The latest round of Brexit negotiations got off to a predictably bumpy start in the first few weeks after the summer break.
Despite suggestions that Theresa May will use a speech in the Italian city of Florence this week to attempt to break the deadlock over the size of the so-called “divorce bill” of future liabilities to the EU, a conclusion to this thorny issue – a precursor for any talk on trade – still seems remote.
Amid a series of acrimonious briefings, let’s not forget, the first week ended with Michel Barnier, the Commission’s chief negotiator, reportedly vowing to “educate” Britain on the costs of leaving the EU and Single Market (a claim he later denied).
This made me reflect on some recent conversations I had with small business leaders. Businesses – especially micro-enterprises and SMEs – are becoming more vociferous about their concerns over the management of the process of exiting the EU. And not before time, some might say.
Even before the referendum was called there were major concerns from analysts about growth and productivity in the UK. Yes, we have had record headline jobs growth, falling unemployment and rising levels of vacancies as the recovery took hold after the financial crash. But that has masked some underlying and longstanding issues.
The UK’s productivity puzzle remains as seemingly intractable as ever. This great conundrum, which has vexed economists for the best part of a decade, is unlikely to be ameliorated by the growing mismatch in the labour market from ongoing (and perhaps worsening) skills gaps. And, despite record levels of business start-ups, the majority of our businesses do not grow.
Enterprise Research Centre (ERC) research shows that only 5% of the 250,000 surviving firms we’ve tracked in the 2008-15 period managed to significantly increase turnover, jobs and productivity at the same time – that’s as few as 10,000 firms in the entire UK. What we now know is that three-quarters of firms which grow their turnover grow productivity, but that only one in five firms which grow jobs boost productivity. So, while we celebrate our record performance on jobs in the private sector this growth has done little to address the UK’s productivity problems.
Folded into this underlying problem was the decision in November 2015 to close the Business Growth Service in England. Instead, the still relatively young LEP Network and their emerging Growth Hubs were pushed forward to take up the strain on business support and reflect the needs of local businesses which vary enormously across England. Under-resourced and needing to demonstrate impact as fast as possible, they are now the access point for a wide range of business support offerings available from the private and public sector – many of the latter co-funded by the EU.
So, in the lead-up to the EU referendum in June 2016 the SME sector as a whole was struggling to address the growth and productivity challenge, while the business support infrastructure was in a state of flux once again in England (though not, it’s important to note, in the other home nations which have benefited from long-term stability in support structures). The ability of UK business and particularly the SME sector to respond to the challenges and potential opportunities posed by Brexit needs to be understood in that context.
Yet, not all is negative, as we know there are a small number of high-performing firms in the UK led by very ambitious business leaders. Typically, over a three year period, high-growth SMEs represent less than 1% of established businesses, but generate 20% of all job growth amongst established businesses in the UK which grow. Insights into the behaviour and strategies that this important group of businesses adopt will be crucial to the post-Brexit economic environment. We know that innovation and an international focus is the key to rapid growth. But too few firms in the UK either innovate or engage in international activity and to redress that now in the midst of the Brexit negotiations, with all the confusion over what the UK Government is actually seeking to achieve, is more than a little challenging.
Many of the ambitious business leaders I talk to are playing a waiting game until they see what emerges as the negotiations unfold. Despite popular belief, access to skilled labour (or the lack thereof) is one of their most immediate concerns and not the prospect of a ‘release’ from the burden of allegedly unnecessary red tape and regulation. But, there is something else which is constraining our most ambitious business leaders – a total lack of confidence in the UK Government to deliver a business-friendly Brexit.
Chrys Chrysostomou (Managing Director, EleLock Systems Ltd), one of the small business leaders I met recently and a fast-growing global business, summed up his views on Brexit like this:
“As a certified project and programme manager, I view the implementation of Brexit as a project. It is clear to me that, as of yet, the project does not yet have a clear definition of what it is setting out to achieve. Nor does it have a clear goal or defined set of deliverables. This does not bode well for the success of the project. We then need to look at the implementation. The implementation phase contains three major variables that will define the ability for the project to succeed; time available, the amount of resources available and resource capability/suitability for the task. Based on tonight’s discussions, it is clear to me that we are woefully short of time (which cannot be changed), we have far too few resources to dedicate to such a large and important task and the resources we do have available are not all skilled in the right areas to make it a success. At this stage, it appears to be a project that is going to struggle to succeed on any level in the given timeframe.”
Given the importance of businesses run by ambitious entrepreneurs like Chrys to the future growth of the UK economy, the sooner the government stops talking in clichés about Brexit and engages with business to understand the nature of the future relationship with the EU that they need to succeed, the better.
Professor Mark Hart,
Deputy Director, Enterprise Research Centre,
Associate Director, Aston Centre for Growth
17th September 2017
Please note that the views expressed in this blog belong to the individual blogger and do not represent the official view of the Enterprise Research Centre, its Funders or Advisory Group.