By James Tout on 1 August 2016
How can we fill the post-Brexit information gap for SMEs?
Britain’s looming exit from the EU has created huge uncertainty for businesses – but what can the government and local enterprise leaders do now to reassure and inform?
Despite opinion polls in the run-up to the June 23rd poll indicating a Leave vote was quite possible, the government appears to have done little in the way of contingency planning to steer a path through Brexit for Britain’s 5.4m businesses.
We’ve now been left high and dry in an information vacuum. That in itself has been enough to seriously damage business confidence, as indicated in recent surveys of manufacturers and service firms, and may presage recession.
The one thing that is clear is that extricating ourselves from the EU and negotiating the fabled new trade deals on which a post-Brexit Britain will depend is going to take many years and will continue long after the official two-year ‘divorce’ period following the invocation of Article 50 (timing TBC 2017).
But hand-wringing and thumb-twiddling won’t help. So what could be done right now to better communicate some of the detailed information business is craving?
- LEPs must show the scale of the impact
As the agencies responsible for fuelling growth in their regions, Local Enterprise Partnerships need to do some work to quantify the impact anticipated from the withdrawal of European funding. For some regions in receipt of European Structural and Investment Funding (ESIF), this represents a sizeable chunk of their total budgets (Cornwall, for instance, was due to receive over €600m over the period).
An excellent recent report from Metro Dynamics has highlighted that the UK nations and regions were set to receive £1.8bn per annum in ESIF over the 2014-2020 period. In addition, the government has committed to deliver over 600 key projects via its new National Infrastructure Delivery Plan worth a total of £420bn – three-quarters of which is meant to come from private sector and EU investment (from the likes of the European Investment Bank, which provided £5.6bn to the UK last year alone).
Assuming we leave the EU in early 2019, how much funding will individual LEPs lose? Organisations like the LEP Network have a key role to play now in championing the collective voice of local LEPs to get the government to commit to safeguarding those funds. This needs to start with a robust analysis of the impacts and consequential reductions in job creation and GVA growth.
- Government must be straight with SMEs
We’ve heard the claims and counter-claims. But now that the dust is settling, there’s an urgent need for the government to provide clarity for SMEs to enable them to make investment decisions based on the likely scenarios.
Some SMEs will have crunched the numbers themselves to try to estimate what additional costs they may face in exporting to EU countries if we aren’t able to stay in the single market and have to pay tariffs. But there are still many grey areas and rules for different industries are fiendishly complex.
The government could take a lead here by establishing a central web resource with online calculators to show the knock-on in pounds, shillings and pence, similar to those provided by HMRC for annual tax returns. This would aid individual business’ forward planning enormously, helping them to plan whether exports are still viable if we move to EEA or WTO tariff regimes.
At the same time, new International Trade Secretary Liam Fox needs to strengthen UK Trade and Investment’s links with LEPs and city-region Combined Authorities to promote ambitious UK cities and regions as distinct ‘brands’ abroad and create strategic pathways for inward FDI to ensure all regions benefit.
- Devolution must be shown to have teeth
With Greg Clark as the new Business Secretary, LEPs and city councils can expect the devolution agenda to remain on track. But with the Hinckley Point C ‘pause’, we’ve already seen a willingness from the new government to intervene in major infrastructure investments, delaying a shovel-ready project on which a vast local supply chain depends.
If this is a precedent, we need to ask how much real autonomy regional enterprise chiefs will have once regional devolution gets going in earnest. Many of our biggest city-regions are looking to build SME growth off the back of major infrastructure deals (for example, Birmingham with HS2). The government now needs to signal to devolved authorities that they won’t micro-manage these processes, which has the potential to blow carefully constructed regional growth strategies off-course.
Meanwhile, many SMEs remain unaware of existing government support for regional growth, an example being the British Business Bank’s investment of £650m in ‘Northern Powerhouse’ and ‘Midlands Engine’ funds. A series of regional roadshows and concerted media relations campaign would go a long way towards creating awareness among SMEs of finance options available to them to spur and sustain growth.
- Best practice must be shared
Several recent studies, including groundbreaking research by our client the Enterprise Research Centre (ERC), have shown big regional disparities in the numbers of high-growth firms, sometimes called ‘gazelle firms’, which create a disproportionately high number of jobs and tend to be more productive. Some areas in the north of England such as Liverpool and Sheffield, for example, have seen increases in the number of HGFs of 50% of more since the 2008-9 recession. What is their secret?
The short answer is that we don’t really know. But it suggests that local LEPs and other agencies are creating a business-friendly ecosystem that’s enabling firms to scale, whether by strengthening local skills training, creating web-based resources for SME owners, or inter-business mentoring and networking schemes.
It’s important for LEPs to highlight their individual successes – and many are doing so very effectively. But for learnings to permeate across boundaries, we need robust evaluation of the factors contributing to success and a central platform where this analysis can be shared. Setting up a portal on the Gov.uk website (accessed from a departmental homepage) would be a relatively straightforward way to start bringing this invaluable treasure trove together.