17 May 2022

The Business End: To do nothing will see the economy collapse

John McGowan . . . The Must-Read Business Column

The Business End: To do nothing will see the economy collapse

UK Chancellor Rishi Sunak.

Two weeks ago, I touched on the 'Economic Armageddon' that the Coronavirus would bring to the north west and to the whole of Ireland.
I was calling for the agencies involved to get their act together and respond to the crisis. Well, they say a week is a long time in politics but in this current crisis two weeks is an eternity.
When I was writing two weeks ago, I was really keeping an eye on what was happening across the EU and particularly Italy where my wife comes from. Their response in tackling the virus was a number of weeks ahead of ours and it was only a matter of time before we took the same measures.
Since then we have witnessed a shutdown right across the whole of Derry and Ireland. It has really hit tourism and hospitality as customers decided to stay away and practice social distancing.
Bars, clubs, restaurants and many more have shut up shop as customers dried up.
In my 25 years in business I have never seen anything like it.
I coined the phrase 'Economic Armageddon' two weeks ago and it really does describe what has happened. In the Republic of Ireland 140,000 people look set to lose their jobs and it may actually be a lot more.
In the North of Ireland figures of 65,000 are being bandied around as the number employed within hospitality. All these jobs are at risk. The biggest problem for business is cashflow.
There are simply not enough customers (or in many cases no customers) and therefore no revenue coming in.
My own business had a quiet January and bookings dried up in February as students stopped travelling. March, April, May and June quickly evaporated within weeks as measures to contain the virus meant many groups were not allowed to travel.
Paying all your outgoings for two months and now a third has totally exhausted cash reserves and we had to take the difficult decision to let five full-time staff members go. The others were put on reduced hours.
Hundreds of other businesses across the city were forced to do exactly the same. One month we were all profitable customer-driven enterprises and the following month we found ourselves with no source of income but many fixed costs. The only way to survive was to cut staff and reduce costs. 
Not knowing how long this pandemic will last is leaving many businesses scratching their head.
Trying to plot a path out is difficult when you don't know how long your customers will stay away.
Some people thought it was weeks but that has now changed to months and some speculating it may be up to a year.
These are exceptional times and we need the government to step up.
Last week the UK Chancellor Rishi Sunak unveiled a £350bn lifeline for the Economy. The majority of the package (£330bn) was in the form of loans. The rest of the money was targeted at rates holidays and some grants for the worse affected.
For all the soundbites, the package is totally ineffective at resolving the meltdown facing many firms. It is well packaged and sounds great, but it is loans and won't stop the jobs being lost.
Many companies have no idea how long this will go on for and to ask them to sign up to large loans which need to be paid back isn't the answer. Having clear lines of credit is an essential part of any package but not the answer.
So, what are others doing? If you consider measures other countries are doing it really begins to embarrass the UK.
It also shows the total inadequacy of their response. Remember Brexiteers always bark on about how the UK is the 5th biggest economy in the world.
Business therefore in the UK have a right to expect the UK government to step in and support the economy. You would assume they would lead globally on this. Well let's have a look at how the support offered by the UK compares.
Ireland the closest neighbour to the UK stepped up and announced sick pay for self-employed gig workers would be raised to €305 Euros a week. Self-employed gig workers in NI will get £95 per week.
This shocking difference shows the gulf between what the UK is doing versus others.
The Danish and Norwegian governments have also reacted a lot quicker than the British and their support packages for workers and businesses are a lot more generous.
Laid off workers get full pay for a month and anyone self-employed who lose their job get 80% of their average income for the past three years. Now that is real targeted support. They also announced money for anyone caring for people with Covid-19 which again is great support at this time.
Sweden announced a package worth £25bn.
Their support includes a GUARANTEE that laid off workers are guaranteed 90% of their income. The government has agreed to pay half of this is the employer pays the rest.
The government will also pay sick pay rather than the employer. Again, this is light years ahead of UK support for workers and business.
The French President Macron announced that 'no business whatever its size will face bankruptcy'.
He has said he will pump tens of billions of Euros into the economy to help.  The detail is not yet known but again it sounds like real targeted support.
In Italy the government suspended mortgages, taxes and household bills right at the beginning of the crisis.
It announced a €25bn package directly for people and business affected by this crisis.
It also passed a law on the 23rd February that banned any employer from firing people.
Parental leave was extended and a fund to help families pay babysitters was set up.
The Economy Minister Roberto Gualtieri knows this will cost billions and has told the EU that Italy will more than likely break the 3% of GDP budget deficit rule set by EU in 2020. 
I suppose my point for highlighting what other EU countries are doing is to draw attention to the totally inadequate initial response from the Tory Government of Boris Johnson.
It was a case of grabbing the headline without adding any substance. Lots of sound bites with little substance.
In 1969 the Nobel-winning economist Milton Friedman first coined the phrase "helicopter money" to illustrate the effects of monetary expansion.
This is a policy where you give money to people directly.
From 2012 economists have called it 'quantitative easing for the people'.
We are definitely looking at a global recession.
In Europe a few choppers are already up in the air.
In the USA Trump is talking about a $1trn stimulus package and within it is the idea to give each American family $1000. The chopper is definitely in the sky in the US.
So, what do businesses in Derry need? What do people need?
If this pandemic is going to continue for a number of months, we need real help. Businesses need:
- VAT and NIC payments to cease
- self-employed need all payments until July deferred
- cash Grants and not loans
- self-employed need some sort of income during a lockdown.
These are real measures which will make a difference to businesses. Loans are fine but without any idea of how long this pandemic will last firms are reluctant to take on loans which all have personal guarantees.
We need action and we need it quick. It's clear the Tories don't want to directly help people and prefer to lend support rather than give support. 
We need REAL support and we need it now. As I was writing this article, the situation kept changing. 
On Wednesday, March 18th, the Stormont Executive announced a grant of £10k for small firms and a £25k grant for medium sizes firms.
About 27,000 small firms will qualify for the £10k grant and around 4,000 firms will qualify for the £25,000 grants. The total package is £370m.
This is an exciting development and unlike the Tory plans is real money to firms that need it. We need more of this and something to support salaries.
One MLA I spoke to believe the UK government needs to 'underwrite' the economy for three to six months during this emergency. For a Tory this amounts to socialism but there is no other option.
The alternative to doing nothing is to watch the UK economy totally collapse. It is really a case of the lesser of two evils. I really do think the Tories attempted to do this on the 'cheap', but it became clear it couldn’t.
On Friday the news every company had been praying for was announced by the UK Chancellor.
He announced that the British Government would cover 80% of wages of workers unable to work as a result of the coronavirus. It would cover wages up to £2,500.
The news was greeted with a huge sign of relieve by many facing a long layoff.
Let’s wait to see the details and although the Tories came to the table late it’s a very brave and welcomed move.
I do, however, hope they do something for the self-employed who really need support.
I hope they look to Scandinavia for the template. We have to look after everyone until this passes no matter what the cost. 
Difficult times ahead but please folks do what you can to support local businesses at this critical time. As I said last week this won't last forever but when we do recover give local companies in Derry, /Donegal a turn. We need it.
I have friend called Cax who drives a taxi and he’s always telling me 'there’s a helicopter up tonight over the town so there must be something up'.
I think it’s a Derry thing.
I just hope it is one of those helicopters with money on it!
We will need it.

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