12/09/2017 12:17 BST | Updated 12/09/2017 12:17 BST

For A Business-Savvy Brexit, Downing Street Must Address SMEs' Concerns On EU Workers

narvikk via Getty Images

Theresa May hasn't had a great start this month with Brexit. The third round of Brexit negotiations ended in stalemate, Cabinet members revolted over leaked plans to curb EU migration, and the Prime Minister faces wider Parliamentary backlash over the powers proposed in the Great Repeal Bill.

More embarrassingly, Downing Street's attempt to win business support backfired when SkyNews leaked a joint letter seeking FTSE 100 companies' backing for its Brexit strategy. Some of Britain's largest companies have reportedly refused to sign the letter 'owing to the state of chaos surrounding the [Brexit] talks'.

Downing Street has missed an important step here. If it wants to present a Brexit strategy that businesses can get behind, it's Britain's SMEs and microbusinesses that the Government really needs to reach out to. 99% of UK businesses are SMEs, and 95% are micros - businesses that employ less than 10 people. Furthermore, micros account for roughly a third of private sector employment and nearly a fifth of all private sector turn-over.

Small businesses are the backbone of the economy, and they have very serious concerns about the way that Brexit is proceeding - specifically regarding the continued question mark over EU citizens working in the UK. Despite repeatedly voicing concerns, small businesses remain in the dark over how they will be able to recruit and retain EU citizens post Brexit. This is highly concerning when you look at the growing gap between the skills required by SME employers and the skills available within the workforce.

Each year, survey after survey identifies the skills gap as the biggest barrier to SME growth, and this gap is only due to widen. Over the next seven years, around 14 million employees are expected to retire, yet only seven million people of working age will enter the market. This widening gap will hit SMEs harder than larger firms which have more resources to recruit talent in a highly competitive jobs market.

While sourcing talent is already a challenge for SMEs, particularly those in the tech and manufacturing sectors, access to the Single Market and the wider EU workforce has prevented a recruitment challenge from becoming a recruitment crisis. According to the Federation of Small Businesses (FSB), over a fifth of SMEs currently employ EU citizens, 72% of which hired their workers after they were living in the UK.

Many SMEs, microbusinesses especially, have developed employment models reliant on freelance work from EU citizens. According to PeoplePerHour, over two thirds of UK SMEs are filling skills gaps by hiring freelancers from across Europe. In many cases, teams consist of an average of three full-time employees and 12 freelancers. Managers claim this allows access to over 50 different skills while the in-house team is only able to deliver an average of five to 10 skills.

Needless to say, the reaction to Brexit from most SMEs and microbusinesses has not been positive. A FreeAgent survey earlier this year found that nearly three quarters of microbusinesses believe Brexit will have a negative impact on the UK economy. According to the FSB, 13% of small businesses would consider moving abroad in reaction to the extra strain Brexit could put on their workforce and nearly 10% would consider shutting down.

If Downing Street wants businesses to get behind its Brexit strategy, then it must urgently address the very serious concerns SMEs have about Brexit's impact on the workforce. That means recognising the importance of EU immigration in plugging Britain's skills gap, and setting out a detailed strategy to ensure SMEs can continue to recruit EU citizens without hindrance after Brexit.

More widely, there is a need for a microbusiness charter to officially recognise the significance of micros, as 95% of all private sector businesses, to UK employment levels and GDP. The needs of microbusinesses are too often overlooked in macro-policy decisions, as we are seeing with Brexit. A formal charter, which amongst other points should establish principles to make it easier for microbusinesses to hire, would help provide more security and stability for micros by ensuring their priorities are considered in the round.

If Downing Street took this approach, it would give SMEs more assurance that it is approaching the Brexit negotiations with their best interests at heart. Then its strategy might start to win genuine confidence from business leaders.