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John Simpson

Exceptional and worrying times ahead for economy

John Simpson


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Shoppers in Belfast at the weekend

Shoppers in Belfast at the weekend

Shoppers in Belfast at the weekend

Business closures, short-time working and no work for self-employed people is now a stark reality. This is a major economic crisis on top of the health crisis. On the basis of international studies of comparable economic crises, a fall in economic activity, concentrated mainly on private sector services (such as travel, leisure, entertainment, social events, sports and transport), could see a drop in incomes of possibly 15% for a period of 6-9 months, provided that the Covid-19 is successfully tackled. Over 100,000 jobs are threatened.

The crisis may be regarded as one-off and short-term. It could have longer term effects. Government must plan for an intense impact. At the same time, Government must develop back-stop plans in case the crisis proves more enduring.

The usually unchallenged conclusion is that ‘there cannot be continuing business as usual’. Many people are hurting. Their plea is a simple one. In a modern western type economy, are there remedies or temporary arrangements to offset the impact of the crisis?

What is called for is a response, at a macro and micro level, which organises the resources of the Government to deliver a better outcome. Those Government resources lie within the remit mainly of central government at Westminster, and also regional government at Stormont and local government through the District Councils.

The crisis will directly reduce the incomes of people whose employers have seen business fall, sometimes sharply. They are innocent casualties. Government action to help reduce the impact of business collapsing is a legitimate call

In a comprehensive review of the scope for actions to offset the crisis, there must be an acknowledgement that, in addition to the financial flexibility of current budgets, as taxpayers, we may be asked to supplement the government resources by accepting the logic of using taxation to be more redistributive to provide more services where they can be effective.

The crisis will directly reduce the incomes of people whose employers have seen business fall, sometimes sharply. They are innocent casualties. Government action to help reduce the impact of business collapsing is a legitimate call.

The Northern Ireland Business Alliance has a logical proposal: a scheme to subsidise the pay of workers threatened by redundancy because of Covid-19. The Chancellor has now gone in that direction.

Westminster has already committed to extra spending of over £600bn. Part of that money is committed on behalf of Northern Ireland people. The down-side must be kept on the agenda. Higher deficit budgeting will call for restorative structures in later years. Any failure to keep the public finances within manageable structures could, unintentionally but unfortunately, create pressures that would generate higher levels of inflation. A return to former inflation rates would be a very unwelcome.

For the immediate future, policy must tackle the challenge: how do we maintain as much business as possible?

Maintaining business activity and high levels of employment will be difficult. That ambition has provoked a wide range of speculative ideas about keeping people in jobs and, if lay-offs occur, providing some form of continuing income support (at higher levels than the existing modest daily rates for sickness benefit).

The statutory level of daily sickness benefit is now acknowledged to be inadequate. That merits an urgent longer-term realignment

The initial lump-sum allowances for owners of small businesses are a short-term support to try to keep them in business.

The critical decisions are those which do something to incentivise businesses to keep people on the pay-roll. By the time that this appears in print, an ambitious partial employment subsidy will have been announced.

In anticipation, a cash payment to employers of 70% of the daily wage costs of employees (up to a maximum of £100 per day per employee) for up to 10 employees lasting initially for six months would make a useful base. Where there are more employees, the rate might be halved.

A critical test is the practicality of government proposals to meet the cash needs of the self-employed. Unusual criteria must be devised.

We live in exceptional times. Unusual short-term arrangements will be a start.

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