It is that time of year when you are shopping for nephews and nieces. Gamble with a gift you are not sure they will like? Or play it safe with a voucher? What type of voucher – specific or generic? Or instead just plump for cash – the most flexible store of value there is. After all Cash is King!
This year, in the teeth of the pandemic, governments have been considering how best to support the economy. While more cash for public spending has been the main weapon of choice, tax cuts (e.g. temporary VAT cut for hospitality sector) and indeed vouchers (i.e. Eat Out to Help Out Scheme) have featured too.
Yesterday Stormont’s Finance Minister announced a £300m support package for businesses and the most vulnerable. This follows the release of an additional £400m of funds for Northern Ireland by the UK Treasury just over two weeks ago. The biggest single expenditure item of this latest package concerned long-term rates support for businesses (£150m). But the most eye-catching measure was £95m for a High Street Voucher Scheme which will give people a pre-paid card for use on the high street. Expectations were initially raised that vouchers of £200 per household would be forthcoming in the spring. However, other sources in the retail industry suggest other figures and indeed some are reporting that it will be vouchers for individuals rather than households.
While the exact details of the scheme have still to be finalised by the Department for the Economy, the very idea of ‘free money’ set social media ablaze. The overwhelming reaction to this wacky ‘money for nothing’ scheme was negative. Common comment included:
- Why not just give the businesses money instead?
- Give the vouchers to people who need it the most – i.e. means test the vouchers
Are you mad? – In normal times, the suggestion of a government funded shopping voucher would be viewed as bonkers. But unconventional times call for unconventional policies. We have already seen this with the introduction of the furlough scheme. Until the pandemic hit, who would have ever imagined the government would pay 80% of people’s wages for not working. This unprecedented crisis has resurrected the seemingly wacky economic policy called ‘helicopter money’. Milton Friedman coined the phrase in 1969. It was a policy of last resort policy when interest rates were on the floor and economies were battling deflation (falling prices). In simple terms a central bank, e.g. the Bank of England, would print money and drop it out of a helicopter so consumers could pick it up and spend it. The reality would be electronically crediting peoples’ bank accounts with money.
Vouchers are King! – Stormont’s proposed voucher scheme is not helicopter money as it is paid for by public expenditure financed by the issuing of government debt. However, the goal of the voucher scheme is the same as the helicopter money drop. Namely, it is to encourage people to go out and spend money and stimulate economic activity. The use of vouchers is more sophisticated and more targeted than a blanket money drop. A £200 cash payment could be saved and therefore taken out of the economy altogether. Alternatively it could be spent but perhaps not in a timely way or in a manner that would aid the worst affected sectors (e.g. used for online shopping).
Similarly paying the businesses a cash grant does not guarantee any economic activity takes place. A firm could pocket the grant and keep their premises shuttered and staff on furlough. Furthermore orders would not be placed with the firms supply chain and economic activity could become gummed up. Vouchers on the other hand, when used, demand activity actually occurs. A supply chain is stimulated, cash flow keeps moving and staff are kept on. Significantly, the hope is that the voucher would trigger additional spending and activity beyond the voucher transaction (e.g. such as a meal out). There will be a multiplier effect. It is worth noting that Northern Ireland had the highest per capita uptake of August’s Eat Out to Help Out Scheme within the UK. This fact suggests that Northern Ireland households are more predisposed to using vouchers than elsewhere.
It’s not about you – The target of this policy is not households but the beleaguered high street. In particular, the non-essential retail and hospitality sectors. The pandemic has led to a surge in online shopping to the detriment of local high street establishments. Targeting households in need does not fall within the remit of this policy. Other policies such as the extra £1k p.a. (£20 per week) for Universal Credit targets households in need. This welfare boost is set to expire next March but is anticipated to be extended or modified. If vouchers were only provided to those households in need the impact would be confined to where they shop. Practically all parts of the high street have been impacted and hence the rationale that all households should be included. Even though this throws up the potential for a resident of the Malone Road availing of a beauty salon on the Lisburn Road. That resident clearly benefits but the primary concern is that the business benefits. For those who don’t want to avail of the free vouchers no doubt their will be arrangements made so that they can donate their pre-paid cards to others less fortunate than themselves.
Timing is everything – It is assumed that this voucher scheme will be rolled out in January / February with the vouchers valid for around two months. This incentives households to hit the high street during two of the quietest months of the year. In reality, it is likely that we could see a post-Christmas lockdown in January for a few weeks. If that is the case the vouchers would be most beneficial in February / March. Conversely, the scheme would be least successful during December when people are already committed to spending more during Christmas than at any other time of the year. As a result, the vouchers would not encourage or nudge people into doing something they wouldn’t already have considered doing.
Devil in the detail – While many of us have already spent our vouchers in our heads already, we will have to wait for the detail of the scheme to be revealed. Households expecting to pay for groceries, petrol / diesel and some of their essential spending are likely to be disappointed. The design will target the more discretionary areas of retail / hospitality or what is dubbed as “non-essential retail”. After all, the purpose is to nudge our behaviours to do something we are not predisposed to do.
Northern Ireland follower or trendsetter? – This voucher scheme is not unexpected and indeed the Resolution Foundation think tank proposed a £500 High Street voucher for the UK back in July. Just as we have seen lockdown restrictions implemented and subsequently eased we can expect various types of voucher schemes to be switched on and off until the virus is under control. For example, the beleaguered culture, arts and events sector is a prime candidate for vouchers in 2021. Northern Ireland appears to be following a similar scheme already adopted in Jersey. Following yesterday’s announcement there have been demands by Scottish retailers for a similar scheme in Scotland. This wasn’t the first scheme and won’t be the last. In the meantime, keep calm and carry on spending.