I spent a day with the small businesses who face Brexit. The outlook is bleak
PUBLISHED: 11:45 04 September 2019 | UPDATED: 11:45 04 September 2019
Helen Croydon Ltd
Lib Dem MEP and businessman Dinesh Dhamija went back to the shopfloor to meet the businesses facing a no-deal Brexit - and heard not one positive story
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The damaging effects of a no-deal Brexit on business have been made clear by major think tanks, corporate giants, a Bank of England governor and former prime ministers.
But less well known are the voices of small businesses - those who will be riding out the storm. Last week I spent a day visiting London entrepreneurs in different industries. As a London MEP, I wanted to hear fresh from the businesses on the ground in my European constituency the different ways they will be affected, how they are preparing, and whether they feel the government is acting in their interests.
I am sorry to say that I did not hear one positive story.
First, I visited Tailor Made, a trendy men's tailoring shop in Shoreditch. It's been growing for 11 years. Its founder and CEO John Buni is an entrepreneurial spirit. He also runs a tech business called CleanCloud so he can no doubt smell what is good or bad for growth. He told me that in a no-deal scenario, they will likely face a double whammy of duty.
"We are exporting fabric to Europe to then import the finished product back into the UK," he explained. "The UK manufacturing is not sufficient enough to service the volume of product we make. It's too small and as a country we haven't invested in manufacturing and those sorts of skills. So we have a 12% hit on margin to export the fabric out, and then 12% for the finished product back in. So I suppose it's 24%, plus the low currency hit. We have to ask at what point do we increase our pricing? We can only hold off so long before we have to increase."
For John Buni's tailor business the 12% tariff is clearly defined. But WTO tariffs, which we would default to if we crash out without a deal, are not so simple for every industry. There are anomalies everywhere. For example, oranges command a 16% tariff, yet marmalade is 24%. It's no wonder, then, many business owners I've spoken to don't even know what tariffs they'll be subject to.
Take the electric bike shop, Fully Charged, based in London Bridge. It's the UK's only shop exclusively selling electric bikes. They clearly don't lack business sense. This shop told me it's experiencing 180% annual growth off the back of the e-bike trend sweeping the UK right now. Yet their growth rate could be scuppered by no-deal.
"At the moment, being inside the European Union, our purchases from Europe are net zero VAT," said Dan Parsons, director of operations. "But if we are charged a tax or duty, it will affect margins. We may be able to claim it back - we don't know - but even so, I have to find that extra money from somewhere. We are growing organically and so every penny is important. If I have to divert funds from say, getting another member of staff, it's a concern. And we're talking big numbers - more than a million pounds worth of orders of electric bikes. If the taxation is 20%, say, that's a huge amount of money we have to find."
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While tariffs are an obvious problem for product companies, many Brexiteers argue that the services industry won't be affected. So I made it a point to visit that sector next. And I can report they still face no-deal hurdles.
Impero is an ad agency in Wapping started by Michael Scantlebury in 2009. It now employs 27 people. For him the problem lies in the uncertainty around accessing the European workforce.
"Creative businesses need to be able to hire in workers, especially freelancers, on rapid turnaround times," he said. "Many of those are from Europe. Any delay in the recruitment process could damage our productivity and potentially mean missing deadlines or, worst-case scenario, losing work.
"If freedom of movement ends on October 31, how do we make our non-UK talent feel safe and valued? Post-Brexit there may well be a rise in a sense of loyalty from freelancers towards companies who remain inside the trading bloc."
My final stop was the litigation funding provider Augusta Ventures, based in Victoria with a team of 85 worldwide. I soon learned from speaking to managing director Robert Hannah that, while Brexit won't affect its bottom line, the prospect of a no-deal Brexit is shaping a certain trend in legal contracts.
"There is an ancillary effect and that's on our legal processes," he said. "We work with about 70% of the City law firms and the feedback from them is that they are more regularly putting arbitration clauses into contracts. This removes the potential uncertainty around enforcement of English court judgments within Europe post-Brexit and instead allows them to rely on established arbitration conventions." In other words, companies are changing contracts to minimise their risk of legal cases, which is no doubt an admin headache for lots of financial services companies.
I left with a heavy heart for these businesses. I was an entrepreneur before joining the Liberal Democrats and turning to politics, building the online travel agent eBookers.com. I started it from a kiosk in Earls Court tube station and grew it to be a company with $1bn of sales and 2,000 employees in 11 countries. The reason I could grow to that size was because I had access to a large market - Europe. If I were still in business now, I would have to move my operations to Europe to run the same operation.
But no one needs my business acumen to realise just how damaging it is to shrink a market size to one eighth. The UK has 65m people. Europe has 512m. The larger market has more low-hanging fruit. While the small businesses I visited will soldier on, deprived of European growth opportunities, the larger corporations won't and can't downsize, so they'll move operations to Europe. Many already have.
At least there was one positive thing which came from my visits. It felt great to be back in the business world for a day, mingling with the great innovative entrepreneurs of our country!
Dinesh Dhamija is a Liberal Democrat MEP for London and founder of the online travel agent eBookers.com
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