing people in disadvantaged areas or of benefitting from cutting edge research, which in turn feeds back into our development as a country and the creation of a fairer and more equal society.

Brexit may mean:

• goods can be sold in – and imported from - EU markets, but only once tariffs of up to 40% have been paid and provided EU-set standards are met; or
• for some named products lower tariffs can apply for as long as a UK/ EU agreement applies; or
• as now, goods and services can be imported and exported without tariffs or other barriers, both in EU countries and in those with EU deals;
• deals with some countries such as Brazil could allow some UK goods to be sold there and Brazilian goods to be sold here, in both cases with lower tariffs but some non-tariff barriers, if a deal is negotiated;
• UK companies will no longer have quick access to cutting edge research achieved through collaboration with researchers from elsewhere in the EU.

The real life examples in this section show what is at stake here and explain why the Fraser of Allander Institute ^[2] has drawn attention to the impact that Brexit will have on the Scottish economy. GDP is expected to be up to 5% lower after 10 years than would otherwise be the case.

Profit: What Businesses Say

The examples below capture what companies are saying to us about what's at stake for them, in their own words, demonstrating the real issues they face.

A niche Trade Finance Bank with particular expertise in serving businesses trading with the Middle East and North Africa has its European Operations centred upon London with branches in Frankfurt, Paris and Milan. Their Scottish office is in Glasgow.

Many employees are necessarily fluent in Arabic and other European / Nordic languages with a wide diversity of nationalities represented on the staff complement. The Bank supports customers across the globe in a highly competitive industry, which attracts the best and brightest talent from all over the world. They need a highly- educated, diverse workforce with the ability to travel and conduct business seamlessly across borders. Therefore it is crucial that the status quo on passporting of financial services remains.

Operating from the UK and across the EU it is critical for their success, when transacting internationally on behalf of global corporations, that they are able to provide low cost, frictionless support for vital trade finance services. If significant impediments to transacting business in support of their customers were to emerge then elements of business may be conducted elsewhere. The Bank is increasing their investment in Frankfurt in order to prepare for possible outcomes of the Brexit negotiations. To conduct business in future in a form and substance similar to that at present, these requirements may include an enhanced legal and technical presence in the EU.

CirrusHQ is a managed IT services provider based in Livingston, specialising in Cloud Computing. They are a global business operating exclusively out of Scotland. They currently have 9 employees, 4 of which are originally from outwith the UK. They are concerned about the changes in access to the European market for its services as well as their access to the talent pool within the EU.

Loch Melfort Hotel on the coast of Argyll has two luxury suites, eight further bedrooms in the main house and a further 20 rooms in the Sea View Lodge. The Hotel's main concern on Brexit is the severe cost implications of having to make herculean efforts to attract and retain staff. Since the EU referendum several key members of staff have chosen not to return to the UK, primarily because it is no longer a good economic proposition. Whilst the hotel has, with much difficulty, found ways to cover these roles in 2017, this is becoming increasingly difficult. The issue is particularly acute in rural areas since it is much harder to charge premium rates for accommodation, food and drink to cover these cost increases (especially as they are accompanied by severe Brexit driven food and drink cost rises). Loch Melfort has noted that the more than 80% of their customers which are from the UK have reduced their discretionary spend (food & drink), behaving significantly more cautiously since the Brexit vote.

Brightwork is a temporary recruitment agency with offices in Glasgow and Edinburgh. The company employs 70 people and typically has in excess of 2,000 temporary workers a week working on assignments for clients throughout Scotland. The tightening of the labour market over the past year or so with employment at record levels has made it increasingly challenging to find the right talent, particularly for entry level positions paying the national minimum wage. The burden of compliance is increasing year on year in terms of visa requirements, right to work etc. and early indications suggest Brexit will add more bureaucracy into the mix. If compliance becomes even more onerous this will impact on margins which may lead to cost increases for clients. Uncertainty is also impacting on business confidence and is having a knock on effect in investment and growth.

A Scottish company which designs, manufactures and distributes highchairs exports its products all over the world from both its European and Chinese hubs. Brexit offers significant uncertainly, for both the brand and its European customers, and has certainly not helped the cost of offshore production which has risen by 30% since the referendum. Safety is absolutely crucial. Irrespective of any new third country trade deals, the company would want to adhere to current EU driven safety standards which are seen as world class internationally and allow it access to key markets.

Springbank Distillers benefits greatly from operating within the European Union and Brexit will have a negative impact on their business.

Firstly, leaving the EU will result in an added administrative burden for the company as they conduct business with 27 countries compared to the Single Market. This means extra work, extra staff costs (including training or re-training) and a number of logistical and practical issues such as the additional time these burdens will take.

Furthermore, anything that may restrict or hamper the travel of citizens from EU nations to Scotland will have a detrimental effect on the company. Springbank, like many other distilleries throughout Scotland, relies heavily on foreign visitors to sell their products - 10% of their turnover comes from money spent by customers from Europe. Also, increased restrictions regarding their visitors' ability to take whisky back to their homeland is deeply concerning and may impact on tourism in the area as the thousands of foreign guests that Springbank attracts to Campbeltown each year also benefits the local community.

The new difficulties faced by their family owned, independent distillery within a traditional Scottish industry will be acutely felt. Therefore it is vital for them that Brexit has as small an impact on the efficiency and ease of movement of Scotch Whisky as is possible.