Annabel Denham is Programmes Director at The Entrepreneur’s Network.
Over the course of the next five years, the big issue facing David Cameron will be the referendum on our membership of the European Union. We now know that the Prime Minister has ruled out campaigning to leave, but there are worries over the democratic legitimacy of Europe’s institutions, and the regulatory burdens that membership imposes on British businesses of all sizes.
Mention Brexit in political circles and the response will oscillate between fervent pro-unionism and vehement Euroscepticism. To give an example: seven Eurosceptic MPs from three parties have formed a group to act as a precursor to the Out campaign last month. Labour MP Kate Hoey, meanwhile, has just created a group to rival Labour Yes, to push for renegotiation of our membership of the EU – and support an Out vote if demands are not met. Another new group, Conservatives for Britain, has been set up to do exactly the same.
The Party line
So we should not be surprised to learn that, according to our recent Parliamentary Snapshot, MPs are divided on the benefits of a Brexit on UK entrepreneurial activity. What is interesting, however, is that Labour MPs are significantly more pro-Europe than their Conservative counterparts. Just 1 per cent of Labour MPs think a withdrawal would be good for entrepreneurial activity in the UK, compared with 58 per cent of Tories.
Conservative MPs may think a Brexit would benefit UK entrepreneurship, but that sentiment is not always echoed in the entrepreneurial community. Celebrity entrepreneurs have already locked horns on the issue – Sir Richard Branson thinks a withdrawal would do “enormous damage” to UK entrepreneurs; Sir Alan Sugar supports a Brexit so that we can “once again take control of our own safety and health regulations and claims culture”; and Dragon’s Den star James Caan “fully supports the need for a restructure”.
Worst case scenarios
One of the best arguments against any referendum is that they are seldom fought on facts, and more often on received wisdom. But entrepreneurs are all too aware of the risks of leaving the European Union. Many will know that the EU remains the UK’s biggest trading partner, accounting for more than £400 billion a year, or 52 per cent of our total trade in goods and services. Almost nine in ten small businesses with a presence in overseas markets sell to EU-based companies, according to the Federation of Small Businesses.
Many also fear losing access to the Single Market, which pro-Europeans argue would significantly weaken Britain’s economy. And the worst-case scenario as put forward by a recent Open Europe report – which suggested that UK GDP could be 2.2 per cent lower in 2030 if Britain leaves the EU and fails to strike a deal with the EU or reverts into protectionism – is cause for even greater concern.
But even if they fear the consequences of a Brexit, business owners complain bitterly about what they view as burdensome EU regulation. Little wonder – the Regulatory Policy Committee recently revealed that new EU rules have imposed £2.3 billion in net costs to businesses since 2013, wiping out the £2.2 billion the UK government saved cutting domestic red tape during the same period. Encouragingly, it appears their voices are being heard: half of MPs, 51 per cent, think exempting the UK from EU business regulation would have a positive impact on entrepreneurial activity. Yet MPs are again split across party lines: 90 per cent of Conservative MPs think exempting the UK from EU business regulation would have a positive effect; just 10 per cent of Labour MPs agree.
But one thing is certain: for SMEs, EU red tape can be the difference between profit and loss, between job creation or shutting down, between success or failure. For instance, the European court ruled earlier this year that UK businesses will now need to base holiday pay on an average of actual earnings, rather than on basic salary as previously permitted under UK law. It has imposed major additional costs, and a significant administrative burden, on small businesses.
And evidence is emerging on the hardships affecting small businesses under the new EU VAT rules that came into force in January for consumer sales of digital products into Europe. Where previously, UK businesses were exempt from paying VAT if they sold under £81,000 worth of products a year, this threshold has now been removed for those exporting digital products and services to Europe. HMRC previously predicted that 34,000 SMEs would be affected by the changes.
Ultimately, a Brexit is unlikely to be the cataclysmic event some fear. But whatever the outcome, Cameron does have an opportunity to put policies in place to ensure that our entrepreneurs continue to prosper here. Politicians talk a good talk on entrepreneurship, but almost half are unaware of the Seed Enterprise Investment Scheme, and just 45 per cent think that the lauded Enterprise Investment Scheme is effective. These schemes are rightly viewed by most in the startup community as essential to the UK’s entrepreneurial success. We cannot expect MPs to know about every policy, but we need them to be more knowledgeable, and we need a more vocal entrepreneurial community to tell them which initiatives are working on the ground.