I am sceptical we will automatically see a V-shaped economic slump followed by a sharp recovery. While this economic recession doesn’t arise from demand-related problems, ongoing problems with demand as company failures, redundancies, ongoing risk and uncertainty may all impact on 0consumers’ willingness to spend.
Furthermore, any recovery may be both stop-start in nature, with certain sectors suffering a greater and longer impact than others. These challenges come onto top of existing structural weaknesses in the local economy such as low levels of productivity and a high rate of economic inactivity. COVID-19 also exposes the vulnerabilities of too much emphasis on labour market flexibility rather than investing in skills.
Essentially, the current economic interventions from the UK Government and the Executive are about seeking to contain and protect the economy. But attention needs to turn to the economic recovery plan.
The key fiscal and monetary levers to pump-prime demand and to provide further ongoing support to the most affected sectors lie with the UK Government and the Bank of England. Lessons must be learnt from the response to the financial crash a decade ago. Wider changes to taxation and the welfare system are also essential. And in that regard, I am working with a range of cross-party MPs to explore a Universal Basic Income.
The Executive must take a strategic approach to its own interventions. Ideally, a revised Economic Strategy would be in place. Resources are tight and must be used sensibly. Yet, these will not be sufficient. Therefore, either further Barnett Consequentials from the Treasury or an additional NI-specific ask would be required.
Prior to this crisis, the conventional wisdom had been on focusing on rebalancing the economy through productivity change. But this must now be matched with an emphasis on rebuilding. There are essentially three categories of businesses requiring targeted support.
First, those most affected by either required closure or a prolonged slump in demand, such as leisure, tourism, hospitality and aspects of retail. An extended rates holiday for certain sectors is the rightly the most obvious lever, but rates are still a blunt instrument.
Second, there are sectors that are key for the effective functioning of society such as agri-food and logistics which may need support as more business models are distorted.
And third, ongoing support must be given to those sectors most crucial to rebalancing our economy such as information technology, financial services, life sciences and advanced manufacturing. For instance, our universities and colleges may struggle to sustain investment in crucial STEM subjects as their budgets come under pressure.
Supply and demand patterns in the local economy may see considerable disruption. The Executive should monitor where redundancies are sadly occurring, and utilise the skills barometer to inform urgent reskilling and retraining programmes, building on schemes such as Assured Skills and Bridge to Employment.