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The EU referendum: how will it affect UK businesses?

Should we stay or should we go? What the EU referendum means for UK businesses.

Contents

  1. Preface The UK's history with the EU
  2. Chapter 1 Remain
  3. Chapter 2 Leave

The UK has been a member of the European Union since 1973, however a string of discontent and an increasingly unhappy British public has lead us here with just days until the British voting public make the decision to stay in the EU or jump ship.

We’ve had a referendum before, back in 1975 and we voted to stay. But the European Economic Community of 1973 that is now known as the modern day EU has changed since then. A lot. More member states, more money and more people. The EU is not what it used to be, but what it is, is a huge advantage or disadvantage, depending on whether you’re backing Team Remain or Team Leave.

We’ll take a look at some of the most pressing matters of the EU referendum, what each campaign’s standing is and how a vote to leave or remain could impact your business.

Vote Remain

Trade and economy
Is being a member of the EU good for business?
Immigration
Is Europe-wide migration a good thing?
Cost of membership
How are UK businesses benefiting from EU membership?
Work and pay
Does EU membership protect the UK workforce?

 

Vote Leave

Trade and economy
Does being a member of the EU drain UK businesses?
Immigration
Does immigration have an adverse affect on the UK?
Cost of membership
How much does the UK really get out of being a member?
Work and pay
How does the EU impact UK businesses?
Preface

The UK's history with the EU

Back in January 1973, when everyone’s favourite theoretical physicist was born (bazinga!), Jimmy Osmond was crooning about his ‘Long Haired Lover from Liverpool’ and our very own Princess Anne was getting hitched for the first time, the UK did something that changed us as a country forever. We joined the European Union.

After attempting to join 10 years earlier only to be revoked membership by De Gaulle for our “deep-seated hostilities” towards the European initiative, Britain was finally allowed access to, what was at the time, an exclusive club.

 

Edward Heath, UK PM 1973

"We may be a small island, but we are not a small people."

In the early 70s, Britain was in a pickle. Dubbed the ‘sick man of Europe’, the UK economy had been overtaken by Germany, France and Italy and average British incomes were far behind that of our European counterparts.

A flagging economy left us stuck between a rock and a hard place. Joining the European Economic Community (as it was known, the EEC is now incorporated as part of the EU), was the light at the end of a very dark tunnel. We became part of a free trade organisation called the European Common Market (ECM). The ECM sought to ensure financial stability, foster trust between previously warring nations and establish a customs union to allow for cheaper trade between member states.

Fast forward 43 years and Britain staged a remarkable economic recovery. Increased trade and competition, more lenient tariffs on the trade of goods and foreign investment in the UK lead to Britain’s comeback as an economic power.

Over the years, the EU has become a powerhouse. Valued in 2015 at over £13trn, the union is not something to be sniffed at. But there’s been mounting pressure on the British government for an EU referendum over the last few years. The Euro crisis didn’t help, and our membership of the EU continued to be questioned by the public and government alike. When Conservative MPs voted in favour of a referendum in 2011, this was pretty much the final shove towards a referendum. Cue Mr Cameron pledging to renegotiate Britain’s deal with the EU and here we are today with less than a week until the country hits the polling stations. As the EU referendum looms, voters are frantically trying to gather all the facts.

 

Enter an influx of party political broadcasts, bickering politicians standing their ground, ‘Stronger in Europe’ and ‘Vote Leave’ media campaigns and a country of voters that have no idea which way the referendum will go. Early opinion polls lean slightly towards remaining, but we all know how futile they can be at times.

Whether we stay or leave the EU, the British business world will undoubtedly be directly affected by the uncertainty that the referendum brings and whichever way the British public vote, British businesses of all sizes will have been shaken up by the referendum.

Vote Leave Stronger In Europe

Chapter 1

Remain

Come Thursday 23rd June, Britain will be faced with two simple tick boxes: remain in the EU or leave the EU. The arguments from the remain camp take aim at everything from a better economy to better leadership and a more secure country. The ‘Stronger in Europe’ campaign states that “for every £1 we put into the EU, we get almost £10 back” – a striking difference to what the ‘Vote Leave’ campaigners claim.

We take a look at some of the hard-hitting issues that will be facing British businesses if we were to remain in the EU and how this could in turn impact every stage of the supply chain.

Trade and economy

As a complete entity, the EU is the world’s largest trading block and the largest trader of manufactured goods and services. With a GDP that is in excess of £10trn and a marketplace that offers everything from cars and aeroplanes to wine and cheese, it’s no surprise that the EU is the “top trading partner for 80 countries.” (Source: Europa.eu)

Pro-EU campaigners are holding onto to the fact that almost half of UK overseas trade is done with the EU and the advantages that the single market brings to businesses. What’s more, the UK itself doesn’t have to negotiate trade deals with other parts, the EU negotiates these deals on behalf of all 28 member states. As such, ‘Stronger in Europe’ claim that Brexit could cause shockwaves to the UK economy and thus growth would be stunted as the global economies reacted to Britain’s exit from the EU.

It’s worth noting that if Britain were to leave the EU, we’d still have to apply EU rules in order to retain access to the single market states, something that the majority of UK businesses would not be willing to forgo. Negotiating as part of a 500-million strong powerhouse gives the UK a whole lot more clout than we have on our tod.

Stronger In Europe

“Thanks to the EU, we benefit from free trade agreements with 50 countries around the world.”

Impact on UK businesses

If the UK was to remain part of the EU, British businesses would benefit from continued access to the single market and free trade agreement already put in place by the EU.

The free movement of goods, service and capital is nothing but a benefit for UK businesses. No matter their size, UK businesses are able to freely trade with their European counterparts without being subject to hefty taxes.

Remaining in the EU could cause a surge in confidence in the UK market, thus a greater demand for UK made products and services. European companies already invested in the UK would be able to continue as they were, paying taxes into the British purse and driving economic growth.

Leaving the EU could pose a sudden economic instability for both the UK and global economies. The trade ties we have within the EU bolster both the UK economy and businesses. With access to labour, capital and innovation, UK companies are free to import and export with European customers at will.





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Immigration

Probably one of the biggest issues for voter is net migration, which is currently running at around 300,00 a year (184,000 enter the UK from EU countries and approximately 188,000 from non-EU countries).

As EU citizens, we currently have the right to live and work in any other member state under the Free Movement principle of the EU. While the government can control the number of migrants entering the UK from outside the EU with a points-based system of entry, they have less control over those entering from within the EU due to this freedom of movement rule.

The remain camp believe that immigrants pay more into our economy in taxes than they take out. More often than not, immigrants are skilled European workers, who will work for our businesses and services, pay their share of taxes and boost the economy. Figures show that migrants contribute more to the UK economy than they get back.

Despite a vast amount of the pro-leave voters believing that immigrants are a drain on the economy and social security benefits, the rules are changing. During his lengthy renegotiation of our EU deal, David Cameron agreed to limit the benefits that in-work EU migrants receive for the first four years of their arrival in the UK.

A statement from HMRC in May 2016 concluded that the fiscal contributions made by EU nationals were estimated to be over £3bn in taxes on income, while claiming a mere £0.5bn in state benefits.

What is often overlooked by the Brexit camp is the number of Britons that are living and working in the EU. 2015 figures suggest that 1.3m British people live in other EU countries. That isn’t counting the number of students studying abroad on the EU’s Erasmus program.

As the Stronger in Europe campaign continue to publicise the advantages that immigrants are bringing to the UK economy, what impact might continued immigration have on the UK supply chain?

Impact on UK businesses

Remaining part of the EU could be a huge benefit for UK businesses in terms of demand for their products. More people need more ‘stuff’ to survive. Whether that’s food, cars or demand for local services such as hairdressers and mechanics. A surge in demand would mean that UK businesses stand to benefit from remaining in the EU.

Companies at every step of the supply chain could experience increased sales, and thus profits. For example, companies involved in the construction and automotive industries could stand to benefit a great deal from immigration as migrants look for places to live and cars to drive.

What’s more, the freedom to move around the EU means that UK companies can look further afield for skilled labour and share fresh ideas across the union.

Example of knowledge sharing: Visual effects firm, London

“What really makes a difference is the quality of people in the facility. This programme is international, it’s not just the UK, we’re going to where the new schools are…It wouldn’t be possible for us to do our job [without migrant workers]. We would have to shrink hugely. If you took all the migrants out of the department we would be down to 10% of the current size.” (Director)

“This Japanese guy we employed – when he started he had much more technical knowledge of the software than almost anyone else in the company…he brought a different level of knowledge to that problem. It must have been industry knowledge; he’d had experience of working in Japan.” (Co-worker)

Source: Department for Business Innovation and Skills

Cost of membership

There’s no ignoring the fact that it costs the UK a significant amount of money to be a member of the EU. Varying figures are thrown around left, right and centre every day in the media and by both campaigns.

So what is the truth? Full Fact, the UK’s independent fact checking charity, look at the statistics in detail and what it really costs us to be a member of the EU.

While our gross contribution in 2015 was £17.8bn, the UK gets a rebate of almost £5bn a year from the EU. So as a country, we actually pay £13bn a year into the EU as a ‘membership fee’. What’s more the EU also funds payments to UK farmers and poorer regions in the UK. Payments totalling over £4bn last year. In fact, when it comes down to it, our net contribution in 2015 was a mere £8.5bn – nowhere near the £20bn annual fee that Vote Leave claim it costs us.

Cost of EU membership

The remain camp are of the opinion that the economic benefits of EU membership easily outweigh the cost and that even if we were to leave the EU, Britain would still have to contribute to the EU budget to retain access to the single market.

Stronger In Europe

“We get out more than we put in. Our annual net contribution to the EU amounts to £340 per household (HM Treasury), but the CBI (Confederation of British Industry) estimate that EU membership is worth £3,000 for average households – a return of almost ten times what we put in.”

Impact on UK businesses

The arguments to remain a part of the EU are wholly more beneficial to UK businesses. Not only does being a member of the EU give UK businesses access to a huge market, but it also opens up a huge pool of talent. Companies can source skilled workers from across the EU without the need for a visa.

Being a member of the EU gives businesses a chance to apply for much needed funding and grants. The European Commission often helps to fund projects that boost EU interests or push EU policies in the right direction.

Example of EU projects in practice

Narec Distributed Energy supports other businesses by training small businesses to install and maintain renewable technologies. This project is funded entirely by the European Regional Development Fund – something that UK businesses would no longer have access to if we were to leave the EU later this week.

Work and pay

The remain campaign argue heavily that a Brexit could hit thousands of UK jobs hard. Arguing that service companies, employing in excess of 25 million, could be forced to cut 400,000 jobs if we were to leave the EU. Companies that rely heavily on international trade and supply chains could be at an immediate disadvantage if the UK was to cut ties with the EU.

The manufacturing industry could be one of the first to be hit hard, leading to a drop in wages and potential job losses for tens of thousands, according the the remain campaign. From car manufacturers to food suppliers, losing or reducing our access to the single market could have a lasting negative impact on the job security of UK workers as well as wages.

Chancellor George Osborne

“It would be simply dishonest to go on claiming that people’s jobs won’t be lost by a vote to leave the EU.”

With 3 million jobs linked directly to our trade with the EU, the remain camp also argues that foreign businesses would be more likely to invest in the UK because of our access to the European single market. This will not only bolster the UK economy, but also increase jobs for British workers.

Impact on UK businesses

A vote to remain the EU could be a step in the right direction for up and coming businesses, start-ups and a method of support for existing UK businesses. EU investment in UK businesses is gently ticking over at approximately £66m every day.

What’s more, EU directives drive a guaranteed level of workplace health, safety and protection. From holiday pay and maternity leave to safety and working hours, ensuring a basic level of help and support for employees. Whether we leave or remain a member state of the EU, it is largely expected that the UK will retain the majority of working directives laid out by the EU.

Chapter 2

Leave

On the flipside, the Vote Leave campaign is heating up. While the remain campaign claim that leaving the EU would be an incredibly messy process, Vote Leave are adamant that leaving would only do good things for the UK. From saving £350m a week in membership fees to being in charge of our own borders and laws, Vote Leave are championing the idea that we should regain control of how we’re run.

But how would leaving the EU really affect UK businesses?

Trade and economy

As it stands, the EU blocks the UK from negotiating our own deals with major economies like the United States, China, India, Australia, New Zealand and Brazil. The Leave campaign argues that a vote to get out of the EU would leave the UK free to negotiate our own deals with these nations, boosting our economy and creating more jobs for UK workers.

What’s more, Vote Leave also point to the fact that fewer than 1 in 10 businesses actually trade with the EU, yet all 10 businesses must comply with EU rules and red tape, something that’s costing British SMEs 28 hours a week just to administer (Centre for Economic and Business Research).

Margot Parker, UKIP

“Fewer than one in ten British businesses trade with the EU, yet 100% of them must comply with thousands of EU laws on employment, waste management, environmental regulations, product registration, health and safety, etc. This burden is destroying small businesses and helping destroy our economy.”

What is worth bearing in mind, however, is the sheer number of European companies that currently have a vested interest in the UK being a member of the EU. A move to cut ties with the EU could see businesses move offices and headquarters out of the UK, taking jobs, skills and investment with them.

Deutsche Bank haven’t been overly shy in sharing their intentions to consider relocating British operations to an alternative member state. What’s more, both Airbus and Vodafone have gone on record stating “severing political ties with the Union would cause enormous damage to business and the UK economy,” although in fairness, nobody knows how leaving would affect the economy.

Then there are the likes of BMW who would undoubtabley face higher import/export taxes if the UK were to leave. But, would this deter BMW from future investment in the UK? Probably not; The Mini brand is built here because the UK is its largest market. The same applies to the cars made is Germany, where the UK is their second largest market. Somehow, I can’t see BMW – and all of the other huge companies who sell here – shutting up their shops because of adjusted import/export taxes.

Finally, one of the most important points to bear in mind is the other countries of the EU and what’s going on with their economies. As Greece, Italy and Spain, among others, falter economically, the entire EU weakens, putting more strain on the stronger economies within the organization, including ours, Germany’s and France’s.

Add into that the large strain likely to be added from poor economies who want to join the EU, including Turkey, Macedonia, Montenegro, Serbia and Albania, and it’s possible that our economy may be dragged into further trouble by new members.

Furthermore, if other countries vote leave in their own referendums, the EU single market could shrink and, therefore, leave us in a weaker position than if we’d started the trend ourselves.

Impact on UK businesses

A vote to leave the EU could leave UK businesses free to compete with remaining EU member states as well as other up and coming economies. This in turn could have a largely positive impact on UK businesses that do trade internationally. A more competitive market, more favourable trade deals and a reinvigorated UK economy would put British businesses in a very strong position.

 

An increase in trade would benefit every step of the UK supply chain, from manufacturers and suppliers to distributors and retail stores. Increased demand for UK products would in turn drive investments into the UK and could continue to contribute to the economy. Smaller companies could also renegotiate better deals with their suppliers without the EU red tape, resulting in greater profit margins, expansion from the bottom and, therefore, a bigger need for jobs throughout every sector.

What’s more, leaving the EU would free up UK businesses from EU laws and regulations that can often stifle smaller businesses and could encourage more trade and investment in a country that isn’t a member of the turbulent Eurozone.

Immigration

Public concern over immigration has given the leave campaign a huge boost. Worries about increasing pressure on public services like the NHS, schooling and benefits for those in need have closed the gap between the remain and leave campaigns.

What’s more, the lack of control we have over who can and cannot enter the country among the public has added large amounts of fuel to the fire over the last few years, with ‘economic migrants’ from both within and outside the EU targeting the UK as their destination of choice.

Vote Leave seek to regain control of UK borders and immigration, governing who enters the UK once again. With the aim of an ‘Australian-style’, skills-based points system for those entering the UK, the Leave campaign are championing the need for the the UK to limit the people who can enter the UK to those who actually have something to offer our economy and those who need to move here for their own, personal safety and aren’t simply doing so for their own economic gain.

While immigrants entering the UK for work and contributing to the UK economy, Vote Leave argue that there is too much strain on public services already and not enough jobs for UK workers, particularly those who are low-skilled workers and are being outpriced by migrants. It’s also worth noting that Vote Leave isn’t looking to pull up the draw bridge and stop migration to the UK completely, but introduce a more rigorous, fairer points-based system for those looking to enter the UK based on their skills and history; currently we cannot check the working, criminal or financial history of anyone moving to the UK as they simply have the right to be here.

What’s more, if more countries such as Turkey, Serbia and Albania do join the EU, the number of people attempting to move here would more than likely increase, naturally increasing the strain on public services, the need for housing and the job seeking environment.

Impact on UK businesses

A vote to leave the EU could see some UK businesses at a loss for staff. Manufacturing plants, factories, offices and public services that recruit skilled labour from the EU could be at an immediate disadvantage with a slimmed down pool of labour. Where the UK workforce can’t provide specific niche skills, businesses look to the wider European labour markets to recruit their staff.

Leaving the EU could, however, help the UK to better control how many migrants enter the EU, and that they enter the UK to contribute skills and talent to the economy. If the UK is able to better manage immigration with a fairer skills-based system, we won’t lose out on talented migrants, but this should lessen the detrimental impact on public services like housing, schools and the NHS.

Cost of being in the EU

Vote Leave have been leading their campaign to get the UK out of Europe largely with the fact that it costs upwards of £350m a week for our membership. Money that they claim could be better spent on priorities that directly affect the UK.

Euros

The £350m per week we send to Brussels could be used to fund infrastructure, build schools or hospitals and support businesses. Vote Leave argue that reinvesting the EU membership fee directly into our own economy would create thousands of jobs for workers and bolster the UK far more than the EU does currently.

Many UK SMEs are currently eligible to receive a wealth of grants and funding from the EU, something that many SME owners are concerned will cease if there was to be a Brexit. However, Vote Leave have contested that the government would continue to deliver this funding and could use the windfall from leaving the EU to ensure these grants for SMEs.

Furthermore, the UK won’t have to be involved in international bailouts, leaving additional funds to be reinvested inside the UK. As an example, the European Bank funded the Greek bailout in 2015 to the tune of €86bn. While the UK contributed €1bn towards the International Monetary Fund, it was agreed that the UK would not prop up Greece’s debt with loans to support a fellow EU member state in times of difficulty. Still, if a similar situation were to arise, all members of the EU, including the UK, would be expected to cough up in order to help out.

Impact on UK businesses

Should we vote to leave the EU, the £8.5bn we spent on being a member last year could be used to invest in start-ups, fund entrepreneurial thinkers and support UK businesses a little more during times of strife.

It is estimated that “the UK’s contribution to the EU budget costs about £140 per head”, therefore a decision to exit the union could lead to reductions in taxes on UK businesses, something that many business owners would only be too happy to see.

Growth Business

"The UK's contribution to the EU budget costs about £140 per head."

Work and pay

The Vote Leave campaign argues that UK jobs are being threatened by elevated levels of immigration into the UK. A vote to get out of the EU could mean more jobs for British workers and less dependency on social security benefits from the government.

Leaving the EU would allow the UK government to decide on employment legislation, workers’ rights and so on, without any input from Brussels. However, it’s highly unlikely that the UK would seek to overturn the employment laws laid out by the EU in terms of minimum requirements for workers.

Catherine Barnard, University of Cambridge

“Since we project that Brexit would lead to a short-term decline in economic activity, we naturally expect that Brexit would lead to job loss too.”

Impact on UK businesses

It’s argued that leaving the EU could push up wages for workers due to lower migration. If the UK was to lose some of its skilled EU workers as a result of a Brexit win, UK employees would become the driving force of the labour market, simply due to the supply and demand of labour. Less workers and a higher demand for skilled labour means that workers would have the upper hand.

As businesses battle it out for a smaller pool of talent, workers could largely dictate their wages. While this is great news for employees, it’s not so great for UK businesses who will be left with a hefty bill for recruitment and wages.


About the author:

Hiya, I’m Nat and thanks for reading my article. What with the EU referendum looming, voters up and down the country are trying to decide which side they favour.

Our guide should clear up a few things about how a vote to leave or one to remain could affect UK businesses. We’ve taken a look at how both the ‘Vote Leave’ and ‘Stronger in Europe’ campaigns perceive some of the most pressing matters for your business, including immigration, work and pay and trade and the economy.

We’ll be back in a few days with our thoughts on the outcome of Thursday’s referendum.

Nat

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