Working together for the Guernsey economy and its businesses under lockdown
Chartered accountant Jon Collenette offers a personal view on some common themes of discussions with clients about how they are coping with the lockdown of their businesses.
I believe we have much to be positive about and much to learn from each other.
I have spent most of the last couple of weeks speaking to my clients about the challenges they are currently facing.
These are predominantly staff issues – do they retain staff? Do they retain at full, reduced or minimum wage? Do they put staff on furlough leave? Do they ask staff to take their (paid) holidays during lockdown? Do they lay them off? Can they claim the States of Guernsey minimum wage subsidy? What are the rules? Are there any rules? Can their staff get by on reduced or minimum wages?
Client conversations also cover things like stocking up for when lockdown is over. Can they afford it? Will their customers still be able to afford their products or services? Is it OK to ask their landlord for a rent holiday or deferral? Will their bank give them an overdraft facility or loan under the States of Guernsey security scheme to see them through?
These are all highly emotional decisions for businesses and their owners to make. Pride has to be swallowed when we ask for help, which is not easy for us stubborn islanders. But ask we must.
I appreciate that some businesses will currently find themselves in very difficult situations. Many will not be able to get out of their predicaments on their own. We have a responsibility as a community to help them and to help each other.
Employers must do the right thing by their staff if they want them back and, most importantly, to avoid having disgruntled employees returning after lockdown.
That means businesses doing their utmost to retain staff by using cash reserves and any other resources to hand, including loans from shareholders to their businesses.
Employers’ first responsibility is to stay in business because without that, their staff won’t have anything to come back to. But after that, staff must be their priority:
Ask staff to take paid leave during the first few weeks of lockdown if there is no meaningful work for them to do.
Be open and transparent with staff about the position that the business finds itself in.
When cash flow runs low, do everything you can to keep staff on, even if the business is closed. Remember that the States of Guernsey will reimburse most businesses for the minimum wage paid x 80%, and businesses can top up staff wages if they can afford it. Businesses need to be ready to re-open after lockdown with ‘all guns blazing’ for what I hope and expect will be a real ‘bounce’ for most.
Employers must be responsible and should only look for States support when they need it.
The States’ wages support scheme is not an entitlement.
If their staff remain in meaningful, income-generating work throughout lockdown, then businesses should not apply for States assistance.
The States scheme is not there to help businesses out of a hole that is unrelated to the coronavirus crisis. The banks will be ideally placed to assess whether or not to help a business asking for a facility under the States loan guarantee scheme. And the States must use their expertise.
Businesses should not be looking to use the States’ TRP, rent and employer’s States insurance deferral scheme if they don’t absolutely need to. Leave that for those businesses that really need it.
It is not an entitlement.
Employees also have to do their bit.
They have a responsibility to help their boss stay in business. If their employer asks them to reduce their hours, or take their paid leave during lockdown or take a pay reduction, then they need to agree to this graciously. But they do need to know that their employer is making sacrifices as well. And some employees may be able to work back some of their holidays through post-lockdown overtime when catching up with a work backlog.
Employees will also have to swallow their pride and ask for help if they need it – they can’t just rely on their employers.
Fortunately, there is a lot of help out there.
The States has its Hardship Fund, but there are plenty of other places to look to first. States help should be the last resort: first, they should ask their landlord for a rent reduction/deferral or ask their bank for a mortgage holiday. The banks will be very obliging, as are most landlords who have sufficient financial flexibility themselves. After all, the courts are likely to give most landlords ‘short shrift’ if they try to evict tenants under the current crisis. And the landlord is unlikely to have new tenants lined up to move in during the epidemic.
And employees must remember that after their rent, mortgage and loan payments are covered, they will find their spending requirements much reduced…no trips away, minimal vehicle costs, no drinks down the pub or meals out with friends at restaurants, etc. It is amazing how little money we actually need to live on after these luxuries are taken away from our lives.
Our bank lenders have an essential role in helping businesses, and they now have the support of our States of Guernsey with its security and guarantee scheme.
But banks cannot be expected to support badly managed or failing businesses that would fold anyway. That would be grossly unfair on the Guernsey taxpayer who will be picking up the tab for defaulting States-guaranteed bank loans and overdrafts.
Landlords must help wherever they can when their tenants are in genuine financial distress – through providing rent reductions, holidays or deferrals. After all, landlords do not want to lose good tenants – they will be acting in their own interests by being flexible… happy tenants are very important for landlords. If this puts them in difficult positions with their own loan and mortgage commitments, then the banks will do their bit to help. But tenants must pay as much rent as they can and not look to take advantage of the situation. Again, this is not an entitlement. If you can afford to pay your rent, you should pay.
Customers of businesses also have to do their bit. They should pay their bills on time and not use the pandemic as an excuse to delay or avoid payment, as was a common experience of many at the time of the 2008/09 financial crisis.
Some customers may not be able to pay their bills on time, but if those who can afford to pay do pay, then businesses can give slack to those who genuinely can’t pay.
We should try to limit our spending to on-island unless absolutely essential. Wait until our shops are open again before buying that new pair of jeans, that new fishing rod or new set of golf clubs from the internet. We won’t have much use for them during lockdown anyway. Let’s save our money to spend with the local retailers and suppliers… they will be in desperate need of our custom when they reopen.
When we get back to normal again (for those of us who can) we need to spend, spend, spend to get our economy going again.
Some of us will not have the financial means but many of the working community will see little change in their personal financial circumstances.
Many States employees and employees of financial services, legal, health services, food supply and other businesses will probably remain employed at full or almost full pay throughout lockdown.
Many will find themselves with money in their pockets ‘to burn’, having had to do without trips away, restaurant outings, expensive hobbies, etc. And this money needs to be spent in the local economy when things get back to as normal as they can be.
So after lockdown we need to be ‘splashing the cash’ in our shops, eating out, going on ‘staycations’ at Bailiwick hotels and camp sites, getting the decorators back in, servicing our boats, getting those plans done with the architect for that overdue extension, going through with that new house purchase… the list is endless.
We need to get the money moving back through our economy so that our people coming out of lockdown actually have long-term jobs to return to.
This also applies to those living off pensions and savings and investment income, whose household budgets may well have been largely unaffected. Yes, the investment markets are volatile, and dividend yields are down, but these consumers need to think hard about using their capital to help get our economy going again by spending what they will have saved during lockdown.
States of Guernsey
Our States is already doing more than its fair share with the help it is providing to businesses through the small business grants, deferring TRP and employers’ States insurance contributions, as well as subsidising employers who are retaining staff even when their businesses are closed.
We must remember that the States does not have an inexhaustible budget. And even deferrals have a cost to the States’ coffers. Businesses should only ask for help when they really need it. Just because help may be available does not mean that businesses have a right or duty to claim it. It is not an entitlement.
When we come out of this crisis, our States of Guernsey may come to our wealthier taxpayers to help pay its bills…to top up the contingency fund or perhaps to build more resilience in our health services for future crises. If/when this happens, let’s not gripe about it.
We are a low tax-paying jurisdiction and, on the whole, have the ability and willingness to pay more. Let’s get behind our States workers and political leaders who have been doing such a fantastic job at this difficult time, and let’s trust them to do the same in the future with a bigger budget from any higher taxes that our community needs.
For us all to get through this crisis intact and prospering, we all have to share the burden by doing our bit for the Guernsey economy as best we can. Together we are and will be stronger, but we all need to be willing to make personal sacrifices for the good of our wonderful community.