The Post-Covid Northern Ireland Economy
COVID-19 has left us with a massive question over how to recover in a society which must establish a new normal in most aspects of our lives. Workplaces will have to change, shopping will have to change and tourism will have to change. These changes will have to be made in an economy which is in crisis, with few knowing when attempts to recover will even be a realistic goal. This article will attempt to look at how bad our situation currently is, what could be done about it and what is being done by Stormont.
Our Current Predicament
To assess the damage done so far we can look at the overall cost COVID-19 has had on economic activity. The initial months long lockdown is estimated to have cost us £4-£5 billion (a conservative estimate) and the following four week circuit breaker has cost a minimum of £200 million to the economy. Following that we had a two week lockdown and we now know that there will be an additional month long lockdown after Christmas. The predictable effect of this is that businesses would see redundancies however furlough has set a delayed effect on employment. While there were ‘relatively’ few redundancies in the initial lockdown period when financial support was aplenty, the past months have not been so kind. Between July and October there were 3,190 redundancies in Northern Ireland and in November there was the notable announcement of two large employers failing, Debenhams and Arcadia (expected to see 1,200 jobs lost due to their collapse). As a consequence, this has seen 30,000 more people apply for benefits, with new jobs opportunities becoming more competitive and less frequently. In some ways this is not a surprise as 24% of the NI workforce is employed in either tourism, hospitality, retail or the arts (the worst hit industries by the crisis).
On top of that, the education system has been set off kilter with the delay to exams and the difficulty creating a new learning environment. This transition could create a long term disadvantage to those age-groups worst affected. A recent study found that there is a direct correlation with those missing out on time in school also being more likely to receive a lower wage in the future. This would suggest that those affected could see a limited set of opportunities in the future due to their unstable education over this pandemic period.
These horrific effects do not even take into account the possible economic issues which come with a post-brexit NI economy. Not only will we lose out on funding from organisations like the European Social Fund and the Regional Development Fund but there is also a massive amount of uncertainty around what the actual circumstances of EU trade will look like after New Year’s Day. There are possibilities that large administrative changes will have to be made within businesses who remain trading with the EU or even across the Irish Sea due to the new procedures which businesses will have to take into account.
Finally, to pile on a little bit more bad news, it appears that Westminister is now looking at putting out an economically restrictive budget. The spending review allocated NI an additional £900 million, which sounds beneficial on first glance but in the context of our current economic situation this would suggest a stagnant budget. Most of the additional money will go towards COVID-19 spending while a third will go towards department costs. This amount will likely only allow departments to survive, if not force themselves to strip back their current activities. With this spending review we are ensuring that there is no productive recovery in the near future, as the Department for the Economy (https://www.economy-ni.gov.uk/sites/default/files/publications/economy/Q3-2020-Economic-Research-Digest.pdf) estimated that the best we can hope for is a four year wait before reaching pre-Covid-19 economic standards.
How to Recover
That four year wait time could be reduced if we approach this recovery correctly. To address the issue of recovery from such a unique scenario, we have to breakdown how Coronavirus will affect the economy at different stages. There is pre-existing academic writing on COVID-19’s economic phases which allows us to examine how far along we are in the pandemic economy (https://www.econstor.eu/bitstream/10419/224748/1/209-215-Forum-4-2020-Wolff.pdf). The first phase was the very beginning of lockdown where the government had to ensure that businesses did not go into liquidation and foreign, state-backed takeovers were prevented. This first phase can be viewed as a fast-moving and chaotic situation where speed matters more than perfect execution to ensure jobs are not lost. The following phase is the building of debt or reduction in cash reserves which businesses saw over the furlough period. This required direct recapitalisation for solvency support. The final phase, the phase which we currently reside in, is the contraction phase. We have to find a way of making the economy work around on-and-off lockdowns until a vaccine can be widely provided to the public.
The same report outlines some important principles which must guide us through this final phase of a pandemic economy. The first principle puts forward that we should only support businesses who were financially viable in the pre-pandemic economy. This ensures that public money is not being spent on businesses that were already failing, as the objective of this phase is not to save all businesses but only those who can contribute to a healthy post-COVID-19 economy. In a similarly harsh but necessary mentality, the second principle states that we should not undermine competition with our economic support systems. The goal in spending public money on two rival businesses should not be to ensure that the smaller company who was losing customers to a competitor should be able to achieve the kind of financial gain they would not have seen if that competitor did not exist. This would be a waste of public money on private interests. Instead, public money should be focused on achieving societal goals, this being the point of the third principle. The third principle lays out the idea that businesses who function in a manner which does not align with societal goals (environmental targets/workplace safety/fighting COVID-19) should not receive public money which could go towards businesses who better contribute to societal goals. Finally, the fourth principle lays out an interesting and innovative idea that the taxpayer should be rewarded for any recovery seen due to their money being invested, making the taxpayer an investor. If a company receives support from the government and then sees profit, it would be fair to assume that the taxpayer is partially responsible for the businesses recovery and should see some dividend from that profit. Realistically, it would be hard to split actual dividends out to each taxpayer but it may be beneficial to force businesses who profited from financial support to pay into a fund that can be used to improve community infrastructure or help the less fortunate.
Those four principles present a brilliant starting point however there are other ideas which could be looked at. Like acknowledging how the pandemic will affect supply and demand. There has already been a specified grace-period arranged for certain businesses in ensuring that their supply lines are not cut without proper chance to adjust, but the post-pandemic economy may see a reluctance from those who remain in lockdown in other countries to engage in Northern Irish supply chains. This has already been partially seen with the UK seeing most of Europe closing its door when a new strain of the virus was being spread. On the flip side, how will we deal with a possible new timidity in the consumer who does not want to fly abroad due to the instability associated with flight and will we see an automatically renewed interest in NI products when lockdowns are lifted globally? These are hard questions to answer at the moment but we must be prepared to find responses that allow us to recover properly. One thing which may help monitor these issues and allow us to prepare responses would be better regional economic monitoring. By doing this we are allowing ourselves to track the performance of economic activity in the country and see which areas are performing as they should and which might be lagging behind.
What has been done so far?
After setting out the loose ideas on how we might best see recovery, we can look at what has been done so far in phase 3 by Stormont. Most importantly, the Department for the Economy and the Department of Finance has been actively attempting to inject cash into businesses. £213 million is going to businesses through a support package with £95 million going towards the High Street Stimulus Scheme. £10 million will go towards wet pubs while £5 million will be allocated towards tourism, hospitality, Non-Essential Retail and Leisure businesses. Finally, £4 million is for B&Bs and £3million will be spent on helping local businesses establish themselves with online sales. Additionally, the DoF will protect business tenancies until March (so no businesses lose their place of work), there will also be some additional funding for airports (£7 million) and an increase to the peace funding agreement from Westminster (with the fund rising to £200 million). The peace funding may go some way to replacing EU funding, even though it will not fully replace the amount NI would usually receive from EU initiatives.
This support package will supplement the general strategy which the Department for the Economy has set for 2021 (https://www.economy-ni.gov.uk/sites/default/files/publications/economy/DfE-Covid-19-response-business-plan-2020-21.pdf ). £410 million has been proposed for businesses due to COVID-19, with most of this going towards businesses worth less than £15,000 (£40 million being directly targeted at micro-businesses). This reinforced the department’s statement that they were looking to place special importance upon supporting Small and Medium Enterprises (SMEs). The Department set out four goals which will guide their spending:
1. Deliver a strong, competitive and regionally balanced economy with more people working in better jobs through all phases of Covid-19 and the subsequent recovery, within the context of EU Exit.
2. Maintain and deliver our essential public facing services to the best of our ability in compliance with public health advice.
3. Assist our ALBs (Arm’s-Length bodies) and other Delivery Partners in their management of the crisis.
4. Protect the safety and wellbeing of our people
For the most part, these are achievable but strong goals to be working towards. However, they are very vague and lack some clear direction beyond their well meaning intents. For example, while we now know that SMEs will be targeted, we do not know if there will be any further specification upon which SMEs will not be getting support and which will be rewarded. Will businesses who were failing before the pandemic be receiving the same kind of support as businesses who were succeeding before the pandemic? If so, we may need to see a rethink on the current strategy.
However, there was a section made which points out the need for extensive research to find out which sectors have been negatively affected by COVID-19. This section even went into detail explaining that there would be a need for stakeholder input, so that a true understanding of how this crisis has affected their businesses can be established. Research like this could also be done on a local level to ensure we see regionally diverse economic growth in the coming years. To be fair though, sectoral analysis is a brilliant starting point for our recovery to be viewed from.
Even without this analysis, it is obvious that one area in need of continued support is education. The Department for the Economy was clear in their support for keeping the workforce as skilled as it was before the pandemic. £800 million will be going towards skills and education. This will maintain the skills infrastructure project, ensure the continuation of the non-statutory training sector (through the Training for Success program) and will see continued investment in universities.
-Conclusion
Overall, the actions taken so far have been admirable, especially considering they did not receive enough money to do everything they probably would have liked to do (with there being clear issues getting a new budget through Stormont). Yet, the strategy misses some nuance in its approach which could help us better guide the economy in the coming years and months. Things like not tracking regional development, providing blanket support for SMEs and the lack of preparation taken in securing supply lines have been somewhat disappointing. However, there is still time to improve their current strategy and the methods listed above are not the only method of seeing economic recovery (just the most obvious found in my research). It is the cruel reality of politics that a strategy is only good if it succeeds. If it turns out to be the wrong approach, despite its good intentions, it will be mocked even with the public's general apathy at the time the strategy was actually created. Only time will tell if this is the right or wrong approach.
