Brits back Brits: SMEs unfazed by negative impact of Brexit but abandon plans for international trade, research reveals

Research from FreeAgent suggests SMEs in the UK plan to do more business at home as interest in international trade drops compared to a 2019 study:

• 30% decrease in the number of SMEs looking to trade with the European countries within the EU compared to research conducted in 2019
• SMEs resilient to Covid-19, with only 32% saying they have suffered during the pandemic and 78% are unfazed by the negative impact of Brexit
• More UK SMEs call for post-Brexit economic model free from red tape & bureaucracy in order to survive current climate

FreeAgent, which provides cloud and accounting software to small businesses, freelancers and their accountants, has today released research focused on the current state of UK small businesses with regards to the impact of the coronavirus pandemic and Brexit. 

The research has revealed that the outlook of UK small businesses with regards to Brexit has fluctuated between October 2019 and October 2020. Specifically, the number of SMEs who think Brexit will have a negative impact on the economy has drastically reduced in the last twelve months (61% in 2019 and 37.4% in 2020). However, there also appears to be little positivity among SMEs about leaving the EU - with just one in ten (10.8%) of respondents saying that they think Brexit will actually benefit the economy. 

More UK SMEs plan to cut ties with Europe following Brexit, with an almost 30% decrease in the number of SMEs looking to trade with the European countries within the EU compared to research conducted in 2019 and a 15% increase in the number of SMEs no longer planning to engage in any international trade at all. 

The survey of 500 UK SME business owners revealed that UK small and micro businesses urgently need a new SME economic model free from the burden of red tape and bureaucracy to encourage international trade as well as more support from the government in the form of grants and lower taxes in order to survive and thrive in the current socio-economic climate. 

Key findings

SMEs resilient to Covid-19 as just 32% of SMEs say they have been negatively impacted by the pandemic and less than a quarter are worried about the negative impact of Brexit:

• Despite the tumultuous year that small businesses have faced, small business owners are optimistic as nearly two-thirds (59.2%) of UK SMEs aren’t worried about the future.
• 43% of SME owners reveal their businesses are either stable or experiencing periods of growth - a testament to the resilience and innovation of the small business economy.
• Adding to the Sur’thriving’ narrative, 10.8% believe the pandemic has actually opened up new opportunities for their businesses compared to only 5% who believe Brexit has opened up new opportunities.
• Less than a quarter (21.8%) of UK small businesses are worried about the negative impact of Brexit and only 32% have suffered as a result of the pandemic.

Small business owners are less worried today about the impact of Brexit compared to a year ago:

• Over the last year, there has been a reduction in concerns about Brexit’s impact on the economy since 2019. Only 37.4% believe Brexit will have a negative impact on the economy, compared to 61% this time last year. A further 26.8% believe it will negatively impact society. 
• In comparison, only 10.8% think it will positively impact the economy and 9.78% think it will benefit society.
• 12% believe it will create momentum for Scottish independence or the reunification of Ireland. And over a fifth (23.8%) believe Brexit will lead to a more divided United Kingdom.

While Europe is still viewed as our main trading partner, there has been a large 28.8% decrease in the amount of SMEs planning to engage in international trade with the EU compared to last year's research:

• Post Brexit, only 31.2% of SMEs would like to trade with European countries (compared to 60% in 2019) within the EU and 22.2% would like to be able to trade with European countries outside the EU (compared to 30% in 2019).
• There has also been a decrease in interest in international trade outside of the EU, including trade with the USA (26.2% in 2020 vs. 40% in 2019) and Canada (18% in 2020 vs. 25% in 2019).
• Almost a third said they were not looking to do any international trade, which is an increase of over 15% from 2019 (31.8% in 2020 vs. 16% in 2019).

UK SMEs call for a post-Brexit economic model free from the burden of red tape and bureaucracy in order to survive and encourage international trade: 

• Regulations and red tape are seen as the biggest obstacle to international trade for UK-based businesses, with almost half of respondents citing this (a rise of over 25% from 2019 [45.8% in 2020 vs. 19% in 2019]).
• Others include tax implications of international trade (39.4% in 2020 vs. 21% in 2019), lack of knowledge of new markets (37.6% in 2020 vs. 32% in 2019), political instability (26.8% in 2020 vs. 14% 2019) and volatility of exchange rates (25.2%).
• When asked what measures would make the biggest positive impact for a small business owner, 21.4% said abolishing unnecessary red tape and restrictions on SMEs, while 37.8% want more government support in the form of more grants and lower taxes.

Ed Molyneux, CEO and co-founder of FreeAgent said, “Although the UK is experiencing the most tumultuous conditions in generations, thanks in part to the twin threats of Covid-19 and Brexit, it’s incredibly positive to see that many small businesses are showing great resilience to the challenges. 

“The fact that only a third of survey respondents say they’ve suffered during the pandemic and nearly two-thirds (59.2%) say they aren’t worried about the future, in particular, is very encouraging. It really is a testament to the adaptable, flexible nature of these kinds of businesses.

“However, despite their positivity, there is still a long way to go to ensure small businesses are properly supported and small, sustainable enterprises are given the support they need to make it through the months and years ahead. The adaptability and perseverance shown by the small business sector at this time is something that larger businesses should aspire to - but the UK Government also needs to work to simplify rules and regulations for SMEs and create a culture where there is less red tape and bureaucracy to deal with.”

The research was carried out on 500 UK small business owners in October 2020. Comparisons to 2019 research refer to findings from FreeAgent’s research report Time for Change conducted in 2019.