Making Brexit work for Wales’ smaller firms

Much of the Brexit debate to date has been dominated by discussions of the impact of Brexit on large-scale businesses sectors such as car manufacturing and financial services. But with small and medium sized firms the backbone of the Welsh economy, this guest article from the FSB Wales’ Matthew Williams, considers some of the findings of research commissioned by the FSB into the impact of Brexit on small businesses and the self-employed in Wales.  

FSB is Wales’ largest business organisation, with around 10,000 members operating in a diversity of sectors right across Wales. As we move forward in the Brexit negotiations it is vital that the interests of Wales 250,000 smaller businesses are front and centre throughout the negotiations and beyond. This is true of the needs of the UK as a whole, and also the specific needs of Welsh businesses within the UK.

Since the outset of the negotiation process, FSB Wales has consistently called for a Brexit deal which will support the small and medium sized firms which make up the backbone of the Welsh economy. Strong and clear transitional arrangements immediately post-Brexit are one of the best ways to deliver this, so we were pleased that the Chancellor and UK Government appears to support this position.

As part of our work on Brexit, FSB has published four reports covering the key aspects of Brexit and beyond for small businesses and the self-employed, with the aim of ensuring the sector has a voice in the ongoing negotiations as well as providing a much needed evidence base for decision making by governments in Wales and at a UK-level.

These are: access to markets, skills and labour, EU funding, and the future of EU regulations in the UK post-Brexit.

Access to Markets

On access to the single market, our research shows that one in five small firms currently export across the UK, with a similar number of Welsh firms exporting. Leaving the single market might allow UK firms to trade more easily with other global markets in the long term, markets such as the US, Australia and China.

However, it is evident from our survey work that the EU single market remains the top trade destination for both UK and Welsh small firms. The majority of our exporting members in Wales are exporting services and digital services, so we are particularly keen to see a favourable regime of non-tariff barriers post Brexit.

Our report Keep trade easy – What small firms want from Brexit makes a number of key recommendations in this area. These include the creation of export tax credits to encourage exporting, and also support to help small business explore new markets within the UK – a small first step towards exporting.

Access to Skills and Labour

On access to skills, our research shows that around a fifth of Welsh businesses employ European citizens. There is a need to preserve access to this pool of talent, especially where skills gaps exist in the UK labour force. FSB Wales statistics show that the vast majority of EU workers in Wales are in medium or high skilled work.

Perhaps more significantly, a significant portion of our members in Wales suggest that in response to more stringent policies on free movement of EU labour they will seek either to redouble efforts to attract and train UK workers or will seek to absorb the costs of a new immigration system.  It is therefore essential that the Government seeks to ensure that the costs of any post-Brexit permitting system are reasonable, and that we are able to provide appropriate training and education to meet our skills needs.

EU Funding

As we are all no doubt aware, Wales has in the past received significant amounts of European regional policy funding and a significant proportion of this is spent on core areas of economic development. For instance, our research shows that around a quarter of Welsh SMEs have received support from European funding streams.

This support has been used to provide skills training, research and development and wider business support. Whilst members have reported difficulties in applying for funding, or that conditions attached to funding have been overly restrictive, these funds appear to have had a key role in supporting Welsh business, so post Brexit similar funds should be available.

More widely, our members report that EU funding has had a net positive impact on their business and local area, with only around 15% of respondents to our surveys suggesting that funds had no impact or a negative impact. FSB Wales therefore believes that Wales should continue to receive funds of equal or similar value post-Brexit.

EU Regulation

This latest report, on what happens to EU regulations in the UK post-Brexit, will inform the debate on this long-term issue over the coming years.

It is expected that EU regulation as a whole will transfer into UK (and Welsh) law on the day we leave the EU, which the report concludes would avoid a cliff-edge for small firms and provide some short term stability. It recommends a gradual approach, rather than any sudden changes to regulation following this.

FSB Wales has previously published work on Wales’ regulatory landscape, and we remain keen to see the recommendations of our 2014 report Better Regulation for Wales taken up by the Welsh Government and National Assembly for Wales. This report recommends that Welsh Government pursue an active regulatory improvement agenda, which will make it easier for SMEs to comply with the law.

It is also vital that the Welsh and UK Governments are able to work together to ensure diverging UK domestic policies do not create new barriers to firms trading between Wales, Scotland, England and Northern Ireland. Perhaps one way forward would be for the Joint Ministerial Committees to be improved and repurposed to make sure there is a forum for communication to that end.

Matthew Williams is Policy Advisor for FSB in Wales.

This post represents the views of the author and not those of the Welsh Brexit blog, nor Cardiff University.

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