Today
Sun 5 December 2021

Mike Buckley assesses how the Chancellor is making an economic and political error by continuing to not provide support for company directors, representing 900,000 businesses

Chancellor Rishi Sunak claims that his pandemic support package has shown that the Government is putting its “arms around every single employed person in this country” and, on some measures, the support has been successful. The furlough scheme has kept millions of workers in jobs that would otherwise have long since disappeared and many of the self-employed have done well from their own support package – all the more since they have been allowed to continue trading while receiving Government grants. 

Sunak could have used his latest Budget to plug gaps in support schemes that have endured for almost a year but he made just one concession – adding a relatively small group of self-employed workers who had been excluded. Sunak claims that this will help 600,000 additional workers, although figures from the Office for National Statistics show that the true number is a bit more than 150,000 people.

But, despite his warm words, Sunak again refused to help the last remaining significant group of excluded workers: company directors. Two million directors representing 900,000 businesses have been left without support from day one and many of their businesses have been unable to trade, yet Sunak and the Treasury have refused to act. 

Sunak argues that these businesses have had access to Government-backed loans but, as Labour Leader Keir Starmer said in response to yesterday’s Budget, businesses drowning in debt are not in a position to build or thrive. To make matters worse, the Government is requiring them to pay back their debt from this coming autumn regardless of whether they are in profit, making recovery all the harder. 

Campaigners working with supportive MPs from all parties, including Sunak’s own Conservative Party, have developed a support scheme which they believe addresses the Treasury’s concerns. But, while Treasury officials have listened they have refused to act, and when challenged after the Budget, Treasury Minister Steve Barclay gave the same tired excuses as Sunak gave a year ago

The big unanswered question is why the Government is doing this. It makes no sense economically or politically. 


Sticking the Knife In?

Economically, the Government’s actions will harm a large and central part of the economy. The majority affected are micro businesses which turnover less than £2 million per year. Together with small businesses, which turnover between two and £10 million, they make up more than 99% of all UK companies. 

The 900,000 businesses excluded from support collectively employ two million people as company directors and a further 7.6 million as employees. Almost 10 million – around a third of the entire UK workforce – are affected. For the sake of extending worker support to this one final group Sunak is risking lost output, lost tax income and higher unemployment on a massive scale, all with no word of explanation. 

Campaigners say that increasing numbers are being forced to close. Many have put their staff on furlough, but this is only possible for as long as a company survives. One director said this week: “We employed 28. Two were made redundant in October (late extension of furlough caused that) and apprenticeship cut short. I have told [the] remaining 25 this week that they are laid off from end of March as zero director support makes it unviable.”

Sunak’s actions make just as little sense politically. Forgotten Ltd, a campaign group working on behalf of excluded workers, found that two-thirds of their members are former Conservative voters – but only 2% would consider voting Conservative in future. One director described Sunak as “creating a hostile environment for entrepreneurs”: “We thought the Conservative Party had our back but it turns out the only use they have for it is to stick a knife in.”

Some fear that Sunak aims to kill off or cut-back their entire sector, believing that he wants to force directors into PAYE employment, perhaps based on a lazy and inaccurate belief that people become directors to avoid tax. In reality, tax differentials are marginal at best and are more than outweighed by directors’ lack of access to holiday, sick pay and other employee benefits. 

Things could yet get worse. Sunak is threatening to equalise tax paid by employed and self-employed workers, including company directors, despite the fact that doing so would remove any incentive to take on the extra costs and insecurity of starting and running a business. As one director said, who had put his home up as collateral for a business start up loan: who would take that risk if there is no possibility of reward? 


Time Running Out

Sunak has a way out. Labour proposes treating COVID-19 business loans like student debt, meaning that they would only be repaid once a business is in profit. This would give businesses breathing room to recover, if necessary for years to come. 

More immediately, the Chancellor should implement the support scheme developed by campaigners and MPs. Doing so would not mean special favours for directors – the scheme simply provides parity of support with the Government-backed self-employment scheme that has operated since last spring. 

But Sunak is running out of time. With every passing week more businesses look likely to fail due to a lack of support, which means that more people will be claiming benefits, there will be fewer people in work, and fewer businesses available to aid economic recovery. 

The economy is already in crisis. Boris Johnson’s incomplete Brexit deal will cost the economy 4% of national output, according to the Office for National Statistics – which equals huge and ongoing damage that will be disproportionately felt by the poor and vulnerable. The UK economy has been among the hardest hit during the Coronavirus pandemic, due to pre-existing weakness and poor Government decisions around lockdowns.

By forcing previously viable businesses to close or to find that their only means of survival is to take on unsustainable volumes of debt, Rishi Sunak is adding further pain to an already weakened economy. The problems in our economy run deep and the Chancellor did little to address them. By failing small businesses, their owners and employees, he is missing an obvious opportunity to help. 

Mike Buckley is director of the campaign group ‘Labour for a European Future’

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