Today marks the one year anniversary of the EU referendum. If a week is a long time in politics then it feels like we’ve lived several life times over the previous twelve months.
Just when we needed some stability, the UK government has started to resemble a premiership football club with frequent changes at the helm and rumours about the future of the new incumbent.
The populist politics that many blame for the referendum vote has continued to shape global events – putting a reality TV star in the White House and the leader of a party he only founded a year earlier, into the Elysee Palace. All this is on top of an already fast-moving business environment where technological changes are having a fundamental impact on models and markets.
The well-used cliché that we are living in changing times is a well-used cliché for good reason.
With so much happening, this anniversary seems the right time to pause for breath and look around us.
How is all this change playing out in the market place?
BDO’s own business trends survey – which covers over 4,000 different respondents from companies employing approximately five million people – is a good bellwether.
Growth has been resilient over the year but over the last few months, there appears to be a growing disconnect between what businesses are experiencing now and how they expect their order books to develop in the coming six months. Current output levels are at their lowest for four years, yet UK business people are strongly optimistic.
Optimism is often a good precursor for growth, ensuring businesses continue making the right confident hiring and investment decisions, which are key ingredients of economic success. Nevertheless, realism suggests that current optimism levels may be fragile.
Our latest European export index also shows a complex pattern. UK export growth has outperformed both Germany and France for five consecutive quarters. However, UK exports are now showing signs of a slow-down and there is a risk that raw material inflation, driven by sterling’s depressed value, could lead to export prices increasing and a reversal of fortunes.
How to sum all this up?
UK businesses have continued to do what they do best during the uncertainty of the last twelve months, focusing on growth and success. However, as we head into the Brexit negotiations with a far from stable domestic political situation, there are storm clouds on the horizon. It’s vital that the Government, whether due to the distraction of Brexit or a delicately balanced Parliament, doesn’t take the resilience of UK business for granted. It must focus on creating a business friendly landscape in the UK, more so than appeared to be the direction of travel in the various manifestos.
At BDO we want policy makers to help create a ‘new economy’ which enables the UK to thrive post-Brexit by focusing on three key areas: making the most of our mid-sized entrepreneurial businesses, balancing growth by sector and by region and ensuring open and simple access to world markets and global talent.
How can these three aims be achieved? Our ‘new economy’ report outlines twenty two policies we think will lay the bedrock for economic growth through the support of mid-sized companies – the economic engine of our economy.
To give two examples: The Government should take steps to simplify the UK tax system and choose simplicity over subsidy to support the economy. Simplicity in doing business will give the UK a competitive advantage that does not breach EU rules. This should include a pause on all new business tax policies that do not simplify the system. In a recent survey the majority of our clients would accept a higher effective tax rate in exchange for greater simplicity.
Secondly, focus has historically been on big-ticket infrastructure. We believe that the Government should also focus on smaller ‘shovel-ready’ projects that can get off the ground quicker and have a more immediate economic impact. Creating local infrastructure improvements that enable businesses across the UK to thrive will support growth more quickly.
So on the anniversary of the EU referendum my message to policymakers is simple. Businesses are playing their part but their resilience shouldn’t be taken for granted. Now is the time to be brave in creating a business friendly environment for our post-Brexit future.
Stuart Lisle is a Tax Partner at BDO and co-chairs BDO’s Brexit Taskforce.