Insight: Brexit deal or no deal? Scots business owners fear the worst

Before Brexit loomed on the horizon, everything was going swimmingly for Keltic Seafare, a Dingwall-based company which produces and sells live shellfish within the UK and Europe. The fast food boom was over. The age of fresh, healthy produce had dawned.

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“The French, the Italians, the Spanish have always been seafood-oriented, but there has been a growth in this ideology in the UK as well,” says managing director Alasdair Hughson, a scallop diver who became involved in the firm after the death of his father in 2003. “There is a recognition that it’s top quality protein – and it’s live and fresh and people know its provenance.

“For a while, there were so many opportunities to export to the EU it was unbelievable. You could pick and choose – just opt for the ones you felt you could deal with, the most sensible ones.”

Those were heady days. Hughson watched the company grow from strength to strength. But the turmoil caused by the EU referendum, and then the pandemic, means it is now fighting to keep afloat.

Alasdair Hughson of Keltic Seafare

Years of uncertainty led the company to pull back from planned growth, then cut back in scale, until, in July, the tough decision was taken to make ten employees – 45 per cent of the workforce – redundant. The months running up to that decision were terrible, Hughson says, stressful and exhausting.

“We shut down the business when lockdown was announced in March, but then, within two to three weeks, we could see there was a glimmer of a market in France, so we reopened, but there was only two of us to collect and gather and transport the shellfish down to Eyemouth [where they were being packed],” he says.

“The main thing was we wanted to keep the fishermen going. It was physically and mentally horrendous for three months solid and then we had to turn round and start making decisions about the future and people’s redundancy.

“It wasn’t just about coronavirus, it was Brexit and all the unknowns around that.”

The redundancies took the company back to where it was 12 years ago. “It’s very damaging, but what else can you do? You can’t keep paying people’s wages with all this going on. It’s horrible – but you have to try to protect the core of the business, so you’re still there and can respond when and if things do improve.”

Four years after the UK voted to leave the EU, small businesses are at the end of their tether. They have tried to prepare themselves for what is coming. Aware that trading with Europe might become more difficult, Keltic Seafare shifted from selling langoustines directly to the continent to selling them to a larger company in England which then sells on to a company in France.

But how can you develop adequate contingency plans when you don’t know what you’re preparing for? “Last year, we were ready to jump how many times – was it three? It’s just ridiculous,” Hughson says.

In addition, navigating lockdown has become the priority for many.

“It’s been a long year. All eyes have been elsewhere, and many businesses are not as prepared as they might have been had a global pandemic not happened,” says Stuart Mackinnon, external affairs manager for the Scottish Federation of Small Businesses (FSB). “That’s a worry for us.”

Last week’s developments are not making life any easier. The immediate effect of the Internal Market Bill – which was drawn up to ensure there are no new barriers between the four nations of the UK after the Brexit transition period ends on December 31 – has been to heighten anger and confusion.

The legislation has been described as a power grab, a “full frontal attack on devolution” – allegedly giving powers to Westminster to override Scottish Parliament decisions on devolved matters. In addition, an open admission by Northern Ireland Secretary Brandon Lewis that the Bill breaks international law by ignoring part of the Withdrawal Agreement, has angered the EU, complicating negotiations over a trade deal, and making a No Deal Brexit more likely.

With just over three months left to go before the end of the transition period, businesses are still in limbo. Antony McCallum, of Glasgow-based House of McCallum, which blends and bottles whisky for the continent, is furious about what he sees as the government’s incompetence.

“They may believe they are playing tactically, but I don’t think the rest of Europe sees it like that,” he says.

McCallum has tried to ready himself for Brexit, exploring markets outside the EU in line with official advice, but has found it an uphill struggle.

“America’s a waste of time because it is going through a trade war with Europe and single malt has been hit by 25 per cent import taxes – so I put that on hold,” he says.

“Then I got the MBA (Master of Business Administration) team at Glasgow University to do some research for me – to see what my strategy should be in terms of expansion to non-European markets.

“They identified some Asian markets which I contacted, but you can’t go to Asia without trademark registration.

“Despite being told we should be looking beyond Europe, there has been no support from the UK government, the Scottish Government or their agencies.

“If I want to go elsewhere I have to self-finance. But trademark registration for the Asian markets costs tens of thousands of pounds, which I don’t have at the moment. So it’s a Catch 22.”

One of the things McCallum finds particularly frustrating is the amount of money being invested in Get Ready For Brexit information sites.

“They’re all very well, but it’s a bit pointless if we don’t know what we are getting ready for. I did one of those business health checks, but I was none the wiser about what I should be doing at the end of it. I think the money would be better spent providing direct support to businesses,” he says.

Like Hughson, McCallum feels previous false deadlines, which have come and gone, mean fewer companies are willing to take pre-emptive action in the run-up to December 31 for fear their investment will once again be wasted.

“The importers – whether it’s in Germany or France or elsewhere – are saying they’ve been burned twice now with Brexit deadlines that haven’t happened, “ he says. “They have stockpiled and it’s impacted on their cash flows, and they are not prepared to do that anymore – they are saying: ‘We will just take the gamble – we have been caught out twice and we are not going to be caught out again’.

“Likewise, last year I had huge issues with getting my glass on time, because the bigger companies, who use the same manufacturers as I do, were trying to produce glass bottles and get them out to Europe before the deadline. That isn’t the case today which suggests to me they are not stockpiling this time round.

“If there is a No Deal, then economically, it’s going to be a cliff-edge in terms of exports to Europe, and it’s going to impact the whole sector: not just the whisky itself but all the industries round about it – bottles, labels, transport.”

A No Deal would mean not only the additional burden of tariffs – which would be tough enough to absorb – but layers of extra bureaucracy for companies exporting to Europe.

At the moment, live shellfish from Keltic Seafare can be easily moved across the border from England into Boulogne-sur-Mer – one of the main seafood hubs. “Because we are all operating under the same rules and to the same hygiene standards, our produce can be anywhere in Europe within 36 hours with minimal paperwork and very rare inspections,” Hughson says.

“But if we come out of this with No Deal, then next year we will have to do export health certificates, which have to be signed off by either an environmental health officer or an official vet. There are very few official vets now because new rules were introduced requiring them to complete an annual course at a cost of £500, and most of them said: ‘Stuff it.’ So now we are in the position where we might have to bring a vet from 80 miles away to sign the paperwork with all the associated costs.”

The UK government has pledged the export health certificate system will be online from October, but Hughson is still concerned. “It’s supposed to be all singing and dancing, but governments are notorious for catch-all systems which don’t do what they are supposed to, so we will have to wait and see,” he says.

In addition to the export health certificates, Keltic Seafare will require catch certificates, detailing where and by which vessel each consignment of shellfish was caught.

“There is a huge level of administration involved in that,” Hughson says, “but to take it even further we sell langoustine in all different grades – from small to extra large or double extra large. A boat may land 150kg of small langoustine a day, but only four or five extra large. So if a customer orders four kilos of extra large langoustine, you have to amalgamate several boats’ catches into one box. How in the hell are we going to deal with that when it comes to proving where the catch came from – because you could have a boat in Mull, a boat in Skye and a boat in Lewis?”

Hughson says he originally figured that, together, all the parties involved – the boats, the processors, the packers, the buyers – could probably cope with a trade tariff of 8 per cent, “but you start adding logistical complications and administrative costs and suddenly there might not be a trade to be done.”

The FSB is doing its best to encourage its members to prepare for the post-Brexit world (whatever that might look like).

“Uncertainty generally around trading conditions isn‘t great for businesses especially at a time when people are close to exhausting their reserves,” says Mackinnon.

“Brexit will be more challenging for businesses in certain sectors than in others, but it’s fair to say businesses at large are facing fairly significant headwinds, and even if they don’t feel directly impacted by the pandemic or a hard Brexit, if their customers are affected by it, then they will be too.”

The organisation is also lobbying the UK government to introduce a voucher scheme for members who will be particularly hard-hit by having to make adaptations to their systems and processes after Brexit.

“The transition period will soon be at an end, but the small firms that make up 99 per cent of our business community still have no clear sense of what they’ll be transitioning to, “ says national chairman Mike Cherry.

“The economy is in a very different place today compared to the last time we were told to prepare for a no-deal outcome. Small firms don’t have the time or money to get across new bureaucracy or stockpile.

“Given that small firms have been flat out managing coronavirus-linked disruption for the past six months, the government needs to step in with substantial financial support to assist with transition preparations.

“Transition vouchers mark a sensible way forward: set sums that can be spent on expertise, tech and training that will ease the small business community’s move to a new relationship with the EU.”

For Adam Robertson, co-founder of Leith-based Kalopsia Collective, a Scottish textiles product manufacturer offering sustainable and ethical alternatives for clothing and accessories, this inability to stockpile in advance of the December deadline is worrying.

“After the EU vote, zip supplies from Germany stopped for two weeks while everyone tried to figure out what they were doing. We had lots of orders but we had to keep delaying things until we could get the zips in,” he says.

Kalopsia, which has only been manufacturing for four years, can’t afford to bulk buy in advance like other, bigger companies. “If it looks as though there’s going to be a delay to getting goods, like zips and linings into the country, we are going to have to start borrowing money and that’s not a great situation for us to be in,” says Robertson.

“We could be talking about borrowing a significant proportion of our yearly turnover. And we do not know what we are facing: is it going to be a couple of weeks of uncertainty, or a couple of months where we can’t get stuff in? We can’t risk taking action until we know for certain. We desperately need information.”

So far, Kalopsia hasn’t suffered as much as some businesses as a result of either Covid-19 or Brexit.

The business would have been forced to close its doors in March, but it was saved by a couple of sizable mask orders. In order to meet them it had to hire two more members of staff, bringing the total to six. As the demand for workforce PPE has reduced, the company has shifted towards making masks for individual consumers. “I don’t think we would still be here if it wasn’t for those orders – they were a lifeline in those early days,” Robertson says.

“As far as Brexit is concerned, it has been a double-edged sword. It has been more difficult for our clients to get stuff shipped in so they are looking for British manufacturers, but at the same time it’s more difficult for us to get the hardware in to make up the orders.

“We have seen a short-term term gain; as the pound gets weaker, it becomes more financially viable for people to make stuff in the UK both for a domestic market and for people ordering stuff in from Europe. But eventually, if it’s more difficult to get stuff out of the country it could throw all that up into the air – it’s a hard one to navigate. We are doing OK just now – sales have picked up and we are in a decent position, but every time we get another bit of news about Brexit or there’s new Covid restrictions you see the sales just drop.”

There’s another source of unease for Robertson too: his wife and business partner Nina Falk is from Sweden, and though she has been in Scotland for ten years and is married to a British citizen, the potential change in her status still heightens their sense of insecurity.

“That dread sits constantly in the background,” he says.

“We had plans to bring on additional staff, we were looking at buying our own premises, because we are in rented premises just now – but it’s hard to make any of those decisions until we know what’s happening with Brexit; until we are sure we can keep the clients we have got. It’s not about growth anymore. It’s just about staying in business.”