Entrepreneurs Will Thrive in Post-Brexit Britain

Sorcha Ni Bhuaigh July 15, 2016 0
Entrepreneurs Will Thrive in Post-Brexit Britain

The aftermath of the EU referendum has seen widespread panic and speculation from nearly every pro-Remain campaigner regarding the future of Britain’s economy. Recently, the German FDP party commissioned a London billboard saying “Dear start-ups, Keep calm and move to Berlin”. The narrative being peddled by popular journalists and mainstream media outlets is that Britain’s departure from the EU is going to be disastrous for the UK’s thriving start-up sector.

Nearly 40% of start-ups worth $1 billion or more are based in the UK, putting us ahead of even the USA’s Silicon Valley in terms of entrepreneurship. But thanks to the collapsed sterling, reduced stocks and losing access to the single market, entrepreneurs will sooner take their business to Europe than deal with current market turmoil. Despite the speculation, however, the facts tell a different story.

Entrepreneurs have always needed to carefully manage the risks involved in their business ventures in order to secure funding. Start-up teams who can develop a good risk management plan will be highly attractive to investors. In this regard, leaving the EU has presented new opportunities for start-ups to get off the ground in that they can appeal to backers who want to stay one step ahead in an increasingly uncertain global market. If a business can confidently demonstrate how to do that, incorporating a four-quadrant risk management framework, investors will want to snap them up.

The need for entrepreneurship is not going away, and the demand for new innovations is not going away. Let’s not forget that some of the most successful businesses in the world were start-ups in times of extreme market uncertainty – Disney (1923), HP (1939) and Microsoft (1975) to name a few. Indexes of entrepreneurship rose during the recession of 2008-09, with over 550,000 start-ups launched. Even the Long Depression of the 1870’s coincided with a rise in registered patents.

Fast-forward to the current year and we’re seeing a similar phenomenon in the aftermath of Britain leaving the EU. Despite pro-Remain campaigners insisting that entrepreneurs will henceforth take their business to Europe, the number of new businesses registered in the UK has actually increased. According to the latest figures from Companies House, 53,000 new companies have registered since May, putting the total number at an all-time high of 3.7 million. That’s one company for every 17 people.

Additionally, a report from the Company Warehouse found that, from 30th June until 4th July, 13.1% of directors forming new companies in the UK were EU nationals, risen from 11.5% recorded in the March-April period. If entrepreneurs were so terrified of the post-Brexit financial climate, why has there been an increase in foreign investment? The authors of the report acknowledged that “[w]e were pretty sure that we would find a dramatic fall in the number of EU citizens starting businesses in the UK […] In fact, we found that the numbers had gone up.”

Leaving the EU has liberated British-based entrepreneurs from coming under a restrictive tax and regulation system. One of the most significant factors driving new business investment is low corporation tax. Naturally, companies want to start up in countries where they can keep most of their profits. Reducing the cost of capital in this way attracts more corporate investment, which corresponds to a boost in GDP.  This is corroborated by reports published by both the HM Treasury and the Office for Budget Responsibility, which found an increase of 0.3-0.5% in investment for each percentage point reduction of tax.

Companies in the UK currently pay a basic rate of 20% corporate tax on their profits. Last week, then-Chancellor George Osborne pledged to slash the rate to 15%, a move that’s been heavily criticized by EU officials in France and Germany, whose corporate tax rates are among the highest in Europe. Ideally, the EU would see a harmonization of tax rates across the board, a move that would greatly damage intra-European competition. They have been consistently critical of low tax countries including Ireland, who have maintained the second lowest corporation tax in the EU at just 12.5%. This is why Ireland is such a good country for start-ups and boasts one of the highest foreign investment rates in the world. Despite this, former French Prime Minister Lionel Jospin believes it is “unfair”.

The EU business ethos is directed toward curbing market dominance rather than fostering entrepreneurship. Not only are these regulations stifling the growth of businesses, they are expensive. It is estimated that EU regulations have cost UK businesses £2.3billion since 2013, according to a report by the Regulatory Policy Committee.

Too much focus has been put on the hypothesized drawbacks of market uncertainty, and not enough on the opportunities emerging from the change. Smart entrepreneurs know this and are identifying new strategies than would not have been possible before June (for example, taking advantage of the weak pound to increase their exports). By eliminating the prospect of further EU interference in the UK tax and regulation system, the UK outside the EU appears more attractive to entrepreneurs, not less. Indeed, the evidence is already showing this.

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