How Brexit left small British business out in the cold

It was billed as the rebirth of UK plc, grant­i­ng British busi­ness­es free­dom from the high-hand­ed bureau­cra­cy of Brus­sels. But, for many SMEs with sig­nif­i­cant EU exports, Brex­it feels less like a renais­sance than it does the rocky road to ruin.

Engulfed by paper­work, tax­es and unbear­able added costs, some are hav­ing to shelve their EU oper­a­tions indef­i­nite­ly. Oth­ers, unwill­ing to sac­ri­fice their hard-earned cus­tomer base on the Con­ti­nent, are bat­tling through the red tape, des­per­ate to sal­vage what busi­ness they can. 

Don­na Wil­son, a Lon­don-based tex­tile design­er who runs an epony­mous home­ware busi­ness, is one of the lat­ter, although she is find­ing it an uphill strug­gle. 

“Sell­ing to Europe used to be seam­less,” she says. “With the EU agree­ments in place, we didn’t have to deal with cus­toms and there were no hid­den charges. It was a very easy expe­ri­ence for us and our cus­tomers.”

Brex­it has changed all that. Since Jan­u­ary, the company’s sales to the Con­ti­nent, which used to account for about a quar­ter of its total rev­enue, have tak­en a seri­ous hit. Delays to ship­ments have been part­ly to blame, but the import fees that have been thrust upon her cus­tomers are the main cul­prit. 

“A buy­er in Ger­many recent­ly told us: ‘Thank you so much. We love your work, but this is the last time we’ll be order­ing from you, as we’ve just been charged a 50% fee.’ We put a lot of effort into pro­vid­ing an exem­plary cus­tomer expe­ri­ence, so that hurt,” Wil­son says.

It’s a pain that many British busi­ness­es are feel­ing. Although the UK secured a last-minute tar­iff-free trade deal with the EU in Decem­ber, non-tar­iff bar­ri­ers have since arisen, which have had a pro­found impact. The val­ue of British exports to Europe was about 20% low­er in Q1 2021 than it was in Q4 2020, accord­ing to the Office for Nation­al Sta­tis­tics.

SMEs have borne the brunt of this decline. A sur­vey of more than 1,400 small exporters by the Fed­er­a­tion of Small Busi­ness­es (FSB) at the end of March 2021 revealed that 70% had suf­fered a ship­ment delay of some descrip­tion since the start of the year, while almost a third had even lost con­sign­ments in tran­sit to the Con­ti­nent. As a result, 23% had tem­porar­i­ly stopped export­ing to the EU.

Despite such seri­ous set­backs, the gov­ern­ment has remained upbeat, promis­ing that these have sim­ply been “teething prob­lems”, which will ease over time.

Some trade experts aren’t so san­guine. James Sib­ley, head of inter­na­tion­al affairs at the FSB, says: “Changes to VAT, rules of ori­gin and cus­toms paper­work are relat­ed to our depar­ture from the sin­gle mar­ket and cus­toms union, trans­form­ing our trad­ing rela­tion­ship with the EU. These changes aren’t going away.”

But there is some opti­mism about the UK’s abil­i­ty to agree its own glob­al trade deals. More than two-thirds of the FSB’s mem­bers export to non-EU coun­tries. Although rel­a­tive­ly fric­tion­less trade with the likes of Aus­tralia, New Zealand, the US, and Japan might not whol­ly mit­i­gate their loss­es in Europe, it is an excit­ing prospect, accord­ing to Sib­ley. 

Mean­while, the gov­ern­ment has acknowl­edged the fact that SMEs have been strug­gling with post-Brex­it bar­ri­ers and cre­at­ed a £20m fund to sup­port their exports to the EU. The mon­ey is not avail­able to busi­ness­es that also trade out­side Europe – some­thing the FSB would like White­hall to change.    

For For­age­plus, a sup­pli­er of dietary sup­ple­ments for hors­es, seek­ing help from the state has been vir­tu­al­ly fruit­less. Kieren Brown­hill, gen­er­al man­ag­er of the busi­ness, based in Flintshire, north Wales, laments its near-total loss of EU sales. 

“We’ve had no sup­port at all,” he says. “The gov­ern­ment basi­cal­ly told us: ‘Phone the French Embassy.’ It couldn’t give us any fur­ther infor­ma­tion and it didn’t help us with choos­ing the right tar­iff codes for the prod­ucts. We keep hear­ing about how we’ve got a free-trade agree­ment. I don’t know where that’s com­ing from – it’s noth­ing like what we’ve expe­ri­enced.”

Fac­ing sim­i­lar pres­sures, some small SMEs have tak­en the bold step of estab­lish­ing a base on the Con­ti­nent. Antos, a dog-food pro­duc­er based near Kil­marnock, is one such busi­ness. 

“We’ve had to move the whole export side of our UK busi­ness to with­in the EU,” says the firm’s own­er and MD, Antoon Mur­phy. “We sim­ply weren’t able to effi­cient­ly pro­vide for our Euro­pean cus­tomers from here any­more, what with all the extra health cer­tifi­cates and doc­u­men­ta­tion that’s required.”

Hav­ing acquired a ware­house and recruit­ed a small work­force in the south of France, Mur­phy now plans to spend half of the year on EU soil, over­see­ing the growth of his fledg­ling Con­ti­nen­tal oper­a­tion, Nova Dog Chews, in per­son. 

It’s an option that sev­er­al oth­er busi­ness own­ers are con­sid­er­ing. The Ger­man-British Cham­ber of Indus­try & Com­merce, for instance, reports that about 250 British SMEs have con­tact­ed it in the past 12 months with a view to set­ting up shop in Ger­many. 

Back in Lon­don, Don­na Wil­son has been mak­ing enquiries of her own. “We’re look­ing at a place in Por­tu­gal, or maybe in Ger­many,” she says. “That would need invest­ment and a lot of time to organ­ise, and it would eat into our mar­gins. But we’re think­ing that it would the way for­ward.”

Hav­ing been oblig­ed by the costs of Brex­it to focus on the domes­tic mar­ket for the time being, she has a more imme­di­ate pri­or­i­ty: the firm is plan­ning to open a micro-fac­to­ry in Dundee. 

Wil­son doubts that she’ll even both­er attend­ing the big annu­al trade show in Paris this year, which was once key to win­ning busi­ness on the Con­ti­nent.  

“With all the uncer­tain­ty sur­round­ing sell­ing to cus­tomers in the EU”, she says, “that just doesn’t feel like it would be a good move at the moment.”