Rishi Sunak has admitted that the multibillion-pound business support schemes he designed as chancellor during the crisis included companies that “should have” gone under, in a surprise admission that has set off a debate over how far the state should go to keep struggling firms alive.
Writing in the Times to coincide with America’s 250th anniversary celebrations, the former prime minister said Britain must learn to embrace the “creative destruction” that has powered the US economy ahead of its rivals, even if it means watching more businesses fail.
“It has never been easy to sit in the Treasury and watch business go under, but intervention is almost always the wrong thing,” wrote Sunak, adding that the rush to put together Covid support programs has left no time to distinguish between weak firms and active businesses that have been disrupted by Lockdowns. “As chancellor, this is one of the things I was most concerned about: have these interventions improved the natural processes of the economy?
The intervention will adversely affect hundreds of thousands of small business owners who lend money, repay loans and business expenses for their survival, but Sunak’s diagnosis of the UK’s fundamental malaise is hard to dismiss.
At the heart of his argument is the argument that the British economy has lost its momentum. Almost one in ten UK listed companies is now a so-called zombie company, generating just enough cash to cover its debts and little else, a figure that has doubled since the financial crisis. As Business Matters reported earlier this year, a new wave of zombie firms is already facing collapse as HMRC begins to levy pandemic-time tax.
Sunak points to an OECD study on the decline of business power that shows that firm entry and exit rates have fallen by nearly three percent in all developed countries since 2000. Before the financial crisis, a flurry of firms entering and exiting the market added an estimated 0.7% to UK output growth. That contribution has already dropped to just 0.1 percent.
The contrast with the United States is stark. The average age of America’s 20 largest listed companies has dropped from 124 years in 2010 to 50 in 2025, as new technology firms displace older incumbents. In the UK, the equivalent figure rose from 94 to 121 over the same period.
The result, Sunak says, is an economy where neither labor nor capital flows into the most productive areas. UK GDP per head now sits 42 percent below America’s, and the Office for National Statistics shows that Britain’s output per hour worked has trailed the US, France and Germany for four decades, although as Business Matters has previously explored, not everyone accepts the conventional reading of Britain’s productivity numbers.
Sunak attributes America’s outperformance to four factors: cheap and abundant energy, with British firms paying four times as much for energy as their US counterparts; rapid technology adoption; the status of the dollar reserve; and, above all, a culture that treats business failure as a normal part of business rather than a political emergency.
The former Conservative leader spared some criticism of the Employment Rights Act, which he described as “sclerosing” legislation that undermined Britain’s dynamic labor market, and which any future growth-minded government would have to scrap. The law, which cleared its last leg in parliament last year, has drawn repeated warnings from small businesses about hiring costs and court risk.
His conclusion is unlikely to win many votes, but it is refreshingly bright for someone who once sat at Number 11: “We cannot, and should not, wish to save every business. We must learn to love creative destruction or see our economic power destroyed.”
For SME owners, the message cuts both ways. A dynamic economy promises cheaper capital, better labor and greater opportunities for many producers. But it also means that the next time disaster strikes, the safety net may be much smaller.
