• The Office for Budget Responsibility says the long-term impact of Brexit will be worse for the UK economy than the pandemic
  • Brexit is thought to be costing the average household around £870 a year
  • Are there any benefits of Brexit – and how do they impact SMEs?

In January 2020, after months of bitter wrangling, the UK formally exited the EU, with an agreed 11-month transition period enabling both sides to negotiate a new trade deal.

A year later, UK goods exports to the EU had fallen by 40.7%, according to the Office for National Statistics (ONS), and imports tumbled 28.8% - the biggest drop since records began in 1997.

The UK’s Office for Budget Responsibility (OBR) has said that the long-term impact of Brexit will be worse for the UK economy than Covid-19. It warned that Brexit will reduce the UK’s potential GDP by 4% and the pandemic by a further 2%.

The Centre for Economic Policy Research estimates that Brexit raised consumer prices by 2.9%, costing the average household £870 per year.

Meanwhile, two in five SMEs say costs have increased since Brexit, particularly to import goods, while 16% suffered a talent shortage and are finding it harder to recruit staff.

Other business challenges created by Brexit include tariffs for British exports, disruption in supply chains, decrease in EU workers, and unstable confidence in the UK market.

A February 2022 report from the Public Accounts Committee of MPs admitted to a “clear increase in costs, paperwork, and border delays” for UK businesses since Brexit.

And many SMEs may have found themselves unable to access promised government help. FSB's Mike Cherry commented: "The PAC [Public Accounts Committee] rightly highlights that not enough of the SME Brexit Support Fund was accessed by firms in need before it closed, due to unreasonable eligibility criteria and unrealistic deadlines.”

What are the Brexit benefits?

So, are there any ‘silver linings’ for UK businesses post-Brexit?

Well the government has a 105-page document on the Benefits of Brexit, which was released at the beginning of 2022.

The PM has said that Brexit will create: “A future in which we don’t sit passively outside the European Union, but seize the incredible opportunities that our freedom presents and use them to build back better than ever before—making our businesses more competitive and our people more prosperous.”

So, what are some of the possible Brexit benefits?

  1. Reduced vulnerability to international shocks
    Former Treasury economist and fellow at the Institute of Economic Affairs, Julian Jessop, says that leaving the EU has “reduced our vulnerability to international shocks” in the market, such as those caused by the Covid-19 pandemic and the invasion of Ukraine.
    The ONS agreed, saying the UK “may be more resilient to global supply chain disruption than other economies” due to supply chain changes made because of Brexit.
  2. Increased use of domestic suppliers
    The ONS also released figures in 2022 showing that 58% of businesses had moved to using more UK suppliers since the end of the transition period that followed the country’s withdrawal from the EU – a big boost for UK businesses. However, these 2022 figures showed a large decrease from the 71% of businesses who had previously stated they were using more UK suppliers.
  3. Less EU restrictions
    After Brexit, the UK is less restricted by some EU regulations. It is argued that a positive result of Brexit has been an ability to trade more freely with non-EU markets – for example, the US and Australia. The UK is working to put in place new trade agreements with many non-EU countries around the world.
  4. Increased opportunity for growth
    Emerging markets such as Brazil, China, and South Africa account for more consumer spending every year. The fall of the pound makes British products cheaper for international markets, which could make them more appealing and benefit exporters.
  5. Simplifying the reporting burdens for small and medium companies
    The government is reviewing the thresholds retained in EU law and the filing requirements for businesses that file micro-entity accounts, aiming to reduce the reporting burden on many small companies. In May 2022, it issued a press release saying that 350 EU rules were to be ditched “creating simpler, more flexible and transparent procurement.” The government said these would “level the playing field for SMEs and drive economic growth across the UK”.

Brexit impact fears continue

While the government maintains its positive stance on Brexit, the Allianz Trade Global Survey 2022 shows that UK exporters remain highly concerned about its impact.

“Brexit still remains a hurdle - it’s become a structural hurdle for UK exports ,” said Allianz Trade’s Head of Economic Research, Ana Boata. She notes that in 2021, UK exports fell in volume at a time when most countries were enjoying a post-lockdown surge in trade.

With insolvencies in England and Wales at their highest level for a decade in the first quarter of 2022, SMEs should be keeping Brexit consequences firmly front of mind, making business cash flow a top priority, and taking steps to avoid customer bad debt.

Find out how trade credit insurance can play a crucial role in removing potential sources of business failure, while improving peace of mind.