Rishi Sunak: A knight in tarnished armour
As the Chancellor of the Exchequer tightens the economic reins, many businesses may disappear. The Imprudent Accountant is concerned that the latest government plans threaten many clients and warns accountants that they could suffer as a result.
On the face of it, our still relatively new Chancellor of the Exchequer could not have taken over at a less auspicious time.
His predecessor left the office in high dudgeon, offended that many of his staff were being sacked without even a consultation. Within weeks, the country was facing a disaster unique in living memory.
Remarkably, the fresh-faced young politician managed to win over the populace in the teeth of a pandemic by promising to do “whatever it takes” to protect its citizens.
In no time at all, Boris Johnson was getting sick and then receiving the kind of opinion poll ratings that traditionally led to an early replacement. But Rishi Sunak had become a folk hero, already touted by the press as a successor long before the next election.
What has gone wrong?
From “whatever it takes” we have now moved on to the point where he is quite happy to ditch anyone in a job that is not “viable”, prospectively leaving millions on the scrapheap of unemployment. To make matters worse, his support strategies for the self-employed are little more than an inadequate sticking plaster, while many are getting nothing at all.
At a corporate level, businesses are generally being asked to take on unmanageable levels of loans, only able to survive because interest rates are currently at close to zero. While the vast majority of accountants are cocooned from the worst of the economic problems that face so many, we are heavily exposed at one remove, since they will impact on our clients.
The viability point is becoming counterintuitive. In the early stages, the definition of viability harked back to the period before the pandemic. If a business was viable then the country would support it via loans or grants. Now, viability comes down to geography and sector. If you happen to run a pub, then your business is almost certainly not viable, while owners of nightclubs are in an even worse position.
In the same way, someone running a business in Liverpool or Newcastle is far less likely to survive than an individual with an identical equivalent based in London or Bristol. This means that many of us will see clients going out of business purely because of the randomness of economic forces as they are determined by a pandemic, rather than a politician or, heaven forfend, logic.
An unusual position
Similarly, we have reached the unusual position where some directors are praying the government formally closes their businesses, thereby enabling them to receive grants and get salaries effectively paid by the government. However, re-furloughed employees will only get two-thirds of pay, potentially leaving them at below national minimum wage levels.
This government has not shown much desire to apply foresight to policy-making – hence the constant U-turns.
You don’t need a very expensive crystal ball to work out that companies with no income and significant expenditure will eventually fail. Going a stage further, if they have been obliged to take on unmanageable loans, as soon as interest rates start rising, they will fail and at the same time those that have made the loans will find themselves out of pocket.
It then follows that property owners will see significant reductions in rental income, putting them under pressure. What this does to the overall economy doesn’t bear thinking about.
While the pandemic is clearly nobody’s fault (unless you believe Donald Trump’s more extreme conspiracy theories) the failure of our government to introduce long-term strategies rather than floundering around trying to please the media could well make things far worse when we eventually managed to get back to a relatively even keel.
As the pandemic and governmental policy enter a new phase, I would suggest that all accountants keep a very close eye on clients that might be at threat, ensuring that outstanding fees are paid in a timely fashion. There may also be embarrassing discussions ahead with clients where you doubt their longer-term viability and take the fateful decision to cease acting in an effort to cut your losses.