U.K.'s small businesses divided on EU vote

LONDON -- With sparks flying from a welder at work behind him, Simon Boyd's voice rises as he explains why he believes the United Kingdom should leave the European Union even though his company, REIDsteel, has put up buildings across the 28-nation bloc, from the Netherlands to Poland and Italy.

The EU saddles smaller businesses with reams of unnecessary regulations, said Boyd, managing-director of the firm based in the southern town of Christchurch. That dilutes Britain's reputation for quality and threatens the nation's sovereignty. But more importantly, he claims, it is costing companies like his.

The views of small-business owners like Boyd will be key to the outcome of the June 23 referendum on Britain's EU membership, which polls show is still close. The country's 5.4 million small and medium-size enterprises account for 99 percent of Britain's businesses and employ 15.6 million people, or half of those working in the private sector.

Although news reports have focused on the fact that most large companies back EU membership, opinion is divided among smaller firms. When the Federation of Small Businesses surveyed its members last year, it found that 47 percent supported EU membership and 41 percent wanted to leave. However, a February poll found that 42 percent said their votes could still be swayed.

"I think we have to take this opportunity," Boyd said with passion. "It's a once in a lifetime opportunity to take back control of our own destiny. From a business perspective the European Union has been very bad for us. We are over-regulated and held back as a result of that over-regulation."

The federation has asked both campaigns to detail the economic costs and benefits of EU membership and of leaving the bloc. It sought information on issues such as how the referendum will affect the supply of skilled labor, access to overseas markets and the U.K.'s ability to influence decisions in Brussels.

Answering those questions is another matter, said Angus Armstrong, an economist at the National Institute of Economic and Social Research.

"No country the size of the United Kingdom has ever left such an integrated economic union," he said. "In other words, there is no precedent to look back upon and draw some lessons -- so we're in uncharted territory here. Many people say they would like to have more facts. The difficulty is we haven't been here before."

The International Monetary Fund said this month that a vote to leave the EU would lead to a "protracted period of heightened uncertainty" as Britain would be forced to negotiate bilateral trade deals with its former European partners and countries around the world. That would trigger volatility in financial markets and slow economic growth, the fund said. The Bank of England said a so-called "Brexit" would also weaken the pound, increasing the cost of imported goods and spurring inflation.

That uncertainty is likely to hit smaller businesses harder than others mainly by making it more difficult for them to get loans; banks tend to shun riskier loans during times of stress.

"Financial conditions will tighten," said Daniel Vernazza, the U.K. economist at UniCredit. Small- and medium-sized businesses "are likely to fare particularly badly and many may go out of business as they did during the financial crisis."

Uncertainty is exactly what frightens many small-business owners, who don't have the resources of global conglomerates to adjust to dramatic changes.

Birmingham spice trader Jason Wouhra is one of the worried. His family-run business, East End Foods, started out with a corner store that sold fresh chicken and grew into one of the largest importers of ethnic food ingredients in the U.K., with $290 million in annual revenue and 400 employees. The company also boasts business with every continent, with its Birmingham plant grinding peppers, packing beans and milling flours for sale to lovers of Asian cookery the world over.

He is voting to stay, in large part because he fears a vote to leave would trigger a decade or more of trade negotiations.

"I think for me, it's the fear of the unknown," Wouhra said. "It's all speculation. Who knows what will pan out if we leave?"

To illustrate the risks for his business, Wouhra strolls into a cool, meticulously organized storeroom stacked floor to ceiling with pallets of black salt, sugar-coated fennel and chana dall. He lifts a sheet of labels for one of the some 1,300 food lines and points to the ingredient list required by the European Union. If Britain leaves the EU, Wouhra fears he would need to re-write the labels and repackage the boxes for every country he trades with.

"It would be absolutely awful," he says. "The costs incurred would be immense."

But Boyd -- who has 130 employees -- argues that for smaller companies, the benefits of leaving the EU far outweigh the risks of leaving.

Big corporations have legions of lawyers and accountants to help them profit from EU regulations, whereas smaller firms don't, Boyd said. Rather than profiting from EU membership, REIDsteel is actually losing contracts in France because local rules require the company to have a type of insurance you can only buy if you're French, he said.

Moreover, British companies will continue to trade with Europe even if voters decide to leave the bloc because member states can't afford to freeze out the world's fifth biggest economy and the bloc's biggest trading partner, Boyd said. And trade with other countries will become easier because British firms won't have to jump through the EU's regulatory hoops, he said.

"The big multinationals represent less than 20 percent of the workforce, but they have a vested interest in Europe," Boyd said. "They can lobby, they can lobby in their own interest, they can up stakes and move to any other European state to suit where they pay their taxes, whereas the real powerhouse behind the U.K. economy are the small and medium-size companies that pay their taxes."

SundayMonday Business on 05/29/2016

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