Prospects for the future, Guernsey and elsewhere

THE current support in the form of subsidising salaries and wages is due to end at the end of September. Instead we are told for sectors struggling financially a form of grants will be introduced.

This short article will look at the background to the introduction of grants and focus on the hospitality sector, although much of what applies to this sector will also apply to the other sectors affected such as travel agents, tour operators etc.

As we are aware some £36m. has been provided in support to date, although this article will argue far more will be needed in the coming months to cover these sectors until the next holiday season 2021.

This analysis cannot be conducted without reference to the world’s economic markets and in this respect there is a good deal of uncertainty as reflected in the world’s stock markets and in the capital growth of gold.

As we all are aware travel movement between the islands and the rest of the world is restricted and indeed even between Guernsey and Jersey at the moment.

This has the effect of paralysing the islands in terms of outside demand for goods and services save in the case of the finance sector which is largely ‘paper driven’ although this sector is affected by the travel restrictions.

To facilitate demand in the economy I have suggested giving each member of the population a spending voucher of £500 (£250 for children). This is not enough. It is vital, that subject to reasonable safety constraints, the island’s travel hub is opened as soon as possible.

It will be interesting to see the form the grants take and how generous they are but it must be stressed that such grants should take into account the need to employ labour and carry the businesses affected to next Easter when traditionally people start visiting the island in substantial numbers.

It is also necessary that these grants be flexible in that the UK are expecting a second wave of Covid-19 in the winter. Already there are local lockdowns in cities in the north of England and it is likely these could spread to other parts of England.

Account must also be taken of the fact that people coming to the island are not as likely to come as before for business reasons. This must be factored in by looking at various scenarios.

The recent financial results of the UK economy are not good as reflected in the results of the banking sector, but this is true of most other sectors.

It follows that unemployment in the UK and indeed elsewhere will rise and there is the spectre of higher taxes, both in the UK and throughout the world.

Against this it must be said that I think the increase in taxes, if any, will be gradual as the world will have to live with a much higher level of debt that hitherto had been thought prudent. This is a new constraint but will be imposed by necessity.

One issue all governments will have to factor into their calculations is how to cope with a second pandemic and suggest that they look at least three scenarios – low, normal (based on the one which started in March) and high.

Inevitably there will be subjectivity in how each are measured and they should provide some guide as to the priorities for government and enable planning to be more effective.

In the immediate future the States should look at planning effectively for construction projects and consider the suggestion I have made about giving every adult £500 (£250 for children) to spend on the island.

Consideration, in planning terms, might also be given to how quickly the various initiatives might yield taxable income.

In terms of priorities, given the possibility of a second pandemic, consideration should be given to expanding the health facilities of all descriptions in order to cope with a possible second pandemic but also more generally, given that health services are so important in a depressed economy.

A last word should be given to the price of gold. This investment carries substantial costs to hold such as storage and insurance. Despite this demand is growing among investors and it is very much a marker for the world economy.

Watch the price of gold and you can then assess the degree of uncertainty in the world economy. Since January 2020 it has appreciated by 40% with no sign of abating.

This uncertainty is also reflected in stock markets and in the price of oil, a key economic resource. This should be a significant indicator to decision makers of all descriptions, from world leaders to States members to engage in policies to try to reduce the uncertainty in the world today.

The key message must be to increase profitability and reduce uncertainty in order to facilitate future economic growth.