Business will see many changes in how it operates in the future as will many staff as the lessons learned and work practices are changed. Government too will be faced with some new challenges, but also with all of our pre-existing challenges. The current crisis has for me just accelerated the need to properly deal with these challenges as a small and close community.
I cannot believe why there was any hesitation voiced about the decision of government to borrow. This is the right and sensible approach to help fund the extreme and short-term term finance requirements of Government. The immediate problem is cash, or a lack of it, in local businesses, households and reducing cash inflows to Government. Spending will have collapsed, and a lot of the local economy will have been the most impacted. This decision to borrow will help the economy, help business confidence and keep the raft of small to medium sized local businesses (the backbone of our important local economy) with a funding lifeline. For me, these support measures for business and employment will need to be retained for a lot longer than most people may be imagining.
We must recognise that you cannot just put the economy to sleep and wake it up months later. Government is in a battle to limit the economic damage from the crisis and we will now be focusing on this as the teams overseeing our health measures can hopefully continue to ease us out of lockdown. The cost of the economic measures implemented by Government cannot be met for any real length of time from our existing reserves as to deplete those, crystalise investment losses, break investment strategies etc. does not make sense when borrowing rates are low and expected to remain that way for some time.
We have a good international reputation as a stable fiscal jurisdiction, we can borrow, we are a good credit risk and the debt to GDP ratio will be manageable. Even more so if we can come out of lockdown and start to grow back our economy. That revival and growth of the economy should, in theory, inflate away the debt to a certain extent but be under no illusions, this will be a tough ask of us all living in this island.
We can split our economy into two sections being domestic/local and international. Our internationally-focused financial services sector, despite certain strains, remains the vital component of our economy. Employment levels have been largely maintained, working from home has worked, business has continued to trade, and taxes have continued to be paid. We are only 63,000 or so people and to have any standard of living we need to trade externally, and this vital sector and its future needs must be focused on in the medium term by our policymakers.
For now, the immediate priority for Government must be the local economy. The local economy that relies on spending by Guernsey consumers and those employees and businesses hit hard in sectors like pubs, restaurants, hotels, non food retail, construction etc. Keeping as many of these businesses as possible above water, encouraging them to keep as many employees as possible on the books and supporting the incomes of those not working was and continues to be the right thing to do. That takes a lot of money and that is the short-term priority of government and its spending.
The large-scale destruction of small- to medium-sized businesses is likely to be profound around the world and perhaps here as well as spending decreases as people worry their own income is at risk and focus only on purchasing essentials. This sort of behaviour may last for quite some time and hence government has a tough decision to make as to how long to retain these special measures for those businesses and employees not working. Underwriting credit for any business can only go on for so long and surely there will be businesses that were in weak positions pre-crisis that will go out of business and frankly that needs to happen sooner rather than later.
I don’t know how much of the £500m. of borrowing will be eaten up by these short-term business support measures or even how much of it will be used for just current day-to-day cash costs for government, but with 6,000+ employed by government and the need to make sure we have a fully funded testing system for the entire population, I suspect it will be sizeable chunk.
n Tomorrow John considers further ways we can improve building back.