How the EU Referendum will Affect Small Businesses and Employers

June 23rd 2016 is when the UK public will vote on whether or not to remain in the EU. If the result of the referendum is to leave, the government must notify the European Council. There will then be a two year period of negotiations before we can finally exit. Not until then will we know what kind of relationship we will have with EU countries or whether we can still have access to the single market. It is therefore difficult to predict the effect of a withdrawal on small businesses, but various people have suggested a number of scenarios.

The referendum date was decided after the Prime Minister had negotiated an agreement with all other EU countries to a package of reforms in the event that we vote to stay in. These reforms include an exemption from ever closer union and a four year ban on in-work benefits for EU member immigrants. Critics felt the high levels of immigration would not be reduced and Brussels would still retain unacceptable levels of power.

The Need for Information

After the referendum announcement in February, the Federation of Small Businesses (FSB) published research which found that, of 4000 small businesses polled, 42% had not decided how to vote. Most did not feel at all well informed. Members were asked what they needed more information on: almost half mentioned the economic impact on the country; 38% wanted more detail about the administrative load of regulation compliance; 33% wanted to know more about the cost of EU membership.

Mike Cherry, policy director at the FSB, said, ‘It is crucial that once appointed, both the ‘Remain’ and ‘Leave’ campaign groups tackle this information deficit. Smaller businesses want to know the practical impact that remaining within or leaving the EU would have on their firms.’

Will There be a Level Playing Field?

Another poll conducted by major accountancy firm, Moore Stephens, of nearly 500 owner-managed businesses found that 17% had already made their minds up that they wanted to leave the EU. This was mainly because they were concerned about ‘the excessive bureaucracy associated with EU trading regulations, especially in the food industry, and also because of the prospect of tax reductions which could benefit business,” according to Mark Lamb, a Moore Stephens partner.

He also said, “Owner-managed businesses are concerned that future growth will be disproportionately 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. 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.”

The Effect on Employers and Employees

In recent years, many small employers have found it hard to comply with EU regulations on workers’ rights. Our own government has recognised the difficulties and sought to alleviate them by, for example, increasing the qualifying period for unfair dismissal from one to two years, and capping the compensation that could be awarded. In 2013 it introduced a cost on applications for employment tribunals.

The TUC is therefore encouraging its members to vote to remain in the EU. Its general secretary Frances O’Grady said: ‘Working people have a huge stake in the referendum because workers’ rights are on the line. It’s the EU that guarantees workers their rights to paid holidays, parental leave, equal treatment for part-timers, and much more. These rights can’t be taken for granted. There are no guarantees that any government will keep them if the UK leaves the EU.’

Who to Believe

Meanwhile the Chancellor is making a very gloomy forecast about the economy if we leave, with everyone paying heavier taxes to keep the country going. Boris Johnson, MP and Mayor of London, who backs the exit campaign, appeared on our TV screens to tell us that this is totally wrong and we have a great future ahead of us if we leave.

Unfortunately no one seems to have definitive answers about what will happen if we leave. Entrepreneurs are, by definition, optimistic and eager to turn all eventualities into opportunities. Many of them will look to their local bookkeepers to help them ensure that their small businesses, with or without employees, will be prepared for whatever comes next.

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