News
Talk to GPRLA by Lyndon Trott on 1st October 2020
GUERNSEY PRIVATE LANDLORDS ASSOCIATION
Good evening everyone.
First of all – thank you.
Thank you for all that you have done in these challenging times, to keep our economy operating, to support your tenants. It has not been easy for any of us in this room.
The past six months have been unprecedented – in fact, it has almost become a cliché to say so.
But it is a fact that the government and the public service has had to design, establish and deliver services that have never been needed before – pandemic testing capability, track and tracing capability, the administration of business support measures and so on.
There are many more tests and challenges to come. We will do all we can in government to ensure we are ready for them.
The election is a critical one.
The economy is forecast to contract by an unprecedented 6% this year. That is, fortunately an improvement from a previous forecast of 9%.
Thousands of islanders were only been kept employed with the support of co-payments from government. Indeed – we are looking at how we extend these schemes to those who will need them for longer, those sectors that are hardest hit.
The public finances are shredded – revenues are down and expenditure is up and as a result, 75% of the island’s reserves, built over 30 years, were blown in a matter of weeks.
So what next?
Well the new States will pick up the baton of the recovery strategy that the previous States agreed a couple of months ago.
Revive and Thrive.
The overarching aim of the Revive and Thrive recovery strategy is for us to be economically better off than we would have been in three years’ time without any actions.
To do this, we will need to invest in our recovery; and to do that, we will need to be prepared to borrow to invest.
To achieve this we will develop and implement an economic recovery plan. Working with the representative bodies like yours, your members and other businesses and business representative bodies, we will seek to build back better by:
- identifying growth opportunities and resilience in new sectors and adjacent growth in existing sectors;
- establishing the framework within which we can retain long-term competitiveness for supporting and attracting new businesses, the growth of existing business, and to support the exploration and development of new economic opportunities;
- supporting environmental and social sustainability through economic outcomes; and
- putting in place an infrastructure framework, including energy resilience, that prioritises and accelerates investment in areas that support the overall recovery strategy as well as the local economy.
However, while we build the detailed plan, there are some steps we intend to take quickly.
Competitiveness is critical to our economic recovery. We have long been a good place to do business. In order to recover, we must become a great place to do business.
There are bedrocks for competitiveness that we know we must work at pace to put in place: connectivity, data resilience, investment and skills.
Work is already ongoing as part of the implementation of the States’ Economic Development Strategy, but now we need to put our foot down on the accelerator. This pandemic has shown just how quickly we’re able to make big changes, we need to keep that pace and make things happen.
We have also seen that during the lockdown period, these were the critical components of competitiveness that businesses needed. Now they form the basis on which we must build our future economy and prosperity.
Connectivity – transport connectivity must be addressed. The reviews of strategic air and sea links infrastructure and of aviation policy will be completed. There will be clear recommendations on the future role of Aurigny as an economic enabler, the provision of long-term resilient lifeline sea links, the potential for investment in our ports, and the network of destinations we need to connect into.
Digital – the review of the use and licensing of 5G technology will now include an overhaul of our existing telecoms strategy, with clear recommendations for future investment for business, home and government users. Through this, we will build a data infrastructure that is resilient, secure and world class. We will become a recognised global leader in respect of data.
Investment – we will provide a plan for investment in Guernsey’s critical national infrastructure; in our economic infrastructure, including transport and data; and in the regeneration of our seafront and our built environment. We will also ensure that the Island Development Plan is used as the tool to meet our objectives and secure the outcomes our community needs.
People and skills – the strategic review of population management will be restarted with a revised scope to identify the people and skills our economy needs to recover and grow, and to set out the changes needed to ensure we can do that at pace. We will also start work on a human capital strategy that combines attracting the people we need from off-island with the training and equipping of our on-island population to meet the challenges of recovery.
This is the work we are accelerating while we build the detailed plan.
Time and again Guernsey has shown, despite our size , that we can be not only a global leader but a safe haven, whether from the dysfunctional politics of Brexit or a global pandemic. Now is the time to go out and obtain the recognition we deserve.
We need to bring more businesses to Guernsey.
We need to ensure those businesses can have the employees they need – from off-island if required.
This ‘open for business approach’ will support you, by making sure you have good tenants who are committed to Guernsey.
We need to take on the task of recovery much as we took on the initial response to the COVID-19 pandemic, united and in the spirit of togetherness.
This means understanding how the different parts of our economy are connected.
That a strong finance sector means a strong construction sector, a strong services sector – and a strong commercial and private property sector.
That fibre to the premises makes Guernsey a more attractive place to live and work, and to start or grow a business – which in turn supports a strong commercial and private property sector.
In turn I certainly recognise that you are a supporting pillar of our economy – business need places to be based, employees need places to live.
So, just as we don’t want to wrap the finance sector or the digital economy in red tape and unnecessary rules and regulation, the same must apply to you.
We need to enable you to operate in an environment that enables you to invest – and as far as possible enables to you to receive a return on that investment, which I know many of you would then reinvest in our economy and community.
So please be assured. When I talk about the economy, I include commercial landlords. I recognise that you support growth and investment.
And so I understand why you will feel that during this States term, almost through a series of softly, softly steps – parts of the States have sought to wrap you up in red tape. Good intentions have led to potentially bad outcomes.
I am concerned that you have not been dealt with as a component of our economy, and one that seeks to meet high standards. Instead, you have been dealt with a sector to regulate, licence and squeeze a few quid from.
It is clear to me from conversations with many of you that this is how you feel – and based on what you have told me, I have to agree.
The outgoing Committee for the Environment & Infrastructure appears to have ignored your concerns, and your contribution to our community’s housing and property requirements
The outgoing Committee for Economic Development appears to have ignored your concerns, and your contribution to the economy.
So what I will promise is that if I am re-elected I will work to champion this sector.
To make sure that you don’t have the States applying cumbersome regulation to you when what you could do effectively is set a code of practice and standards across the sector.
To make sure your contribution to our economy and community are understood.
And to ensure we have an environment that enables you to invest in your assets – not punished financially for having those assets.
So I want to set out the scale of the challenge we face; why Revive and Thrive is the right recovery strategy to meet that challenge if the new States picks up the baton; and how we plan to approach our recovery plans, subject to the support of the new States Assembly.
This way, you will understand where government may be heading – and what the opportunities are for you if we get that right.
The scale of the challenge
We must understand fully and not in any way under-estimate the scale of the challenge.
Economic modelling for the impact in 2020 predicts a loss of GVA of an estimated 6%, or approximately £300m, in real terms and its recovery to previous levels, without any action, could take a decade.
Unmanaged, the consequences for our community are severe, with impact on islanders’ physical and mental health, their life chances and opportunities, and the well-being of our community.
Several sectors of the economy, such as tourism, hospitality, aviation, retail and construction and, of course, yours have been, and continue to be, affected.
Businesses will have applied a substantial amount of reserves to weather the period of enforced inactivity. This will have depleted the amount of working capital available to local businesses and, without it, a return to a smooth flow of money through the economy may be slow unless stimulus can be provided by government.
This means that there is a critical role for public stimulus to play in promoting activity by providing liquidity and demand for services in the likely absence of demand from the private sector.
Such demand stimulus, and other measures, may help manage increased levels of unemployment as we move beyond the crisis, but they will need to be carefully designed and co-ordinated within the whole Strategy.
For households a recession on this scale is likely to have significant effects. Most notably:
- Higher levels of unemployment persisting beyond the release of internal restrictions;
- Negative real earnings growth when comparing jobs on a like for like basis; and
- Lower household incomes.
The modelling undertaken indicates that the effect on Guernsey’s public finances of the pandemic in 2020 will be in the region of £165m, comprised of:
- Direct business financial support schemes;
- Reduction in States’ revenues;
- Increase in States’ expenditure;
- A reduction in States’ operating income; and
- A significant impact on some of the States’ trading entities, notably the ports and airline.
Based on the projected impact to the public purse, prioritisation and affordability must now be at the heart of all government and operational decision making. This will be vital to enable investment to be targeted for recovery which has the best overall impact.
Economic modelling based on several recovery scenarios demonstrates that, without fiscal stimulus, the economic recovery could take up to a decade.
Consequently, the recovery in Guernsey’s public finances would also take a similar period as the global and local economy recovers.
Initial estimates suggest the impact on public revenues in 2020 could total £75m across almost all revenue streams. Although it is likely that much of this lost revenue will be restored in 2021 as activity resumes, receipts in 2021 could remain some £40m short of their 2019 level.
Why this Recovery Strategy?
This underlines the importance of adopting a recovery strategy designed to accelerate growth in the economy in a sustainable and resilient way; and to rebuild confidence and resilience in our community at the same time.
The economic aim of the strategy will be to develop and invest in initiatives which demonstrably improve the recovery curve and accelerate the return of jobs and wealth to our community.
The Strategy has at its core the ambition not just of restoring the majority of economic activity in 2021, but also promoting sufficient economic growth to exceed the previous growth path for the economy within three years.
Achieving this ambition will require employers to be able to re-employ the majority of staff and have access to sufficient liquidity to invest in recovery. Our ambition is to consider fiscal stimulus – primarily around construction, financial and professional services and information and communication services – enabling growth rates to improve by an average of 1% per annum which adds £7million per annum to the tax take.
This scenario would see GVA exceed its previous growth path by 2023 and provide a cumulative increase in GVA of some £1.4bn between 2021 and 2030 compared to the ‘central case’ illustrated.
As well as exceeding the previously predicted GVA, stimulating the economy will improve States’ revenues. If it is assumed that between 20% and 25% of additional GVA is translated to tax revenues, this represents an additional £280m to £360m of government revenues over the course of a decade.
Such stimulus should also reduce unemployment levels, improve household income, reduce fiscal stress on household incomes and reduce reliance on means-tested benefits.
A direct and positive impact on community well-being.
Guernsey must restore its financial security and community well-being through an approach which is innovative, dynamic and co-designed with the community.
To revive and thrive, our vision for recovery requires investment and confidence rather than cuts and austerity.
That is why it was right that the States Assembly was asked to support borrowing to be undertaken to invest in that recovery while maintaining our reserves.
How we can approach our recovery plans
The outgoing States agreed that recovery will be made up of three action plans:
- sustainable economy
- community
- health and care
These action plans are interlinked, must be developed together and will be underpinned and framed by fiscal stimuli and investment to catalyse growth over the short and medium term.
Without action, the impact on public revenues of the ‘central case’ could be in the region of £400m over a ten-year period, which would necessitate borrowing to fund day to day expenditure in the absence of drastic austerity measures.
Borrowing to invest in recovery could improve this position by some £280m-£360m over the same period as well as restoring confidence, growth and well-being to the community.
A fiscal strategy will be an important foundation for recovery. It will evaluate the structure of taxes and the role they will play in closing the gap (through tax cuts, rises, new taxes or temporary schemes) as well as the size and cost of public services. This will ensure that Guernsey is financially sustainable and stable, is able to invest in recovery, and is resilient and prosperous, while also meeting its obligations to the islands of the Bailiwick.
The public service will be critical – from development through to delivery of the action plans – be that the delivery of services or commissioning of same.
Using recent experience, the public service will continue to adapt to deliver the transformed, efficient and resilient public services the community will require.
The anticipated magnitude of the impact of the pandemic locally and internationally means that recovery will be a multi-year effort.
We will focus on a combination of short- and medium-term measures designed to revive in 2021 and thrive within three years.
We recognise that recovery may take longer than three years to achieve but this time horizon provides a clear focus and will enable progress to be tested and future plans adjusted before designing any further phases.
Competitiveness is critical to our economic recovery. We have long been a good place to do business. In order to recover, we must become a great place to do business.
There are bedrocks for competitiveness that we know we must work at pace to put in place: connectivity; data resilience; investment; and skills.
Work is already ongoing as part of the implementation of the States’ Economic Development Strategy, but it now needs to be implemented – with even greater momentum – and in the context of recovery.
We have seen that during the lockdown period, these were the critical components of competitiveness that businesses needed. Now they form the basis on which we must build our future economy and prosperity, and I highlighted them at the start of this speech.
The sustainable economy action plan will seek to build back better by:
- identifying growth opportunities and resilience in new sectors and adjacent growth in existing sectors;
- establishing the framework within which we can retain long-term competitiveness for supporting and attracting new businesses; the growth of existing business; and to support the exploration and development of new economic opportunities;
- supporting environmental and social sustainability through economic outcomes; and
- putting in place an infrastructure framework, including energy resilience, that prioritises and accelerates investment in areas that support the overall recovery strategy as well as the local economy.
This will be supported by a fiscal strategy that will seek to maximise the opportunity for recovery through ensuring:
- the fiscal structure supports and promotes recovery and innovation;
- we are able to deliver affordable and sustainable public services; and
- Guernsey is financially sustainable, stable and resilient.
In order to deliver a confident and successful recovery, it will be necessary to ensure it is appropriately resourced and funded. The funding and investment recovery plan will be to:
- understand the investment needs for delivery of the action plans;
- ensure government funding is put in place to catalyse growth;
- examine opportunities for co-funding and joint investment; and
- determine necessary borrowing requirements and the mechanisms for repayment.
Concluding comments
In a matter of days there will be a General Election in Guernsey.
The outgoing Policy & Resources Committee has put in place the building blocks of Revive and Thrive, so that we can begin to work with businesses and the community on the development of a meaningful and deliverable set of plans.
The new States, post-election, will need to show leadership, ambition and an appetite for investment and risk.
Your support in ensuring that the States does that is critical.
So thank you for all you do – please do think about how you input into that thinking to drive recovery.
Think about what you as a sector need from our new Assembly.
And if I am there in the other side of the election, remember that I will be willing to champion and protect your sector.
Thank you
Lyndon Trott
