Prime Minister Boris Johnson led the Tory party to victory in yesterday’s General Election win, with the promise to deliver Brexit and lead a “people’s government.”
Prime Minister Boris Johnson led the Tory party to victory in yesterday’s General Election win, with the promise to deliver Brexit and lead a “people’s government.” With a Conservative majority in Parliament and Brexit still looming on the cards, what will this mean for businesses across the UK? Many SMEs believe a Conservative majority is a “step closer” to breaking the Brexit deadlock, as they urge Mr Johnson to secure a Brexit deal with the EU once and for all.
Businesses are largely satisfied with the news and can now breathe sigh of relief, with many fiercely rejecting Labour’s policies such as renationalisation and higher taxation. With the markets picking up and the pound soaring, many SMEs believe a Tory victory will bring an added sense of clarity and stability to the economy. Mr Johnson has pledged to “get Brexit done” and take the UK out of the European Union by 31 January next year. Their conditional support for the PM comes under one cost - SMEs are placing serious pressure on Mr Johnson to begin negotiations on a trade agreement with the EU and bring an end to Brexit uncertainty.
“Of all the possible outcomes to come from the yesterday’s election, a Conservative majority provides the most clarity,” Jamie Johnson, CEO of FJP Investment said. “Their position on Brexit is clear and now we wait for Boris Johnson’s EU Withdrawal Agreement to once again be voted on in parliament. Importantly, I hope the government uses this victory to start making progress on national issues that have been ignored, such as the property market.”
“The Tory majority means that the new government will move swiftly to ratify the Brexit Withdrawal agreement, in order to prevent the UK crashing out of Europe with a no-deal on 31 January 2020,” Alison Horner, Indirect Tax Partner at MHA MacIntyre Hudson added. “Once this is approved, a transitional period of Duty and VAT free trading conditions will be in place until 31 December 2020, while a new trade deal is negotiated with the EU.”
“However, what happens at the end of 2020 is unclear. Most commentators and industry specialists believe that reaching a Free Trade agreement, ratified by the World Trade Organisation, in less than a year is wishful thinking at best. If such an arrangement with the EU is not reached, an extension to a transitional period will need to be agreed to avoid the UK facing the same dilemma of crashing out in 2021. Although many companies have already put plans in place to deal with the UK exit from Europe, the reality for day-to-day operations is not one that any business relishes.
“Undoubtedly, a period of certainty that the new Tory government brings is most welcome and will give business more time to finalise their Brexit strategy. This would include plans for imports and exports; setting up an EU business establishment to deal with distribution and supply chains within Europe if necessary; registering for VAT in EU jurisdictions; and appointing human and capital resources.... However, given the complexities of international trade, careful preparation and the ability to grasp all the technical details involved with any new agreement will make or break many UK businesses.”
After the Conservative win, the Sterling jumped to 1.9% at $1.347, in its highest level since May last year. Businesses believe a majority government will help bring certainty to the UK markets, however, the excitement may be short-lived. There is still rising uncertainty over whether the government can put their heads down and solve other national issues apart from Brexit, such as stamp duty, the housing crisis, and other pressing hurdles.
“This result provides some much-needed clarity, and I’d expect to see an increase in property transactions over the coming months,” Paresh Raja, CEO of Market Financial Solutions, said. “There are plenty of question marks hanging over the newly-elected government. When will the long overdue budget be delivered? Will there be changes to taxes like stamp duty? How will the housing crisis be addressed? I hope the Prime Minister addresses these questions and does not let Brexit continue to overshadow pressing national issues. “For now, at least, all eyes are turned to the end of January when Boris Johnson’s commitment to deliver Brexit will be put to the ultimate test.”
Jerald Solis, Business Development and Acquisitions Director of Experience Invest also expressed his uncertainty over Mr Johnson’s leadership and whether his government can divert their attention to other national issues, such as the housing crisis.
“Despite winning a majority, the Conservative party should view this only as a minor victory, Mr Solis said. “Whilst this was dubbed a ‘Brexit Election’, the public has made it clear that other pressing issues must be pushed to the forefront of the newly elected government’s agenda, such as the housing crisis.
“Research from Experience Invest has shown that just 11% of consumers had faith in Boris Johnson’s previous government to solve the problem. So, the question now is how his new government will ensure the appropriate measures are put in place to ensure more people are able to jump onto the property ladder. From the promise to build 29,000 affordable homes, to simplified shared ownership and help to buy loans, the public will be expecting creative action.”
However, mass disruption from the general election and Brexit could ultimately spell disaster for SMEs who’ve cut spending altogether in last-minute contingency plans in a bid to prevent company losses. They could inevitably lose customers and fall behind competitors, leading to their inevitable collapse, Chris Labrey, MD of Econocom UK & Ireland has warned. Therefore, it is vital the government provide small and medium businesses with the support they need.
“For businesses that have stopped spending altogether, they may now have risked alienating customers and being overtaken by competitors,” Mr Labrey said. “Additionally, outdated technology now has a much higher chance of failing, which could affect business operations entirely.
“I wouldn’t be surprised if we see many businesses collapse within the next year as a result of halted expenditure prior to this election. If you haven’t invested in technology, you’re going to be left behind, and some businesses will be too far gone to catch up. For those that avoid insolvency, and to prevent the same issues occurring again in the future, businesses should look to spread the cost of investments during these periods of disruption. This would enable them to get access to essential items sooner and continue developing their products and services without taking the instant monetary hit."
Rising business tax rates have been a major concern for SMEs. With Mr Johnson’s promises to cut business rates, increase small business employment allowance and clamping down on late payments, Bea Montoya, Chief Operating Officer at Simply Business, believe more still needs to be done to put SMEs at the forefront of the economy.
“SMEs are the backbone of our economy, accounting for 99% of all British business, and contributing a combined £2tn in annual turnover,” Ms Montoya said. “However, too often they’re resigned to being little more than an afterthought for government.
“It is absolutely vital that small business owners and self-employed people are not left behind in this new era of leadership. “We urge Boris Johnson and his party to make small businesses a priority and to support the nation’s self-employed workforce.
“The standard rate of business tax is at its highest level since 1990, at over 50%, and is a major issue for businesses across all sectors of the economy, so a review of rates will be well received. While the proposed £320m cut from 2020-2021 sounds promising, it equates to just 0.03% from April 2021. It’s a start, but we know rate cuts will need to go much further and deeper to have meaningful impact.
“Elsewhere in the manifesto, expanding start-up loans, increasing the employment allowance for small businesses, and clamping down on late payments will all be welcome changes should they come to fruition.”
After facing months of uncertainty, businesses are urgently seeking clarity once and for all. Mr Johnson pledged to “get Brexit done”, so it will only be a matter of time to see if his words come in to fruition.