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The Real Impact of Brexit on SMEs: Why Firms May be Charged for Hiring EU Workers

If anyone was in any doubt about the type of post-Brexit future that British Prime Minister Theresa May was likely to pursue, her recent speech beneath the candelabra of Lancaster House should have put paid to this. Standing in the same spot from which legendary PM Margaret Thatcher first extolled the virtues of joining the single market, May confirmed that Britain would leave the EU completely and not seek any form of partial membership within the Union.

While such clarity is refreshing after months of uncertainty and vague communication, the announcement is not exactly what Europhiles and some small business-owners wanted to hear. After all, this is likely to increase the cost of trading with fellow European nations, while talk of new potential trade deals with Commonwealth giant such as Australia means little as the value of the pound plummets and the cost of imports continues to soar.

The Latest Blow to SMEs: Applying Premiums to the Recruitment of EU Workers

As strange as it may seem, British SMEs have actually received worse news than this during the last few days. More specifically, the government has confirmed that it is considering plans to charge companies for every skilled EU worker that they choose to recruit (either on a short or long-term basis). Although an amnesty would most likely be granted to existing EU employees who hold down a skilled job role, this will have a huge impact on future recruitment drives and the competitiveness of the UK job market.

In short, employers would have to pay an estimated £1,000 per year for each skilled, EU worker that they hire after Brexit, in addition to covering any new visa charges and labour market tests that are included as part of the UK’s exit deal. This so-called ‘immigration skills levy’, which is already applied to British companies who employ staff members from outside of the EU, could also be augmented by a similar (if slightly lower) charge for non-skilled workers brought in from the European Union.

This is part of the government’s drive to make a clean break from the single market, while it also targets the overriding concern that British firms are too reliant on immigrants to undertake roles. Although this assertion is questionable (particularly in relation to skilled job roles), it was one of the key arguments of the leave campaign and something that played on the fears of UK voters. Alongside the introduction of an apprenticeship levy, it is hoped that the changes will help British workers to flourish and find a true outlet for their skills.

The Bottom Line: What Will This Mean for Businesses

In many ways, this is little more than the latest in a long line of developments that have the potential to impact negatively on SMEs in the UK. We have already touched on the declining value of the pound, for example, with online brokerage firm FX Pro highlighting just how poorly the currency is performing in relation to the USD and the EUR. With the cost of imports rising and the potential for trade tariffs to increase post-Brexit, SMEs face the prospect of seeing their cost bases rise while the sales volumes decline.

If the cost of hiring skilled labour also increases, the financial cost of Brexit to small business could prove too much to bear. Now that it has been confirmed that the UK is leaving the single market completely, however, the government must play a pivotal role in negotiating an exit deal that minimises these costs as much as possible (both in the short and the longer-term). Without this, the future for SMEs looks decidedly bleaker than it would have done at the electorate voted to remain in the EU.

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