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View from Manchester: The director's cut

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A series on those outside the government’s Covid-19 income schemes continues with the experiences of an SME company director.

It is widely believed that those excluded from the UK government’s Covid-19 income support schemes fall mostly in two categories: (1) self-employed tradesmen and women; (2) the arts and media.

These groups have higher profiles and represent major contributors to both national infrastructure and the economy. There are also clear instances where the two areas cross over. For example, in terms of civil and structural engineering as well as the built environment, or in the maintenance of the UK’s communications networks.

But in terms of high technology, the problem goes further and deeper.

Mostly by request, names have been changed in what follows, though the main reason why will probably become clearer later in this week’s series on excluded engineers. We start with why there is a problem of scale, partly explained through the experiences of one of those affected.

Richard’s story contains recurring themes I have encountered since beginning to research the government’s financial response to the coronavirus in March. He launched a design company five or so years ago and is part of the largely excluded group made up of directors who pay themselves mostly in dividends (though he would qualify to receive 80 per cent of what he receives as PAYE income, if he chose to furlough himself).

“The benefits [of being paid in dividends],” he argues “are relatively modest, a lot less than people think. It’s roughly a couple of percentage points for a director taking a responsible sum out of a business. And if you’re doing it right, all of that is going to be fed back into the business.”

One slice of good news is that Richard’s company has been able to furlough one member of administrative staff, but furloughing himself would be another proposition. He is concerned that doing so would effectively invalidate the viability of the company, never mind the fact that the sums he could claim would be too small: “That’s how it works – people pin their fixed outgoings to their fixed income.”

So, Richard has tried to find ways to keep working. But, as he and others in similar positions have discovered, this has not been straightforward.

“We have long managed contracts online. We have European clients, Asian clients as well as those here. But we have found that as companies have sent staff home, they have put stricter security in place. That's sometimes meant shutting out contractors entirely. There has been more hacking chasing IP during Covid. So internally, homeworking might be providing a solution, but less so when it comes to partners – and in that light, I can see why,” he explains.

“But the hard truth is that some clients now look set to go out of business themselves, including ones that we’re not working for now but were set to later in the year. Others are having to pull back. If they judge what a consultancy offers is optional or something they can do themselves, that’s it. And, of course, the payments for what we are able to do are arriving later all the time.”

Richard’s story is mirrored by the comments of other company directors I have been spoken to separately. An extra point they almost all raise is that while the government says that there are business support loans separate from the income support people like them are barely receiving (if at all), these are also problematic.

“Loans have to be paid back, and if you’re looking at your customer base either shrinking or cutting back – and with no guarantee anything’s getting better soon – loading debt on the business is very hard to justify,” Richard explains. “And then, you need to remember that if you take a loan, it has constraints both in terms of what it’s used for and the tax liabilities you might run up. You almost need to go through how it’s used line-by-line with your accountant.”

Richard and his wife have savings. They expect to be able to see things through, personally at least. Not everyone, as we will see, is so lucky. But he is still extremely angry.

“We have both paid our way in taxes and contributions for almost three decades. And at a time like this, we think it’s not unreasonable to expect an appropriate level of support to everyone else. But instead we’ve been ignored completely or offered things that are mostly useless. The gulf in our treatment is massive,” he says.

Moreover, it is not just the frequently cited issue of fairness that has left him raging.

“This government claims that it understands ‘technology’. Does it hell,” he says.

“We have a British digital economy that is heavily based on having access to expert teams that can form and then uncouple around projects quickly and efficiently. Yes, there are the big companies (but they use companies like us too), but the process needs this bedrock of specialist small and medium-sized enterprises that have a real focus on critical disciplines.

“This government’s Covid policies are killing those companies; they’re killing SMEs generally. They do not understand how our digital economy is structured, how it operates and the problems we face. And when those companies have gone, Mr Cummings can have as many digital dreams as he wants – they’ll be going nowhere.”

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