Brexit? The EU market and workforce is key say Scottish business leaders

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27 March 2019

Anderson Strathern survey reveals what Scotland plc thinks pre-Brexit

Edinburgh, Glasgow, 28 March 2019 - Scottish legal firm Anderson Strathern has announced findings of its commissioned independent survey of Scotland’s SMEs and larger corporates – Taking the temperature of Scottish business – pre-Brexit. The law firm is first off the blocks with a bespoke research survey polling over 250 organisations on sentiment around Brexit, with over 100 respondents being businesses with turnover of £25M or higher.  Managers were asked questions on areas such as their most important markets, exposure points in the event of Brexit, reliance on EU staff, knowledge on tariffs and barriers to import, Brexit preparedness, stockpiling, and post-Brexit outlook.  The survey results also reveal that there are marked differences when it comes to the planning and preparedness around Brexit within Scotland, including between Glasgow and Edinburgh.

Bruce Farquhar, Chair at Anderson Strathern, said: “We commissioned the survey to take the pulse of our business leaders, to really understand how ready Scotland is for Brexit, revealing the challenges and the opportunities. Whilst the research shows that domestic business continues to be the main driver for the Scottish economy, it is clear that the EU market and its workforce will remain a key part of business through Brexit and beyond. Our survey has produced clear evidence that Scottish organisations need time, help and advice in preparing for the path ahead.”

Current outlook

- The Anderson Strathern ‘Scotland plc’ survey revealed a marked distinction in sentiment between larger corporates and SMEs in Scotland

- SMEs have a more pessimistic view of the future impact of Brexit, with 57% considering it a ‘negative’ compared to only 41% of senior managers at larger corporates. 

- When it comes to Scottish business outlook on turnover over the longer term (5 years) there is a tendency towards a remain scenario with 57% of total survey respondents indicating this would be the preferred outcome for an increase in turnover.

- A Withdrawal Agreement is currently a close second, with 50% saying they were confident of increased turnover and no-deal Brexit revealed the least confidence with 44% saying they thought turnover would increase over the longer term.  

Most important markets

- The survey found that 50% of Scotland’s SMEs and large corporates combined rate the European Union (EU) as their most important market, behind Scotland (86%) and the rest of the UK (57%).

Exposure points

- When asked about business ‘exposure points’ in the event of Brexit, the sample rated EU workforce (54%), pricing and finance (49%), regulatory and compliance concerns (42%), supply chain disruption (41%), export and import red tape (33%), and obtaining goods/services/components from the EU (33%) as their key exposure points in descending order.

Kenneth Russell, Sales & Marketing Director at John G Russell (Transport) Ltd comments: “Two of our main concerns, when it comes to Brexit, are supply chain disruption and export and import red tape. We’ve also been looking at what happens to our cost base, fuel and drivers wages. While we have less than 2% non UK nationals, the overall UK driver makeup is very different. A current driver shortage in the south and a hard Brexit may result in considerable price impact across the industry.”

Reliance on EU staff

- Of the companies surveyed more than a third (35%) of all respondents indicated that they ‘rely heavily’ on highly-skilled EU staff, while 24% rely heavily on low-skilled EU staff.

- What’s more, 45% of respondents indicated that the future of the EU workforce is a ‘significant’ concern

- Workforce retention is a big issue for our organisations, with 54% of larger firms being much more likely to lose EU nationals from their staff.

- 54% cent of the total surveyed think that they will encounter difficulties when attracting workers from the EU

Murray McCall, Managing Partner, at Anderson Strathern said: “We know that workforce retention is a big issue for many of our clients and this survey has revealed that it’s the same across corporate Scotland, in fact over a third of our organisations rely heavily on highly-skilled EU staff. Our immigration and employment practice currently spends most of its time focused on Brexit related issues and the largest concern is around transitional arrangements to ensure business as usual.” 

Norman Provan, Associate Director, Royal College of Nursing comments:  “In the case of a no-deal Brexit there would be no transition period which would likely cause significant challenges for the health and social care sector. We would also like to see regulatory requirements aligned with the EU to create a level playing field between the remaining member states, the UK and the wider international sphere. This will be especially beneficial for developing a coherent UK workforce strategy.”

Brexit preparedness

- 84% of Scottish companies surveyed said they have either completed a risk assessment for Brexit (47%) or are in the process of doing so (37%). 

- Scotland’s SMEs, companies with less than 250 employees, appear less prepared with 26 per cent indicating that they have not started a risk assessment. 

- In relation to a ‘no deal Brexit’, larger corporates are better prepared, with 68% having completed plans for this eventuality against 56% at smaller firms.

Neil Amner, Anderson Strathern Director and Brexit Group Lead, said: “The survey indicates that many Scottish businesses are still in the process of going through a risk assessment, while a worrying number haven’t even started doing so. This is more apparent when we looked at SMEs, with just over a quarter still to start a risk assessment. In fact, more than half of businesses are missing a fully contingency plan.  It is clear that larger businesses have the resources to be more prepared, but smaller businesses still need a bit of help in taking a closer look at what could be in store and prepare accordingly.” 

Stuart Patrick, Chief Executive, from Glasgow Chambers of Commerce comments: “The survey confirms British Chambers of Commerce evidence that the majority of small and medium sized businesses have done little to prepare for Brexit. We can largely sympathise with the difficulties so many businesses have in preparing for such an uncertain event as Brexit and we would urge businesses to go through either our own Business Brexit Checklist or the helpful materials available from Scottish Enterprise and from Scottish Brexit business advisers like Anderson Strathern.” 

Central Belt divide

- Within Scotland, Glasgow-based businesses said they are more reliant on the EU as a key market than Edinburgh-based companies, at 59% against 48% in the nation’s capital. 

- Glasgow businesses also said they are more reliant on an EU workforce than Edinburgh (59% versus 44%).

- 60% of respondents in Edinburgh said they have completed their risk assessments, compared to 44% in Glasgow.

- Half of Glasgow businesses (50%) believe that their revenue will decrease over the next year as a result of Brexit, compared to 31% of Edinburgh-based businesses.

Neil Amner, added: “As a city, Glasgow has a greater EU workforce than Edinburgh and also appears to be more uncertain of Brexit, whilst being less prepared with a risk assessment. Perhaps this is also an indication of a higher proportion of west coast based businesses waiting for a more solid outcome, whilst battening down the hatches for what’s to come.”  

Iain Mitchell, Director of John Mitchell Haulage & Warehousing comments: “Our focus over the last two years has been on cash generation so that we can weather any storm, should one arise. Like most organisations of our size, we are waiting to hear about whatever deal is done and cast in stone, then we’ll start making and taking decisions.”

Stockpiling

- The survey found a fairly even split across the sample in terms of Scottish companies stockpiling goods (32%), companies who aren’t stockpiling ‘but intend to’ (34%) and those who are not stockpiling and ‘don’t intend to do so’ (35%). At the same time, 82% of larger corporates are stockpiling (250 + staff) against companies with less than 250 employees (24%).

Knowledge on tariffs and barriers to imports

- In terms of knowledge around how the tariff regime could change, around a third (32%) of all respondents have ‘no idea’ what tariffs or quotas they are likely to face when exporting products to the EU post-Brexit. 

- 39% of respondents said they ‘have some idea’, while 29% stated they are ‘totally aware’ of the potential quotas and tariffs. 

- When asked about barriers to import from the EU post-Brexit, 24% of companies said they had ‘no idea’, compared to 27% who said they were completely aware.   Awareness levels were highest at larger corporates, with 41% of senior managers there stating they were ‘completely aware’. 

- When asked about the potential to fall back on World Trade Organisation (WTO) rules in the event of a no-deal Brexit, 25% said they were ‘completely aware’ against 22% who said they had ‘no idea’.

Future optimism

- Despite the uncertainty surrounding a no-deal predicting a negative impact on corporate revenue, many Scottish businesses see some opportunities for business growth

- 68% of senior managers in larger organisations thought that Brexit could provide their business with further opportunity

- Overall two thirds (65%) see doors opening for markets such as China and the USA

Neil Amner, Anderson Strathern Director and Brexit Group Lead, said: “Over time we get to a point, around five years after the UK leaves the EU, whether on a negotiated or a no-deal basis, by which there is almost a 50-50 call about whether or not Brexit is for the better or not."

Notes

1. Censuswide carried out the survey, which comprised 272 business leaders in Scotland including 101 from organisations with either over £25 million in annual revenue or more than 250 employees.

2. Anderson Strathern was the first Scottish legal firm to launch a dedicated Brexit unit in July 2016 within days of the outcome of the EU referendum.  The Brexit Group’s services include a Brexit audit for businesses and is supported by an online Brexit Hub which offers insight, analysis and practical advice.