How Brexit will affect all the small and medium enterprises in London?

June 9, 2016

On Thursday 23rd of June 2016 the UK will vote either to remain in or leave the European Union.
According to the Government voting to leave the EU would create years of uncertainty and potential economic disruption. This would definitely reduce investment and cost jobs in the UK.
The reason why voting to leave could result in 10 years or more of uncertainty, is that UK will need to renegotiate new arrangements with the EU and over 50 other countries around the world.
To make things worse, Britain’s economy could be tipped into a year long recession. At least 500,000 jobs could be lost and Gross Domestic Product could be around 3,6% lower following a vote to leave the EU as opposed to remaining in the EU.

Around 650,000 jobs in London are linked to exports to other EU countries.
According to a survey carried out by the Treasury, a vote to leave could cause unemployment in London to rise by around 73,000 while youth unemployment could rise by 8,000. The impact and the shock of leaving the EU could also mean house prices could be down by £62,000 by 2018 in London.
The impact and the shock of leaving the EU could be the equivalent to a £13,4 billion reduction in the size of the London’s economy by 2018.
Many European and non European entrepreneurs with double nationality have chosen to start up their business in England (mainly in London) because England has one of the lowest corporation tax rates in comparison to other European countries and if the UK leaves the EU a high proportion of these entrepreneurs will chose other countries to establish their businesses rather than UK. Many entrepreneurs have also established their businesses in the UK in order to reach and trade with other European countries.
There are thousands of small and medium businesses in London which have mainly European citizens as clients and if the UK leaves the EU, the number of European citizens willing to come to the UK will be less which will result in a high proportion of these London local businesses cutting down on employment opportunities or ceasing their activities as they lose clients.
Any period of economic uncertainty means a reduction in the consumer power confidence, which results in people spending less, businesses selling less, and a downside effect on the economy which could also badly affect small businesses.
Some existing businesses already trading in London will also chose to establish a new company or even move totally their operations from London to another European capital in order to reach European clients and have access to the European market which means one more reason for less business investment in London.
The cost of direct costs such as raw materials could also increase. At the moment, trading between a buyer and a seller within the European Union (as long as the buyer and the seller are registered for VAT) are zero rated. Imagine what would be the impact of having to pay import duty or tax in all the goods and services imported from other European businesses. It will definitely have a huge impact in the prices of services and goods. These goods will become more expensive and it is the consumer who will ultimately pay for the increase in price. If UK leaves the EU, it will no longer be required to give effect to the VAT Directive. It is unlikely that the government would repeal VAT without replacing it with a new UK sales tax. Whatever modification are pursued, UK businesses transacting with suppliers or customers in EU member states are likely to face increased costs as a result of applying different systems.
There are some businesses for example in the financial sector (payments institutions, money transfers and other financial institutions) which have access to the whole European market because once they are authorized by the FCA (Financial Conduct Authority) they can apply for the right to passport to other European countries and once granted the authorization these businesses have access to a huge number of potential clients in other European countries.
UK is well known by all European citizens for being a country which always supports other European countries and it is part of the European family. Leaving this family could mean less people would be willing to choose the UK as their first holiday destination and holidaymakers are another strong source of income for a large number of small and medium size businesses in the UK and specially in London.
Holiday tickets and holiday packages will also become more expensive and will also hit the wallet of people living in the UK when travelling overseas as well as holidaymakers looking to travel to UK.
As the turnover of small and medium enterprises decreases, the profit these enterprises make is also less. This means the Government will be receiving less corporation tax as well as being hit by the reduction of National Insurance Contributions, as the number of unemployment will raise.
If the UK leaves the EU, there will be less people willing to buy a property in the UK, as well as property prices going down. There is also no clarity as to what could be the effect on individuals who are living in the UK and who might be willing to apply for a mortgage as they do not know what would be their immigration status if the UK were to leave the EU, or whether they would be able to apply for a mortgage.
London is well known for being a place of opportunity for new business ideas. The reason is very simple. In London, there are over 300 ethnic groups and more than 250 languages spoken which means that if you want to try a business idea London is the best place to be. It is a well-known city for having great professionals and business people from all over the world. London is the centre of the entrepreneurial network in the world. If the UK leaves the EU the number of people willing to participate in this network will decline, which will indirectly, affect small and medium enterprises.
As we can see, leaving the EU means small and medium businesses will be badly affected by the consequences and by the period of uncertainty.




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