Why Scotland’s entrepreneurship is hampered by Brexit
Yet, in recent years, a formidable force has emerged as the kryptonite to this entrepreneurial optimism – Brexit. The very word has become synonymous with uncertainty and disruption, casting a shadow over the ambitions of countless small and medium-sized enterprises (SMEs). As an entrepreneur navigating the business landscape, I have encountered the disillusionment and dismay shared by many peers. It is a sentiment echoed in conversations with fellow business owners who, like me, have grappled with the adverse effects of Brexit on their ventures.
Running my sustainable business, Beira, has become increasingly challenging due to the impact of Brexit. Firstly, the complex supply chain changes have resulted in additional paperwork, causing delays, and even holding up goods to ransom. Secondly, what I term the “Brexit tax” imposes a 34% import VAT and duties on collections imported from Italy. Prior to VAT registration, we were unable to claim any reimbursement, and even with the current 20% claim-back, it has a significant impact on our cash flow – a critical factor for small sustainable businesses. Importing the same products from China would only incur a 21% cost, highlighting the disproportionate burden placed on businesses trading with European partners.
Most importantly, these challenges have nearly decimated my sales in Europe. In March alone, three online sales were lost as customers cancelled orders due to the additional 34% costs associated with importing our products from the UK. Understandably, European customers perceive no value in these extra charges, making it a deal-breaker for them. Similarly, Alistair McAuley, co-founder of the renowned textiles and wallpaper brand, Timorous Beasties, emphasised that “we have cherished products that are certainly not a necessity but are niche. But the European customer is not stupid, this additional tax has no value for them. It puts them off.”
Established in 1990, Timorous Beasties was thriving in the UK and America, and had gained significant traction in Europe prior to Brexit. The success was evident to the extent that they opted to open a showroom in Germany. Following advice from Government and financial experts, they incorporated a German company, secured an exceptional space, hired staff, and enlisted the services of a German accountancy firm.
The year 2019 brought optimism for their European future as they took positive steps to navigate the uncertainties of Brexit. However, fast forward to February 2024, with two years of the Covid-19 pandemic adding to the difficulties, Timorous Beasties faced an inevitable decision. Despite their initial efforts, they had no choice but to close their German showroom, incurring significant financial loss for the company. According to McAuley, establishing a business in a new and unfamiliar country is challenging enough, but when you factor in the complications of Brexit, it becomes nearly impossible. The administrative hurdles at every stage have significantly impeded their business. Despite having a German company, numerous additional costs arose including import tax and duties, compelling the brand to pass them on to European customers.
McAuley highlighted the only way to avoid these challenges would have been a complete overhaul of their business model, involving a shift in manufacturing from the UK to Europe or beyond. However, such a solution would have broader implications for the UK’s textiles and manufacturing industry.
Even the closure of the showroom proved to be a cumbersome process, with the return of their own products (150 items) to the UK costing approximately £3500. He explained “I feel duped, hoodwinked and I lay the blame firmly at the door of Brexit. It is embarrassing that there is no real help or strategy in place to help businesses.”
The company also participates in prestigious interior shows across Europe. Previously, the costs associated with transporting goods to exhibit in Paris, for short durations, amounted to roughly three tanks of petrol for their own van. Post-Brexit, these costs have surged to £5000 per show, and the paperwork has become significantly burdensome. Every item must be meticulously itemised, right down to the country of origin, including seemingly trivial items such as cable ties. Consequently, the financial strain and bureaucratic hurdles associated with showcasing products have intensified, putting added pressure on the selling process.
These barriers extend to European sales agents as well, impacting their ability to sell products. The increased paperwork and costs diminish their profit margins. As a result, British brands, proudly manufactured in Britain, become less appealing due to reduced profitability and the increased administrative burden. In every article I write, I strive to uncover a glimmer of hope, and truthfully, amidst these challenges, it’s a tough task. While I acknowledge that the ideology and vision presented to those who voted to leave, is very different to the current reality, it still leaves us grappling with the aftermath of what can be only be described as a ‘mess’.
The impact on our entrepreneurs weakens not only them, but all of us, and the prospects of our future economy. Yet, as Alistair McAuley wisely suggested: “Nothing stays the same forever.”
So in the face of this adversity, let’s earnestly urge our Governments in Edinburgh and Westminster to explore the concept of change by design – a deliberate effort to forge a better business relationship with Europe. It is through proactive measures, strategic thinking, and collaborative efforts that we can navigate the challenges and pave the way for a more promising future for British SMEs in Europe.
