The Impact of Brexit on UK Small and Medium-Sized Enterprises

UK Small and Medium-Sized Enterprises (SMEs) thought to be the most significant for boosting productivity and economic growth may be the most negatively affected by Brexit, according to new research from the University of St Andrews.

In the first such study of its kind, researchers led by Dr Ross Brown and Professor John Wilson from the Centre for Responsible Banking and Finance, University of St Andrews, in conjunction with Dr José Liñares Zegarra from the University of Essex, examined the potential impact of Brexit on UK SMEs.

This independent research draws upon detailed econometric analysis of the UK government’s Longitudinal Small Business Survey, one of the largest attitudinal surveys of SMEs undertaken in the UK, encompassing approximately 10,000 firms. Following the result of the referendum, the UK government inserted a number of Brexit-related questions into the survey which enabled this analysis.

The study has produced a number of important findings which are highly salient for policymakers, government departments, financial providers and industry bodies in the UK and across the rest of the EU tasked with monitoring the effects of Brexit on SMEs and the economy more generally.

Perhaps the most important finding was the potential impact of the uncertainty caused by Brexit. In terms of its perceived impact, Brexit is likely to result in lower levels of capital investment, reduced access to external finance, lower levels of growth, reduced product development and lower levels of business internationalisation. Again, future plans for capital investment within innovative SMEs seem particularly likely to be negatively impacted.

Dr Brown, Reader in Entrepreneurship and Small Business Finance at the University of St Andrews, said: “The results of our analysis suggest that Brexit-related concerns could result in a range of negative consequences for UK SMEs, especially the impact on reduced capital investment, which critically weakens and undermines their ability to grow and prosper.

“Most worryingly, these perceived negative impacts appear to be foremost in the minds of entrepreneurs and managers located in the types of innovative and export-oriented companies, which are often viewed as the high growth ‘superstars’ of tomorrow.

“In other words, SMEs thought to be the most significant for boosting productivity and economic growth may be the most negatively affected by Brexit.”

The research discovered that concerns about Brexit are not felt uniformly across the population of UK SMEs.  The results suggest that Brexit-related uncertainty is likely to affect larger, export-oriented firms and those operating in hi-tech and service-related industries the most. Innovative SMEs in particular seem particularly concerned by Brexit.

“There appears to be a deep-seated uncertainty permeating UK small businesses about the ramifications of Brexit,” said Dr Brown.

“Owing to its highly complex, contested and indeterminate nature, Brexit is unlike most other types of institutional instability because it has the potential to fundamentally re-write the rulebook for how firms do business in the UK.

“These concerns seem to be most acutely felt within certain types for firms. By and large, the larger, more innovative, more export-oriented and hi-tech you are the more likely you are to have concerns regarding Brexit for your business.”

In terms of geographic location, SMEs based in Scotland and Northern Ireland view Brexit more negatively than their counterparts located in England and Wales. In part this mirrors the differentiated voting patterns during the referendum which took place across the UK but may also reflect the greater reliance on EU trade within Northern Irish SMEs.

Notes to news editors/interview requests

• SMEs constitute the bedrock of modern day economies.
• In the UK, there are 5.5 million SMEs which together account for more than 99% of firms, and 60% of total UK private sector employment.
• SMEs account for 73% of all net private sector job creation in the UK, creating more than two million jobs since 2010.

A copy of the full paper is available online.

Dr Brown is available for interview on 01334 462202 or 07947 190175 or via the Communications Office – contacts below.  

St Andrews has an in-house ISDN line for radio and a Globelynx camera for TV interviews. To arrange an interview please contact the Communications Office in the first instance.

Issued by the University of St Andrews Communications Office. Contact Steve Bargeton, on 01334 467310/01334 462530/07802 376860 or [email protected].