At Coversure small and medium sized enterprises (SMEs) are at the heart of our business. Coversure’s 90+ UK offices are all independently owned SMEs and most of their clients – be they landlords, tradesmen, or fleet owners – are SMEs too. This gives us an excellent insight into how the UK’s SMEs are faring which in turn, given they contribute £2.3tn annually, tells us how UK PLC is doing.
When we wrote the 2019 version of this blog we did so in a mood of optimism and with a sense of opportunity. The political uncertainty surrounding Brexit was (temporarily) resolved, we had a new government with a solid majority and the economy and the property market were girding themselves for a big year of growth and prosperity. Covid-19 was a page four news item regarding events in China and producers of hand sanitizer and personal protection equipment were yet to dominate the Sunday Times Rich List. Oh, how things have changed…
What hat does 2021 hold for SMEs then? As with 2019, the year seems to be leaving us on a note of unexpected hope. The Pfizer vaccine is with us, the property market – buying and renting – is flourishing and Brexit will be finally consigned to the past. So will these good omens lead to a more stable and successful 2021 for the UK’s SMEs? In this latest blog from Coversure we’ll look at a number of key sectors and try to paint a picture of what might be in store.
Brexit and SMEs
At the time of writing we are witnessing the final scenes of the Brexit saga. After four and half years of disbelief, rejoicing, missed deadlines, redrawn red lines and three changes of prime minister, the deal or no deal question will finally be answered.
The mood music over the past couple of weeks has been sombre. ‘Significant’ differences remain in areas including fishing rights, government support for business and conflict resolution. Now while EU negotiations traditionally do go down to the wire, these seem intent on bending that wire to breaking point, and while both sides say no deal isn’t what they want, the smart money is on that outcome at present.
Leaving the politics out of it (about as easy as leaving nitrogen out of air) the economics of no deal are stark. The EU is our largest trading partner. In 2019, according to the House of Commons’ Library – the UK exported £294bn of goods and services to the EU, 43% of the UK’s total. Were we to lose our free trade agreement and revert to World Trade Organisation (WTO) rules, then customs’ checks and tariffs will be implemented from the 1st January on a wide range of items. Also our financial services sector – itself worth £129bn – would be hit by the loss of ‘passporting’ arrangements which effectively allow firms to trade EU-wide without issues.
The likely shock to the economy could be severe, in the short-term at least. Tesco’s Chairman John Allan has warned of price rises and an additional 5% on the average family’s food bill. There would likely be another drop in Sterling making imports more expensive and there would probably be an increased shortage of specialist labour. Sectors like agriculture, which has become dependent on EU migrant workers, and haulage, which already employs 60,000 EU nationals as drivers and which currently needs 100,000 more could be hit especially hard.
Of course, we are not at no deal yet, and even if we do fail to reach an agreement there is a world of trade beyond the EU. A deal with Japan and Singapore has been announced and ones with Australia, New Zealand, Switzerland and others are in the offing. A deal with the US took a significant step forward last week when arrangements for Northern Ireland were agreed, something President Elect Joe Biden has said was a trade deal breaker before talks have even begun.
Looking at in in terms of 2021, no deal is not good news. No matter how fervent your belief in the idea of Leave, the short-term reality is one of a sizeable economic hit that will be felt by businesses large and small for years to come. From an SME’s perspective then, let us hope that in the coming days someone pulls a political rabbit from the hat.
The Housing Market In 2021
Always a good barometer of how well the UK economy is performing, the housing has market has swung to and fro in 2020. January saw a frenzy of activity as wait and see buyers and sellers – especially overseas investors – saw post-election certainty. London and the South East saw double figure percentage rises as the country as a whole looked to move on with things. Then COVID and lockdown hit and the market flatlined as viewings became virtually impossible or simply virtual and lenders fretted about the future and their own liquidity.
Post lockdown the market has boomed. Driven by a combination of ‘Do it while we can’ and a desire to leave cities in search of the coast and country life as remote working becomes the new normal, the Nationwide is predicting UK prices will be around 7% higher than at the end of 2019. Landlords have also enjoyed good returns with 2% rises overall, a figure that’s been bought down by a fall in London of 5.6% according to HomeLet.
But what of 2021? While this will be at the mercy of the wider economy to an extent, the fundamental problems/opportunities in the UK housing market remain. A chronic shortage of stock as revealed by the BBC’s Housing Briefing that shows we have built 1.2m fewer homes than we should have. Shelter also reported that new builds in the UK fell to pre-war levels in 2020 as lockdown left sites unattended. Add to this the continuing lack of affordable homes, the exodus from places like London to cities like Nottingham and home owners looking to sell and landlords looking to rent can expect returns in 2021.
One area where the outlook is less rosy is that of commercial property. The rush of people working from home and the rising tide of retail failures has left commercial landlords with unoccupied properties. While there’s plenty of talk of these buildings being repurposed for residential use, it’s likely that many will fall empty for a period of time and so owners would be wise to take out unoccupied property insurance.
Transport In 2021: An EV Revolution
From couriers to shop owners, fleet managers to truckers, transport affects every business and 2021 is already shaping up to be a year of big chsanges. The Government announced a £27bn programme of road building in August, Crossrail (should) open and with work getting underway on HS2, we are seeing more investment in our transport network than we’ve seen in decades. While this is all good long-term news – not least from the perspective of SME haulage, manufacturing and construction firms – 2021 will bring immediate changes that could save SMEs money and help save the planet.
The electric vehicle revolution is in full swing and is now moving into the commercial vehicle sector – electric commercial vehicles (eCVs). Various reports have stated that the EV market will reach nearly 27m vehicles by 2030 with the fastest growing area being eCV – we’ve certainly seen our first requests for electric commercial vehicle insurance quotes and demand is definitely on the rise.
eCVs are becoming common sights, and the revolution will only gather pace as the push for clean air and lower costs continues. The 2020 Budget provided fresh grants for EVs – including for taxis and vans – as part of a £532 million plan to electrify Britain’s roads. Big firms including Royal Mail, Amazon and DHL have all pledged themselves to a zero emissions future and this will drive this revolution further and faster.
In the case of heavier vehicles such as those used in agriculture and haulage – so-called special types fleet, here too EVs are making in-roads. Following on from Daimler and Tesla, new players have entered the electric truck market. Paneltex, Magtec and DAF all have models on the market and firms like John Deere now offer electric farm and plant equipment. There’s even talk of electrifying our motorways using train-style overhead gantries for electric trucks as they have on the Continent.
Of course, in the case of haulage and trucking, the elephant in the room remains Brexit. Worst case no deal scenario means lengthy queues at channel ports, higher fuel prices as Sterling falls against the dollar, loss of drivers and a loss of European based work as UK firms become uncompetitive. On the other hand, we could see the reintroduction of free ports in places like Hull and surge in exports to other nations. Time will tell, but there is clearly a lot at stake.
With lower running costs, cheaper repairs, greater reliability and a cost per mile of around 2p (versus 12p for a diesel) the eCV surge could prove good news for SMEs who are looking to cut costs. All we need is the Government to provide sufficient charging infrastructure to make this happen.
What Does 2021 Hold For SMEs?
A year is a long time in business and if 2020 has taught us anything, it’s that anything can happen. 2021 will undoubtedly bring challenges. Even if COVID is consigned to the dustbin of history, the new normal we have seen this year will leave us with legacy of heartache, public debt and business change the likes of which we haven’t seen since the war. Change, however, can be good and as we find our way in a remote working, increasingly digital and environmentally conscious world away from the EU, so opportunities will abound. Whatever happens we will survive and thrive – it’s what British business does.
Like Some Help Protecting Your Business?
If you’d like some help insuring your business, please contact your local Coversure office. As SMEs they understand your business’s needs, offer you independent advice and tailor a package of affordable protection for you.