Former British Prime Minister and Chancellor Rishi Sunak has acknowledged that the government’s multi-billion-pound business support programmes introduced during the COVID-19 pandemic helped keep afloat companies that would otherwise have failed, prompting fresh debate over the role of state intervention during economic crises.
Writing in The Times to coincide with the United States’ 250th anniversary celebrations, Sunak argued that Britain should adopt a stronger culture of “creative destruction,” allowing weaker businesses to exit the market so that resources can flow to more productive firms. He said this approach has been a key factor behind the long-term strength of the US economy.
Sunak said one of his biggest concerns while serving as chancellor was that emergency support measures disrupted the normal functioning of the economy. He explained that the speed at which the government had to introduce programmes such as the furlough scheme, Bounce Back Loans and business rates relief left little opportunity to distinguish between companies that were fundamentally viable and those already facing serious financial problems before the pandemic.
“It is never easy to sit in the Treasury and watch a business go under, but intervening is nearly always the wrong thing to do,” Sunak wrote, adding that he fears the emergency measures altered the natural process through which stronger businesses replace weaker ones.
The comments are likely to spark discussion among business owners, many of whom credit the pandemic support packages with helping them survive lockdowns and economic disruption. At the same time, economists have warned that prolonged financial assistance can create so-called “zombie companies” that generate enough income to meet debt obligations but struggle to invest or grow.
Sunak pointed to research showing that business dynamism has weakened across many developed economies over the past two decades. According to figures he cited, the rate at which companies enter and exit markets has declined steadily since 2000, reducing productivity growth in the UK. Before the 2008 financial crisis, business turnover contributed an estimated 0.7 percent to annual productivity growth, compared with only 0.1 percent in recent years.
He contrasted Britain’s performance with that of the United States, where the country’s largest publicly listed companies have become significantly younger as newer technology firms replaced established businesses. In Britain, by comparison, many of the country’s biggest listed firms have remained in place for decades.
Sunak also argued that higher energy costs, slower technology adoption and lower labour mobility have weakened Britain’s economic competitiveness. He criticised the Employment Rights Act, saying the legislation had reduced labour market flexibility and could discourage business growth.
The former Conservative leader said governments should avoid trying to preserve every struggling company during future downturns. He argued that allowing businesses to fail when necessary creates opportunities for new enterprises, encourages innovation and strengthens long-term economic growth, even though such decisions can be politically difficult and painful in the short term.
