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Weathering the storm: how Brexit affects UK social enterprises

Weathering the storm: how Brexit affects UK social enterprises

Published by Pioneers Post (Lee Mannion) 27th May 2019

Delays and disagreements have made Brexit both a seemingly unending source of frustration and the butt of many a joke. But for those trying to run businesses, it’s no laughing matter. In our cover feature of Pioneers Post Quarterly issue 13, we find out how social enterprises have been affected, and assess the impact of what’s turning out to be a protracted and messy divorce

However you felt about the outcome of the referendum in June 2016, in which Britain narrowly voted to exit the European Union (EU), at least there was plenty of time to sort it out. Even if the relationship was long-standing and legally intricate, and even if the EU was famously bureaucratic, nearly three years was time enough… wasn’t it?

Numerous debates and various votes later, and it’s still unclear how – or even when – the UK will leave the EU (at least at the time of going to press).

It’s that uncertainty that’s making business decisions difficult. “The kind of Brexit that we want is one that happens quickly,” says a clearly exasperated Karen Lynch, CEO of Belu, which uses profits for clean water projects in developing countries. “The key thing we need to know is where we stand, quickly. To know the problems that we will be facing and to be able to work through them.”

Lynch is frustrated, not least because planning for what she calls “what if? scenarios” take up time that could have been invested in something much more productive. A tweet she posted during a series of Brexit votes in parliament in March summed up the sentiments of many: “Imagine how different today might feel if we had put all the energy and financial resources invested into negotiating #brexit into building a fairer and more inclusive society with #socent at its heart.”

Planning ahead

Other UK-based social enterprises aren’t waiting for a clear decision before they act. Divine Chocolate uses cocoa sourced from Ghana; the cocoa travels to Holland, where it is processed and sent to Germany where the chocolate bars are made before being transported to the UK market. The German factory also sends chocolate to other factories, including in the UK, that make specialist products. Its supply chain is clearly affected by the UK’s planned departure from the EU.

Rather than continue to use Calais port, which only exports to the UK, the company has committed to moving its products through Rotterdam, which already exports internationally and so is already set up to trade outside of the EU. Divine also bought a warehouse in Sweden last year so it can service European customers from inside the EU trading bloc.

The UK press has churned out headlines of stockpiling woes and anxious doomsday preppers, but, for Divine at least, ensuring sufficient levels of stock is reality. For its 18 staff, Brexit has already proved hard work, involving difficult financial decisions. “This has cost us time and money and we’re a very small team of people,” says Divine’s CEO Sophi Tranchell.

This has cost us time and money and we’re a very small team of people

“We’ve already had to [increase levels of] stock, create a second warehouse, and put stock that we manufacture in Britain into that warehouse so it’s there ready to service any potential export customers,” she says. For a small business, that’s a big deal. “That’s a significant increase in stock and therefore a significant level of capital… which means we’ve had to have conversations with banks.”

The kind of Brexit that would best suit Divine, Tranchell says, would be to either not leave the EU at all, or give people another say by way of another referendum. But either of these outcomes would also cause her a different concern.

“In the process of what has been described as not doing the people’s will, how much do you create more friction?” she ponders. “What does that do to an already polarised society? What this has done is show a failure of politics and democracy on such a high scale that you’ve already done lots of damage.”

Some worry that the problems social enterprises try to address will worsen after Brexit finally happens, with deep social division – the former CEO of England’s National Council for Voluntary Organisations (NCVO), Stuart Etherington, has called it “almost a civil war without guns” – rising prices and decline in overall public spending all looking possible. That may mean more demand for the work of social enterprises, but also a tougher environment in which to deliver it.

Josh Babarinde runs Cracked It, a smartphone repair service that doubles as a vehicle for bolstering the self-worth of the at-risk young people and ex-offenders who make up his workforce. The founder and CEO worries about the potential consequences of Brexit on his venture’s social impact, particularly given rising knife crime in the UK (many of his staff formerly carried knives).

“The very same politicians who are complaining about the scourge of knife crime are the same politicians that are voting for Brexit, which is going to have a negative impact on our economy and a negative impact on my business’s ability to succeed,” Babarinde tells Pioneers Post. Most of Cracked It’s revenue comes from offering phone repair services in corporate offices. For every multinational firm with offices in the UK that moves abroad (or signals intentions to do so), the “pool of prospective clients shrinks,” says Babarinde. “It means there is less custom to fuel the social impact work that we do.”

The pool of prospective clients shrinks... it means there is less custom to fuel the social impact work that we do

Should we worry about corporate support for social enterprise more broadly? Social Enterprise UK’s director of external affairs Andrew O’Brien admits there may be some instability, but dismisses concerns.

“The individual players might be changing, as they do all the time, but the broader picture about a growing movement, a growing corporate demand to work with social enterprises, I don’t think that is going to change. If anything, we see that accelerating,” he says. Indeed in April, five new companies joined Social Enterprise UK’s Buy Social Corporate Challenge, an initiative to encourage corporates to spend £1bn on social enterprises through their supply chains.

Better times to come? 

For others, contingency planning is not a priority. In Swansea, Wales, Red Dragon Flagmakers employs around 20 full and part-time staff who have “fallen through the cracks”, as CEO Jo Ashburner-Farr describes them – people who face barriers to employment such as having a disability or mental health issues.

The company has trebled its turnover in the last five years, has international customers including the European Space Agency (not an EU organisation, so not affected by Brexit) and has just won a contract with Amnesty International. “We have looked at contingency plans but nobody knows what is going to happen. It’s a waste of time for us to try,” says Ashburner-Farr. She is bullish about the future, whatever happens with Brexit. “We are not risk averse. If we were risk averse we wouldn’t be doing what we are anyway. We are paying a living wage. We make an expensive product. We are bucking the trend with manufacturing anyway and we’re making it in Britain, with all the overheads that come with it,” she says.

Like others, though, she wants decisions quickly. “The Brexit that we would have liked would have been like a divorce: clean cut and get on with it. Once the dust has settled, Britain will be the leader again.”

Money worries

Around one in 12 UK social enterprises gets some income (grants or investment) from the EU, totalling around £60m a year, according to Social Enterprise UK estimates. One of these is Enhance Social Enterprise, a business support scheme in Devon, south west England, that has benefitted 171 social enterprises to date and is funded with £1m from the European Regional Development Fund. But programme manager Richard Snell isn’t concerned about the impact of Brexit and is confident of future funding. “The programme is running until the end of 2019 so there’s no change in the investment or the timeline. In terms of what happens after... indications are there will be some form of funding for this sort of economy stimulant,” says Snell.

Indications are there will be some form of funding for this sort of economy stimulant

While everyone is in the dark on long-term funding prospects for now, in the shorter term there’s a sense that there’s no point in panicking yet. The draft withdrawal agreement states that the UK would continue to participate in the European Regional Development programmes until they end in 2023, subject to a final negotiated agreement. As the sticking points to any agreement seem to be the Irish border and the associated requirement to be bound by EU rules for an unspecified period, this seems unlikely to change. To avoid uncertainty, the Chancellor has guaranteed funding would continue until 2020. The same guarantees apply to other sources of EU funding including the European Social Funds. The government has recommended that businesses continue to apply for EU funding with the confidence that it will guarantee it in the event of no deal.

As cheerleader for social enterprises in the country, Social Enterprise UK seems to be mostly concerned that Brexit has taken up ministerial time that might otherwise have been spent advancing the cause of the sector. O’Brien, who himself previously worked in government, rounded up 130 social enterprise leaders to ask the Chancellor to consider tax reform for them to no avail in October 2018.

“I’m not saying that government has ground to a halt because that would be unfair. But the big vision piece has really been obscured by Brexit and politicians need a vision to implement policy. If you try and get technical changes on tax or regulation without vision for what politicians are looking for, it’s very hard to get anything changed,” says O’Brien. “What we should be talking about is: what is the economy we should be driving towards? It is a massive concern.”

After all the debate and legal wrangling has died down and something has been agreed, there will be a silver lining though, thinks O’Brien, who meets politicians regularly.

“The positive thing is that when Brexit concludes, there is now a real appetite to talk about some big, meaty issues around the economy and society,” he says. “We’ve done the technical, procedural stuff to death. It’s now about building a vision of a better society, a better planet. I think politicians are ready for that, if they can just get the Brexit thing off their back.”

Jo Ashburner-Farr
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