Brexit – A New Era for Entrepreneurship

Michael  McGetrick
Thursday, December 6th, 2018

In the eyes of many within the entrepreneurial community, the decision of the British electorate on 23 June 2016 to leave the European Union marked the beginning of a new golden age of economic freedom, innovation and prosperity. Recent events, though, have dampened expectations – specifically, the government’s EU Chequers proposal of a few months ago, and the more recent EU Withdrawal Agreement.

I was one of 200 signatories of a letter to The Telegraph – organised by the Alliance of British Entrepreneurs – expressing deep concerns with the Chequers proposals. The Withdrawal Agreement – roundly condemned by Leavers and Remainers alike – is widely considered to be a Brexit-in-name-only (BRINO) arrangement which will keep the United Kingdom locked within the European Union indefinitely, or in perpetuity – depending on your point of view. A recent publication entitled Your Right to Know by the European Research Group (ERG) of the Conservative Party clearly illustrates how this agreement fails to deliver a real Brexit, and reduces the status of the United Kingdom to that of a vassal state of the European Union. Small business is concerned that, rather than the shackles of EU membership be removed, they look likely to be maintained and tightened. It is useful to review the issues that have concerned the small business community for many years.

One major problem has been the sheer volume and scope of EU regulation that has built up over the years, affecting every aspect of business activity – employment, non-financial reporting, company start-ups, service delivery, product manufacture and innovation to name but a few. Economists for Free Trade estimate that the cost of regulation amounts to £120 billion (6% of GDP). This, in turn, has led to the growth of a massive lobbying industry of various interest groups all vying for influence in the EU corridors of power. Lobbying in Brussels is an expensive business, making it extremely difficult for small business and entrepreneurs to engage in. Instead, large corporations and multi-nationals (which account for less than 1% of all businesses registered in the UK) fill the void; the inevitable result is a regulatory outcome skewed in favour of large corporations.

Everybody would agree that regulation is necessary in order to protect workers, consumers, and the environment. However, all too often, EU regulation has a disproportionate disruptive effect on small business with unfriendly, one-size-fits-all compliance regimes.

Consider, for example, the market for natural medicines and herbal remedies. It is estimated that, at the time of the introduction of the Traditional Herbal Medicinal Products Directive, this market was worth around half a billion pounds in annual revenue, with one in four of the adult population estimated to use such medicine. However, this directive has made many small businesses unviable due to the sheer expense of the process of registration and licencing – around £80000 to £120000 licence fee per herb – due to the requirements of performing expensive testing procedures to prove that these natural substances are not harmful. As a result, not only are many practitioners forced out of business, but an entirely respectable and cherished market – with a history going back centuries – is, effectively, left uncatered for.

The world outside of Europe has changed dramatically since the time the UK joined the EEC (now EU) in 1973. New dynamic markets have emerged such as those offered by the BRICS nations (Brazil, Russia, India, China and South Africa). Currently, just over half of our trade is conducted with non-EU countries. In her article “The WTO option is now the best choice for Brexit”, economist Ruth Lea points out the fact that over the last decade our trade with the rest of the world has increased by 80%, whereas our trade with the EU only grown by half that amount, at 40%. Assuming these growth rates were to be maintained then, ten years down the line, around one third of our trade would be conducted with the EU; the lions share – around two thirds – would be with the rest of the world. Indeed, accelerated EU policy towards political union and increased tensions within the Eurozone – likely to cause even greater unemployment within the Southern nations – would only serve to reduce export growth to the EU bloc further. One does not need to be a rocket scientist to figure out where most of the exciting opportunities will lie.

The birth and growth of the Internet over the past twenty five years or so has provided a platform for entrepreneurs to do business with any part of the world at a mouse-click. Many opportunities abound. As an example, now would be an opportune time to seize opportunities within the growing Internet of Things (IoT) market which is estimated to have a world market value of around 2 trillion dollars by 2019. The nature of this market will be skewed in favor of more bespoke solutions for applications in the home, healthcare, communities, environment, security, industry and other novel applications – a perfect playground for small, innovative players. By designing, developing and producing the sort of joined-up customised hardware and software infrastructure that this sector will require, we could start to rebalance our economy in terms of building up lost manufacturing capability – since joining the EU, the manufacturing sector shrunk from about 30% of GDP to around 10% at the present time. Such developments would help us to rebuild skills that have been eroded over the years and move towards the more highly-skilled workforce that has always been associated with a strong high-value manufacturing base.

Britain has a proud history of global trade and innovation. Our period of membership of the European Union represents but a small dot in this historical timeline. During this time, our DNA has not changed – we are still as entrepeneurial and outward-looking now as when the British East India Company was started up four centuries ago. Brexiteers for business do not regard themselves as Little Englanders; rather as Big Internationalists. It is fitting to conclude with the words of John Mills, Chairman of John Mills Ltd (and former Chairman of Labour Leave): “Let’s kill this notion that May’s deal is good for business. It’s not. I say that as someone who runs a company that trades w/ 70+ countries. It keeps us in the regulatory orbit of the EU. Tied, constrained, living below our potential. Let’s think bigger. Let’s be ambitious.” Amen to that!