Thursday 11 February 2021 11:29 am

Exclusive: Brexit a bigger headache for business leaders than Covid pandemic

Brexit represents a bigger challenge to most UK businesses than the Covid-19 pandemic, as additional paperwork, unexpected costs and new regulatory requirements make life more difficult than temporary lockdowns.

Business leaders have told City A.M. that Brexit is currently their number one headache, despite the government’s pledge that the UK-EU trade deal that was agreed at the end of December would result in pain-free trade with the EU, given the agreement’s zero tariff and zero quota regime.

In fact, many business leaders said Brexit is a much bigger problem for their business than the economic impact of Covid-19.

Read more: UK exports via sea to EU down 68 per cent since end of Brexit transition

Negative outlook

The UK’s five biggest business groups recently warned the government that companies face “significant disruption” if post-Brexit conditions are not eased.

The CBI, the Institute of Directors, Make UK, the Federation of Small Businesses and the British Chambers of Commerce sent a letter to Michael Gove and Kwasi Kwarteng last week, urging the government to remove obstacles or a “significant loss of business” would inevitable.

Moreover, the Federation of Small Businesses said the profits of many small firms are being wiped out by the new, additional post-Brexit costs. In fact, some have no choice but to move their operations to an EU member state in order to be able to continue trading, the FSB warned.

Their observations are backed up by new research from London-based marketing firm Impression: 67 per cent of UK businesses are still uncertain of what’s to come from Brexit, with 20 per cent expecting a negative impact from Britain’s departure from the EU in the long-term.

Read more: Exclusive: City fund managers on the winners and losers from the Brexit deal

In contrast, more than 66 per cent of the firms that were surveyed by Impression anticipate the pandemic to have less of an impact in 2021 than it had last year, with less than 40 per cent per cent saying they are confused about the impact of the pandemic.

“2021 will be a challenge for businesses in many senses and it’s clear from our research that there remains a lot of confusion about the implications of Brexit,” Impression’s founder Tom Craig told City A.M.

Fine print

On the surface, frictionless trade should have continued, but as the UK is no longer part of the EU Single Market and Customs Union, companies have been faced with an increased burden of bureaucracy.

“Brexit is a real concern for many companies. The deal has indeed been done, but we are only now finding out what the fine print was and what this might mean for business,” said London-based Rick Smith, managing director of financial advisory Forbes Burton.

“The fishing industry is a good indicator of how it might impact other industries. As a headline issue, it has gained a lot of immediate focus, but could point to where other industries might struggle,” Smith told City A.M.

Read more: Almost half of UK exporters hurt by Brexit, says new survey

According to Tony Jones, general manager at water filter manufacturer Harvey Water Softeners, it is vital that businesses “do not rest on their laurels” and continue to adapt over the next few months to ensure the initial period after Brexit runs as smoothly as possible.

“Despite the fact we completely manufacture all of our water softeners from our factory in Woking and haven’t been as affected by Brexit when compared to other manufacturing firms, we have continued to invest in new product lines and processes such as testing to improve efficiency in the year ahead,” Jones explained to City A.M.

“Of course, the challenges associated with Covid-19 still continue to affect typical day-to-day operations, but it’s critical that UK companies continue to invest in quality and consider the opportunities available long term once we are through the other side of this pandemic,” he added.

According to recent research from the Small Business Charter, a government body, 43 per cent of SMEs are concerned about supply chain disruption as a result of the new post-Brexit trading conditions.

“It is hard to truly see the extent of i[Brexit’s] impact however as lockdowns and restrictions due to COVID-19 are having a big impact,” Smith said.

“Deals gained elsewhere with non-EU countries might well make up the deficits initially experienced with the EU trade deal but in the short term we may see difficulties,” he added.

Read more: Government ‘in denial’ about post-Brexit fishing problems, say industry leaders

Vaccine rollout

According to data released this morning by Expense On Demand shows that 82 per cent of UK business leaders are feeling positive that this year will see an improvement compared to last year, particularly as Britain’s vaccine rollout is increasingly gathering steam. 31 percent expect the immunisation program to cause an economic ‘bounce back.’

Sunil Nigam, the founder of Expense On Demand, told City A.M. his firm’s findings show that “the vast majority of businesses are feeling optimistic and are also starting to see an impact as the vaccine roll-out helps reboot economies around the world.”

“It will be interesting to see how these businesses adapt to the ‘new normal’ and what measures they will put in place to manage their current remote workforces,” Nigam added.

Read more: Majority of adults in UK to be offered Covid vaccine by May

‘Long Covid’: move to digital

In contrast to Brexit, many business leaders surveyed by Impression did cite the move to online – as a result of the Covid lockdowns and travel restrictions – as a long-term positive development for their business.

Just over 90 per cent of all business leaders that took part in the survey said they expect customers to shop more online post-pandemic, for both products and services.

James Murray, UK product manager at Bing, Microsoft’s search engine, told City A.M. that “there is increased demand for more digital products and subscription services but not every brand will be able to digitise its product or offering.”

“What will be really interesting in 2021 is to see how businesses adapt and accelerate their digital transformation,” London-based Murray added.

The rapid rise in automation should make this process easier for businesses, he stressed.

“By investing in tools to facilitate automation, businesses will be able to reach even more users, meaning they will need more clarity than ever on metrics such as target cost per acquisition and improvements to their websites to encourage conversions,” Murray concluded.

Read more: SMEs turn to digital banks amid frustration with high street lending

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