Why has Britain Failed Its Businesses when Other Countries have Protected them from the COVID Crisis?

Why has Britain Failed Its Businesses when Other Countries have Protected them from the COVID Crisis?

Mike Buckley reports on how the decisions of other governments to provide more comprehensive support to businesses during the pandemic will likely put their economies in a much stronger position than the UK’s

As the number of vaccinations rise and variants are kept at bay, it is tempting to feel as if the Coronavirus pandemic, at least here in the UK, is on its way out. While the number of deaths and intensive care unit beds occupied are still at levels that would have shocked a year ago, most people are looking ahead with hope, or fear, as to what comes next. 

For many, this will be a return to ‘normal’. But significant numbers of people are facing a radically different future. Far too many have lost loved ones. Others have lost jobs or find themselves or their children struggling with Long COVID. 

The economy too has its winners and losers. Some companies – the Amazons, Deliveroos and Just Eats – have done well out of the crisis. Others have had significant public support from the Treasury, ensuring that they will be able to continue operating as soon as lockdown restrictions are relaxed. 

But, from the beginning, there have been companies and workers left without support, often for arbitrary reasons: the self-employed who fell on the wrong side of an accounting date; freelance workers in the arts whose contracts dried up; company directors who are often effectively self-employed, their only crime being to run their accounts through a different Government system. 

The Chancellor’s excuse is that it is too complicated to support all of these workers without opening the system up to the risk of fraud – a risk that failed to concern the department when giving out multi-billion-pound ‘Test and Trace’ contracts or allowing businesses to over-claim from the furlough scheme. 

The largest group of abandoned workers are the two million company directors who between them run 900,000 micro and small enterprises. Repeated attempts to persuade the Government to provide support have been met by a refusal to engage with solutions and a list of excuses, from potential fraud to its inability to get IT systems in HMRC and the Treasury to talk to each other. 

Where support has been provided it has almost exclusively been through loans rather than grants. But companies cannot survive on debt. What grants have been available have been arbitrary, accessed through local councils with no parity of support from council to council. In most cases, businesses without premises – a huge proportion of micro enterprises – have been overlooked entirely. 

The need to re-pay loans is a constant draw on profits and a disincentive to invest. Companies are held back and more likely to fail. The result will be “a wave of COVID-related bankruptcies,” according to LSE economist John van Reenen. In February, he calculated that 906,000 UK businesses are at “serious risk of failure”. Their loss would leave 2.5 million people out of work. 

Van Reenen and others have proposed solutions to the Government. CityUK advocates for a UK Recovery Corporation to restructure debts and give companies space to grow. Van Reenen suggests debt forgiveness, giving companies a strong incentive to invest and the best chance of recovery. The Labour Party wants Government loans be treated like student debt – re-paid only once a business has returned to profit. 

Rishi Sunak has ignored them all. He is already forcing firms to start re-paying the £71 billion of Government debt that they have accrued during the COVID-19 crisis – even though the country is still in lockdown and many businesses remain closed. 

This lack of support is increasingly forcing companies to close, driving former directors and their employees – affected businesses employed 7.6 million people at the start of the pandemic – onto benefits. 

Needlessly losing so many businesses makes no sense for workers, but nor does it make sense for the economy or Treasury. Support now would provide companies with the chance to contribute to the recovery and keep more people in work. It would be far easier and cheaper for Sunak to save existing companies than allow them to fail, increasing unemployment in the process and, in some cases, defaulting on Government-backed loans. 

The heart of Sunak’s excuse for his refusal to help small business owners and other excluded groups is that doing so is too hard. But this does not stand up to scrutiny. As well as the ignored solutions offered to him is the fact that other governments are providing the support he claims is beyond him. 

There are many examples of other administrations around the world doing far more to support self-employed workers and company directors, and to protect small and micro businesses, from the worst impacts of the crisis. 

Countries across Europe are making a concerted action. The German Government is providing non-repayable grants to cover fixed costs, whatever a company’s size. Belgian companies are receiving up to €1,600 per month. In Denmark, struggling small businesses are receiving up to 75% of lost revenue and help with fixed expenses. French small businesses can access grants if their turnover falls by more than 70%. Many nations offer specific help to start-ups, aware of their potential future value. The EU itself has taken significant action to help small businesses across the bloc. 

Beyond Europe, both developed and developing countries are taking action. Australia is offering grants. Middle-income nations such as China, Korea and Chile are providing subsidies and grants to keep small businesses alive, aware of the need to support owners and workers now and to position the economy for recovery later. 

All of this makes the UK Government’s failure to support small and micro businesses all but inexplicable. There appear to be few advantages. Sunak is spending a little less money now, but will spend it later on unemployment support, other benefits and defaulted loans. He is making the recovery harder and longer. He is endangering any chance of ‘levelling-up’, with most affected businesses based outside London. 

Some believe that Sunak is attempting to use the crisis to rebalance the economy away from small companies to large corporates. The UK has longstanding low productivity compared to other countries. Many studies show that worker productivity is higher in large organisations, which makes sense given a small company director’s need to run the organisation on top of completing contracts. More than half of the UK’s companies are small and micro; the reverse is true in the US. 

If this is true, Sunak is guilty of sacrificing thousands of companies on the basis of an unproven theory. He is making the lives of thousands of people harder in the midst of a public health emergency. He is sacrificing businesses that could have become the big employers and innovators of the recovery and failing to recognise that large companies need services from small ones to thrive and grow. He is pushing businesses to ruin at the same time as that other economically disastrous Government policy – Brexit – disproportionately harms small business. 

“We will support businesses, and we will help you protect your loved ones,” said Rishi Sunak last March. “We will do whatever it takes.” One year on, those words ring hollow to the four million UK tax payers and their families still surviving without meaningful Government support.