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Covid-19: Limited Company Directors

Volume 688: debated on Monday 25 January 2021

Motion made, and Question proposed, That this House do now adjourn.—(James Morris.)

It is perhaps fitting that tonight’s debate is being held on Burns night, because Robert Burns was a great egalitarian and champion of social justice, and this is an issue that at its heart is about how we treat our fellow citizens. When the Chancellor said that no one would be left behind, it was a comforting show of solidarity to all:

“A Man’s a Man for a’ that”,

as the bard would have said. But it has been over 10 months and the pleas of 3 million people left to struggle have been utterly ignored. It reminds me of another Burns quote:

“Man’s inhumanity to man

Makes countless thousands mourn!”

The reasons for people being excluded have been raised many times in this Chamber, and the case is absolutely clear. How can 10% of the working population simply be dismissed as collateral damage? On what planet does that make sense? We need the excluded, all 3 million of them. They are grafters. They are innovators. They will help to rebuild after the crisis, if we help them now. Instead, they are being ground down by poverty and despair, by a Government who claim to be business friendly.

Tonight the focus is on small limited company directors, but the issue, if not the detail of the solution, applies to all those excluded groups, and I want to emphasise again that no one should be left behind. I note today’s announcement of another proposal by the all-party parliamentary group on gaps in support. The targeted income grant scheme, costed at about £10.5 billion, would provide some support for the newly self-employed, pay-as-you-earn freelancers and taxpayers excluded by the 50:50 rule, as well as limited company directors. I welcome that contribution. After 10 months without any options drafted by the Treasury, it is getting its work done for it by the very people who have been left out, showing just how innovative and determined a group they are. I very much hope that the Treasury will take this proposal seriously and work with the excluded groups to reach solutions, not scramble for excuses to reject them.

About 2 million actively trading limited companies in the UK are micro and small companies. Collectively, they employ 7.5 million people. As the Minister knows, they fall into a separate category from the self-employed and commonly pay themselves a mixture of PAYE and dividends when their company has a profit. Many company directors found themselves unable to furlough because it would prevent them from working, which might mean the demise of the business. Some were actively excluded due to running an annual payroll with an RTI submission date after 19 March. For those who could furlough, the payments were often too low to live on because they are based solely on PAYE earnings. Many firms missed out on grants, particularly if they had no commercial premises, and discretionary grants can be a postcode lottery.

Ministers have been told time and time again of people’s plight by MPs of all political persuasions, by campaigners and by those who have first-hand experience of the difficulties. If I thought it would help, I would read out some of the heartbreaking stories I have heard, not only from my constituents here in Midlothian, but from all corners of the UK, but so far those real-life stories have bounced like water off a duck’s back. Yet despite the Treasury’s intransigence, this issue is not going away any time soon.

A parliamentary petition calling for support for limited company directors gained more than 101,000 signatures before it closed in October. Many could be watching tonight and praying that the Government do not simply trot out more irrelevant excuses for inaction. I am hoping that there will be something more solid, so I can take away more than the usual promises to listen that come to nothing. It is not enough for the Minister to tell us about what the Government have done for the self-employed or others lucky enough not to fall through the gaps. Talking of support for others suggests a continued denial of reality for those excluded and simply rubs salt in their wounds, emphasising the lack of parity and fairness.

While we are at it, let us dispel some of the myths that have been brandished to excuse inaction. Directors of small limited companies are not fat cats or wealthy tax dodgers; they have small and family businesses. Any tax advantage in partly paying through dividends was dampened long ago. Almost 1 million of this group have only a sole director, be they electricians, beauticians, shop owners or IT professionals. I also note the work of We Make Events to highlight the impact that excluding directors has had on the doubly hit events industry.

People are angry, frustrated and in despair, but we are past the time to plead the case. If the Government do not care about the human cost, perhaps warnings of the economic cost will finally cut through. It is the endgame for many businesses, and cleaning up the mess later will be far more costly than providing support now to prevent them from falling off the cliff. There are 7.6 million jobs reliant on those businesses. Many of the directors are surviving only through spiralling mountains of debt. If they go down, there will be no place for staff to go back to when furlough ends. The small-scale entrepreneurs and wealth-makers we need to lift the UK economy will, instead, be left to wither on a shrinking vine, while an unemployment cliff edge approaches.

The Treasury has had plenty of time to find a solution for all 3 million excluded, and it remains its job and its duty to do so. It has been given a head start by the worked-up proposal for a directors income support scheme—as well as the TIGS proposal I mentioned earlier—which was designed by a coalition of small business leaders, tax experts and company directors, including ForgottenLtd, the Association of Chartered Certified Accountants, the Federation of Small Businesses and Rebecca Seeley Harris of Re:Legal Consulting. It is not a fix for everyone, but it is a viable solution that would help many, and I would very much welcome support of any kind.

The DISS proposal has also received overwhelming cross-party endorsement from the gaps in support all-party group, and I am limiting my own contribution tonight to hear from a couple of colleagues on that point. I understand that the Treasury has had the proposal on its desk for six weeks now, and only just gave a full response on Friday. I know that those who worked on the proposal will want to go through the Treasury’s points fully. Indeed, they would no doubt welcome a meeting to address any concerns expressed.

I understand that there are continued concerns that the scheme is open to fraud, which seem to me misplaced at best, or exaggerated, particularly given the more gung-ho approach of this Government to so many other emergency schemes and contracts. Every scheme has a risk, of course, and it is right to minimise that risk, but it is not a reason to do nothing, as with so many previous schemes. In fact, the DISS’s very design tackles such concerns head-on.

The assumption is that the DISS will run on the same parameters as the self-employment income support scheme. It will rely not on dividends but on a company’s trading profits, which are contained in the corporation tax return, and because directors are under a strict legal obligation to provide accurate information when self-certifying, the scheme has a far higher bar to prevent fraud than many other existing schemes. It has also addressed concerns about administrative burdens, it deliberately mirrors an existing, working scheme, and it uses systems already in place and operated by the Treasury and HMRC. If the Government are still not persuaded of its merits, will the Minister pledge tonight at least to hold discussions with ForgottenLtd and other stakeholders to allow them to raise their concerns and to work together to find solutions? If there are ongoing issues, I would urge the Government not to throw the baby out with the bathwater.

Should the Government finally decide to act, let me be clear that no one scheme should be seen as a silver bullet, but simply as a first step in the right direction. Campaigning will not stop until all excluded groups receive parity. Above all else, this is fundamentally a moral issue. These people deserve to be supported in the same way that the Government have supported others—nothing more, nothing less. Nothing can justify their lives being shattered by mere technicalities. There has been no wrongdoing, and people are being punished for merely following practices set out in the Government’s own recommendations.

With that in mind, the Government’s sluggish response is almost incomprehensible. At first, the Chancellor had the nerve to paint limited company directors as fat cats not in need of support. Then the Treasury spent months scrambling for technocratic excuses not to take action. Now, thanks to the work of campaign groups and MPs, the Treasury has seen two proposals that would take the first steps towards plugging some of these gaps, while relying on the same infrastructure as other, existing schemes. There are no longer any excuses for the Government not to act. A failure to do so would simply confirm the worst fears of many—that this Government simply do not care and are willing to exclude limited company directors as a deliberate policy choice. That, quite simply, is not something that I or other hon. Members could stand by and watch.

We now go to Brighton for a short contribution by video link from a Member who has the consent of the Member initiating the debate, Owen Thompson, the consent of the Minister, Jesse Norman, and the permission of the Chair, myself, to participate in the debate.

Thank you very much, Mr Deputy Speaker. I am hugely grateful to the hon. Member for Midlothian (Owen Thompson) for allowing me to say a few words in this vital debate, and I congratulate him on his powerful words.

The Minister has engaged with me on a number of occasions about support for small limited company directors, and he can be in no doubt about my concerns, but I am pleased to have this opportunity to stress three points to him again. First, I want to check that he, the Chancellor and Treasury officials fully understand that the DISS proposal does not use dividend payments as the basis for calculating a suitable level of income support for directors. It very deliberately avoids doing that, and is based instead on CT600 taxable profits.

Secondly, as Northern Ireland has managed to develop a scheme that meets its—presumably—equally high standards on avoiding fraud, can the Minister tell us why it has been so difficult for the Treasury to achieve that? Will he take this opportunity to correct the impression that directors of limited companies are somehow less trustworthy than others who have benefited from Government support?

My third point is simply to ask whether, if the DISS does not meet with Treasury approval, the Minister will commit to coming up with something that does. I am running out of ways of explaining that some directors of small limited companies have received nothing in income support from his Government since March last year, and they are desperate. As well as the DISS proposal, he has other options that have been put to him. It is his responsibility to actively continue to engage with those affected and to find a solution.

The speed with which the Treasury developed emergency support schemes is warmly appreciated, but that does not excuse the gaps, and certainly not the fact that those gaps still exist. Company directors are being made destitute because the coronavirus job retention scheme for income taken via PAYE, as well as bounce back loans, rental support, increased levels of universal credit and other business support grants, all exclude them. Mortgage holidays are also on that list, which is especially hard to stomach for directors who are now forced to sell their homes to try to save their businesses. I hope that the Minister and his Department will finally grasp that hiding from reality does not change it. His Government are responsible for dangerous levels of despair and desperation. Up to 7.5 million UK jobs are reliant on small limited companies. If the DISS is not the right scheme, then the Treasury needs to urgently come up with an alternative, because it is both economically illiterate and morally untenable to leave these people with no liveable income.

I congratulate the hon. Member for Midlothian (Owen Thompson) on securing this debate, on his contribution, and on his tenacity and commitment in persisting with a debate on Burns night, when I am sure he has plenty of other distractions. I also thank the hon. Member for Brighton, Pavilion (Caroline Lucas) for her contribution.

Let me start by assuring colleagues across the House that I absolutely recognise the difficulties faced by their constituents, and constituents across the country of MPs from every political party, who are company directors. However, as colleagues will no doubt be aware, this is not a simple matter to resolve, for reasons that I will outline.

More widely, I think colleagues will be aware of the support that the Government have provided to individuals and businesses throughout the pandemic and the guiding principles behind how that money has been distributed. At every stage of the crisis, we have sought to support as many people and businesses as we can as rapidly as possible. To that end, we have provided a wide-ranging package of financial support worth some £280 billion. Its measures include, notably, the furlough scheme, which has protected the jobs of almost 10 million workers, while the self-employment income support scheme has so far provided grants to almost 3 million people. Let me remind the House that those ineligible for assistance from one scheme may still be able to receive help from one of the many other sources of support that are in place. Businesses may be eligible for loans and cash grants, along with tax cuts and deferrals for firms in sectors that have been hardest hit by the pandemic. We are also providing extra help to the families and individuals worst affected by this crisis with a wide-ranging package of welfare measures worth over £7 billion.

The furlough and self-employment schemes have been designed with two overriding principles in mind: the need to target support at those who need it most, and the need to safeguard taxpayer funds against fraud, error and abuse. As the hon. Member for Midlothian has recognised, it is an obligation—a duty—on the Government to keep fraud, error and abuse to a minimum, and that is what we have sought to do. This approach has meant that the vast majority of those who have requested help have been able to obtain it, while the taxpayer has been protected.

But it is important to say that the Government recognise that some people do not qualify for either support scheme, and this group includes some company directors. Let me turn to the specific situation facing this group. Directors who pay themselves a salary through a PAYE scheme are eligible for the coronavirus job retention scheme—that is, the furlough scheme. However, as Members will be aware, and as the hon. Gentleman has acknowledged, many directors pay themselves in large part through dividends while taking a small salary. Directors can claim from the furlough scheme on their salary, but dividends are not covered by this scheme, nor by the self-employment income support scheme. This is because income from dividends is a return on investment in the company rather than wages. Under HMRC’s current reporting mechanisms, which it inherited from many years before this pandemic crisis struck us, and which have been designed to meet the needs of a tax system operating in normal times, it is not possible to distinguish between dividends derived from an individual’s own company and dividends from other sources.

According to some external estimates, there are just over 700,000 active company directors, so if HMRC was to provide financial support to the 3.3 million people who typically declare dividend income on their tax returns, more than three quarters of those grants could potentially go to unintended recipients. This would be an irresponsible and unfair use of taxpayer money. By the same token, to seek to identify directors by means of proxies and assumptions would be an extremely onerous, imperfect and almost certainly inequitable method.

The Government continue to work closely with a range of organisations to explore how these schemes can support directors better, as well as others who have found themselves ineligible for the main income support schemes. It is quite wrong to suggest that we have not engaged. Indeed, we welcome any proposal that constructively seeks to address gaps in support that may exist, but as we consider these options it is vital that we always bear in mind the need to protect taxpayers from fraud and abuse, which can escalate very rapidly once it is allowed to creep into the system.

Throughout the past few months, I and my colleagues in the Treasury have been exploring proposals from some of these organisations to see whether they can provide a viable solution to the gaps in coverage and, in particular, the issue facing directors. As has been mentioned by both hon. Members, these include the directors income support scheme, which has been suggested by the Federation of Small Businesses and others. I am very grateful for the care and support that have gone into drawing up the proposal and ask the House to recognise that we take it extremely seriously. I have met its supporters. I and my officials have had detailed conversations about the scheme and have sought further information and ideas on critical areas and potential concerns. This continuing engagement has taken some weeks. At this time, however, although I and my officials by no means rely on the suggestion that the scheme intrinsically involves dividends—we recognise the construction of the scheme and the structure it represents; dividends are a means by which directors can be paid, but they are not intrinsic to the approach being taken in the scheme—I and my officials do not believe that as framed it overcomes the fundamental issues of protecting taxpayers’ money and safeguarding it against fraud and abuse.

I have raised those concerns with the FSB and the other members of the DISS group, and I and Treasury officials remain ready to engage with them on the issue. In addition, as the hon. Members mentioned, my team is reviewing the targeted income grant support just received, as proposed by the gaps in support all-party parliamentary group. As I have said, we very much remain open to other constructive suggestions.

The hon. Member for Brighton, Pavilion asked what was happening with Northern Ireland and whether the Government regarded the directors of small companies as less trustworthy than others. The answer to the latter question is of course not. We make no judgment about trustworthiness. This is a structural feature of concern about the nature of the support we seek to offer and how this particular scheme addresses that concern. As for her question about Northern Ireland, I cannot comment on that. The scheme has been proposed by Invest Northern Ireland under the Northern Ireland Executive and, as far as I am aware, it is not in any way connected to the HMRC scheme. We look to see how it will work and how it will address the needs that might exist and the concerns that might arise. We are not in a position to replicate the scheme in England and Wales, for the reasons I have described.

As this crisis has evolved, we have continued to adapt and refine the targeting of our support so that it can reach more people. Let me reiterate that our guiding principle has been to help as many people and businesses as possible through the pandemic. We have protected the livelihoods of many millions of people around the country and provided vital support to those who require it most.

We have all had to adapt during the covid pandemic, and tonight may well be a piece of history in that the entirety of a debate has been held in the Chamber of the House of Commons when none of the participants were present. That is quite incredible. I thank the half a dozen people who kept me company for the last half hour, which was amazing. Happy Burns night. I suspect that quite a few drams will be drunk virtually this evening, if not virtually drunk. None the less, happy Burns night everybody.

Question put and agreed to.

House adjourned.