SMEs may be worst affected by Brexit, research suggests

Small and medium-sized businesses may be worst affected when the UK leaves the EU, new research suggests.

The study by academics at the University of St Andrews looked at the potential impact of Brexit on SMEs.

Said to be the first study of its kind, it draws on information gleaned from a UK government attitude survey of about 10,000 firms.

A UK government spokesman said it was "engaging extensively with businesses and organisations across the country".

The findings of the study highlight the potential impact of the uncertainty caused by Brexit.

It suggests that 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.

'Negative consequences'

Dr Ross Brown, who the led the research, said: "The results of our analysis suggest that Brexit-related concerns could result in a range of negative consequences for UK SMEs [small and medium-sized enterprises], 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 also found that Brexit-related uncertainty was more likely to affect larger, export-oriented firms and those operating in hi-tech and service-related industries.

Innovative SMEs in particular seemed particularly concerned about the UK's divorce from the EU.

'Institutional instability'

"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."

The study also found that enterprises based in Scotland and Northern Ireland viewed Brexit more negatively than their counterparts in England and Wales.

The study used information from the UK government's longitudinal small business survey, which asked a number of Brexit-related questions.

A UK Government Department for Exiting the EU spokesperson said: "We are engaging extensively with businesses and organisations across the country - including our important SME sector - as we seek to secure a good deal with the EU that works for the whole of the UK.

"We recognise the importance of providing certainty for businesses, which is why we want to reach agreement with the EU on an implementation period as soon as possible.

"We have already made good progress, agreeing in December to move talks onto our future relationship. The EU has said they will offer their most ambitious free trade approach and we are confident of negotiating a deep and special economic partnership."