Rishi Sunak Is Risking Jobs, Recovery and the Conservatives’ Reputation on Economic Competence

Rishi Sunak Is Risking Jobs, Recovery & the Conservatives’ Reputation on Economic Competence

Mike Buckley highlights one forgotten group which the Chancellor has not offered support to during the Coronavirus crisis, but which will be key to the UK’s economic recovery

The Conservatives’ reputation for economic competence is somehow almost impregnable. 

The 2010s saw living standards rise at their slowest rate since the Second World War even though the economy and employment both grew. More people in work created limited growth but this disguised the slowest productivity growth of any decade since the Second World War. The net result was stagnating wages and living standards – one factor in the political alienation that led to the Brexit vote. 

The Government’s inability to manage the economy effectively has continued through the Coronavirus pandemic. By last summer, the UK was the worst-hit among major economies. Now that the self-inflicted harms of a hard Brexit have been added, the prospects for the economy are worse still. 

Despite all of this, the public has still given the Conservative Party the benefit of the doubt. In a poll last August, YouGov found that twice as many as those surveyed favoured the Conservatives’ ability to run the economy to the Labour Party’s. They take this reputation with them into almost all elections, giving them an in-built advantage with a public which tends to prioritise the economy above all else. 

Despite presiding over the worst economic outcomes in the developed world, Rishi Sunak is incredibly popular – last September, he polled as the most popular Chancellor for 40 years. 

His personal popularity is the result of the furlough scheme he established for employed workers, as well as the similar support in place for the self-employed. Sunak has spent big to support workers during the COVID-19 pandemic and, broadly speaking, the public believe that he has got the level of support about right despite its huge cost to the public finances. 

There is no doubt that Sunak has got some things right. Furlough and self-employment support have protected millions of households. Unemployment would be far higher and poverty far greater had they not been in place. But, this partial success hides huge gaps in provision which threaten millions of jobs and economic recovery from the pandemic. 

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The Forgotten Group

By design, Rishi Sunak excluded specific groups of employees from his support schemes. PAYE employees lose out if they are paid annually rather than monthly. Self-employed workers are excluded if they did not have full year accounts for 2019-2020 or if self-employed income is less than half their total pay. The numbers are not small – together this amounts to around two million people. 

But it is the third group that has the worst implications for Sunak’s judgement and the economy. He intentionally excluded limited company directors, arguing that, given they were paid through dividends rather than through the PAYE system, it would be impossible to separate employment from investment income. 

The numbers are staggering. The Government likes to claim that there are ‘only’ 900,000 companies affected – but many companies have multiple directors, meaning that there are two million directors who have had no Government help since the pandemic began. Some businesses have been relatively unaffected by the pandemic but many have struggled, some catastrophically so. 

Sunak has chosen to put two million jobs and two million businesses at risk. Worse, he risks the eight million jobs created by these businesses. If the businesses fail to survive beyond the pandemic, there will be millions of people needlessly joining the unemployment register. Lost companies no longer pay tax or employ people. Instead, their former directors and employees will join the claimant queue. 

Sunak claims that businesses have had support, pointing to bounce back and other loans. But all of this is debt which needs to be repaid, in stark contrast to grants given to the self-employed. Directors have been further hamstrung by the requirement of not to work if they furlough themselves, unlike the self-employed who have been able to take grants and work. 

Forgotten Ltd, one of the grassroots campaigns that sprung up to represent those excluded from support, says that many companies are effectively defunct, surviving only on paper to keep their staff on furlough. Once furlough ends, the companies will fold, ending jobs in the process. 

Half of businesses expect to lay-off workers when furlough ends. According to the Government, there are 9.9 million workers on furlough. Put those numbers together and the scale of the problem becomes clear, yet Sunak refuses to act. 

The question is: why? Excluding company directors makes no sense for Sunak. In theory, he should want the economy to bounce back strongly from the pandemic, in which case he should want as many businesses to survive to generate economic output and employ workers. Instead, he is refusing to spend now to safeguard companies for later. 

It also makes little sense for the Conservatives politically. Forgotten Ltd surveyed its members and found that two-thirds of directors were former Conservative voters, but that none would consider voting for the party again because of their experience.

Labour too has failed to capitalise on the issue, perhaps through fear of being seen to speak out for company directors in the middle of a pandemic, but the eight million employees of the businesses would give the party an easy way to frame its argument.

Parliamentary support has fallen to the biggest All-Party Parliamentary Group of MPs in history. 261 MPs from all parties, including many Conservatives, have called on the Chancellor to support excluded groups, even going so far as to develop means by which they could be helped, which resolve all of Sunak’s qualms about potential fraud. Yet, still Sunak refuses to act. 

The grim truth is that the end of the pandemic is unlikely to be rosy for the UK. Economists predict that the economy will be one of the last ones to recover. They warn that the next decade will be the ‘groaning 20s’, with soaring unemployment and a return to austerity likely. 

By failing to help company directors now, Sunak is making all of this worse, risking an already fragile recovery and his reputation in the process. A decade into their mismanagement, this mess may finally dent the Conservatives’ reputation for economic competence.