Innovative SMES likely to be hardest hit following Brexit

● University of St Andrews research based on analysis of 10,000 companies

Thousands of high-growth small and medium-sized businesses that lie at the heart of the UK economy are likely to be those hardest hit by Brexit, new research from the University of St Andrews warns.

The study – published today – notes that the UK’S decision to leave the EU is likely to result in lower levels of capital investment, reduced access to external finance, weaker levels of growth, a slowdown in product development and lower levels of business internationalisation.

It also suggests that concerns about Brexit are not felt uniformly across the population of UK small and mediumsized enterprises (SMES).

According to the research, Brexit-related uncertainty is likely to affect larger, exportfocused firms and those operating in hi-tech and servicerelated industries the most. “Innovative SMES” seem particularly concerned by the UK’S departure from the EU, it adds.

The wide-ranging study – claimed to be the first of its kind – has been led by Dr Ross Brown and Professor John Wilson from the Centre for Responsible Banking and Finance at the Fife university, in conjunction with Dr José Liñares Zegarra from the University of Essex.

The research draws upon detailed analysis of the UK government’s Longitudinal Small Business Survey, one of the largest attitudinal surveys of SMES undertaken in the UK, encompassing some 10,000 firms. Following the result of the EU referendum, the government inserted a number of Brexit-related questions into the survey which enabled the latest analysis.

Brown, reader in entrepreneurship and small business finance at the University of St Andrews, said: “The results of our analysis suggest that Brexit-related concerns could result in a range of negative consequences for UK SMES, especially the impact on reduced capital investment, which critically weakens and undermines their ability to grow and prosper.

“Most worryingly, these perceived negative impacts appear to be foremost in the minds of entrepreneurs and managers located in the types of innovative and exportoriented companies, which are often viewed as the high growth ‘superstars’ of tomorrow.

“In other words, SMES thought to be the most significant for boosting productivity and economic growth may be the most negatively affected by Brexit.”

Across the UK, there are some 5.5 million SMES which together account for more than 99 per cent of businesses and 60 per cent of total private sector employment. SMES account for 73 per cent of all net private sector job creation in the UK, generating more than two million jobs since 2010.

In terms of geographic location, SMES based in Scotland and Northern Ireland view Brexit more negatively than their counterparts located in England and Wales, according to the study.