Ignore Piers Morgan, bail out the Beckhams along with small businesses

Whether Victoria Beckham gets government funds to furlough the 25 staff at her fashion house is irrelevant – whatever a furious Piers Morgan has to say, and however big the Beckham fortune might be.

What matters is that companies such as that owned by the Beckhams are able to pay for their staff and keep their businesses ticking along until the economy comes out of deep freeze.

That such a rich celebrity is reportedly able to take part in the government’s emergency scheme is an opportunity cost that is well worth taking. If the government were to do a deep dive and scrutinise the finances of all companies which may or may not be “eligible” for the scheme, it would not be able to get the scheme off the ground in time to save those that are unable to pay their staff.

And who is to make the judgement call that the former Spice Girl – whose fortune amassed together with her footballer husband may be worth around £300m – is any less eligible than, say, a small architectural practice whose owner may have a £100,000 in the bank from an inheritance?

That would require the government to be judge and jury on who is considered wealthy. And by what criteria could it do so?

So government money going to Beckham’s fashion house, Mr Morgan, is a red herring. It’s made worse by the confected outrage with which the TV presenter has whipped up against a high-profile celebrity. The pickings are too easy.

What the Good Britain Morning presenter – and anyone who has any vestige of influence – should be outraged about is the plight facing a huge swathe of the UK’s 5.6 million SMEs and the thousands of professional owners of limited companies who will go bust because they will get nothing from the government’s various schemes.

New estimates suggest that 500,000 SME companies have already shut up shop, which means we are seeing the closure of more than 100,000 SMES and half a million employees losing their jobs every week since the lockdown began. The timing could not be more ironic: the latest figures for the three months to February out today showed that the UK was enjoying the highest ever employment rate at 76.6% before the crisis.

But the Corporate Finance Network warns that another one million businesses will also have to close over the next few weeks because of cash flow shortages, and up to four million employees could lose their jobs.

Most of these companies are the small, often family-owned multi-generational businesses, that provide the majority of jobs in the UK – anywhere between 16 million and 22 million people on some estimates.

They are the hairdressers, the garden centres owners, the restauranteurs, the plumbers, the vets and the builders who provide the bedrock of all our most basic services and are falling through the holes of the Treasury’s emergency colander.

Many of them have been forced to apply for the CBILS loans whereby the government guarantees 80% of the loan with the bank taking the rest. But many of these business owners are finding it impossible to get through the loan application process. Or they do not want to take on debt and might be unable to repay the debts back later.

Andrew Cranfield is the tenacious chairman of a new business lobbying group, 247 Business Support Group, representing more than 50 companies around the south west of the country which have been hit badly by the crisis.

He says: “Despite best intentions, the CBILS scheme is flawed in design: banks will always be answerable to their shareholders, not a government, so when they are told to bear 20% of a loan risk they will always act in their self-interest, not in the interest of the nation.”

What’s more, Cranfield says this means the British government is forcing 100% of the risk of recovery on to businesses which means that, faced with hugely uncertain opportunities and prospects, many businesses will be reluctantly forced to close rather than take on more debt.

Cranfield, who has written to Chancellor Rishi Sunak, as well as a number of MPs, draws on the paradox facing companies such as Tufnol Composites to highlight the inconsistencies in the government’s schemes.

The Birmingham based Tufnol, which supplies Airbus, GKN and GE, with high-quality engineered plastics, has been turned down for a £250,000 loan with NatWest Bank. The bank claims that because Tufnol lost money last year it would be irresponsible to support them despite forecasts showing they will make a profit this year if they can keep producing.

Here’s the sheer lunacy of the situation. Tufnol’s monthly salary payroll is roughly £160,000 a month, which the government is prepared to pay up to 80%. In two and a half months, the government will have paid out roughly £250,000. But without the loan to keep the company ticking over and investing in machinery, there will be no business to come back to. Madness.

Despite pressure from some of the country’s most influential business leaders and policy-makers, the government has ruled out topping up the guarantees underwriting the loans being provided by the banks to 100%. Only time will tell what the effect of this decision will be but it’s interesting that 100% backing to businesses is being pursued by the US, Canada, Switzerland and Germany to name a few major economies.

What this decision does not take into account is the cost to the UK’s employment, the medical costs of people without jobs, the loss of tax revenue and of course, most importantly, the public’s overall mental well-being if four million Britons find themselves without work in a few weeks time.

Add to this potentially nightmare scenario the prospect of thousands of sole directors of their own limited companies who cannot claim either furlough grants for themselves or drawn on the self-employed schemes.

Many of the people caught out in this particular niche of employment are one-man or woman professionals who pay themselves a small salary and dividends through their own limited companies.

Unfortunately, most of these one-person company directors will fall outside of the government’s help: psychologists, business coaches, journalists, graphic designers, engineers, mechanics and architects.

Many of them are set up as a limited companies not necessarily by choice but because it has become a requirement sought by their clients, most of whom demand they are incorporated.

But they are trapped. If you are a director of your own limited company and on the payroll – so employed by your own company – you are not able to furlough yourself.

You can furlough others who work for you – who are on PAYE – and they will be paid up to 80% of their salary to a maximum of £2,500 by the government – so long as they stay at home and do not work.

But if you are the company director and owner, you get nothing because you usually pay yourself out of dividends earned by the company. Limited company directors do not qualify for the government’s Self Employed Income Support Scheme — which covers 80 per cent of self-employed workers’ earnings providing they earn below £50,000 — but they are able to furlough themselves through the Job Retention Scheme.

The Job Retention Scheme pays 80 per cent of a workers’ PAYE income but excludes dividends, meaning company directors will only receive 80 per cent of their salaried wage and nothing for the dividends usually paid due to Covid-19.

While the Treasury reckons that 95 per cent of the self-employed will be covered by the scheme, there are hundreds of thousands who will not qualify because they pay themselves just the minimum salary and the rest in dividends.

At best, these sole company directors may be able to get £94 a week from Universal Credit but it’s unlikely they will qualify as many may have more than the threshold in savings.

The campaign to get this hole in the scheme plugged is gathering pace: more than 350,000 people have now signed a petition with change.org to lobby the government to change the Job Retention Scheme to include one-person companies.

And at the Treasury select committee this morning, Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed, also urged ministers to change the rules if company directors are to survive the crisis.

What the lobbyists are asking for is for government to adapt the scheme to include dividends paid to directors in its furlough scheme to ensure they are also supported.

When we come out of this crisis, it is the animal spirits of Britain’s small businesses which will drive the recovery not just the giant corporations that are likely to become even bigger and more powerful.

Instead of whipping up a silly frenzy about Beckham’s dress business, Piers Morgan should be using his fame to highlight these inconsistencies. And the Beckhams? Well, they could be persuaded to switch the sewing machines at their fashion house into making much-needed masks.