Caveat: When large corporates repay State wage subsidies it’s often a smart PR move

Carphone Warehouse’s parent would have been pilloried if it hadn’t repaid Irish taxpayers after axing almost 500 jobs

 

It is part of the job of a competent public relations professional to throw the best possible light on any messages conveyed by the client, if the PR person works for an agency, or their employer, if the PR works in-house. On Wednesday, the PR team for electronics retailer Currys PC World did its job.

“Currys PC World Ireland announces the repayment of the Government wage subsidy payment,” said the headline on the company’s press release.

It went on to note the strong trading performance here of the electronics chain, which is owned by the UK-listed group Dixons Carphone. As a result, it said, the company had “decided” to reimburse €3.75 million in pandemic wage supports to the Government.

“We thank the Irish Government for the support given,” said Jim O’Hagan, the Currys PC World manager for Ireland.

You had to read on until the very bottom of the release to find the briefest of confirmations of what any clued-in reader would have suspected from the very start, regardless of the positive spin – the €3.75 million repaid to the State doesn’t just include wage subsidies paid for the staff of Currys PC World’s 16 booming Irish stores. It also includes the wage subsidies paid to the 486 employees of Carphone Warehouse, which is also owned by Dixon Carphone, and which the company announced this month is to close.

Act of magnanimity

The press release almost made it sound as if Dixon Carphone had chosen to hand back €3.75 million to Irish taxpayers in an act of magnanimity. The reality is that if the company hadn’t handed back the cash, Dixon Carphone would have been wide open to an onslaught of public criticism for accepting public subsidies designed to save jobs that its parent then decided to axe anyway for business reasons.

Regardless of the pandemic, Carphone Warehouse had been trading poorly for years, due to changes in the way in which many consumers buy mobile phones. Its 486 Irish roles were basically doomed anyway, and no amount of wage subsidies would have made them viable again.

To qualify for the various subsidy schemes, Carphone Warehouse’s sales would have had to be down by between 25 per cent and 30 per cent during the pandemic, depending upon the periods for which the supports were claimed. It is likely that this was the case and that it was reasonable for those supports to be sought. That doesn’t mean it would have been a good PR move to keep them.

As for Currys PC World, it shut for a six-week period during the original lockdown. But since then, its 16 stores have remained fully open and it has traded well through the restrictions. Its online sales in Ireland have quadrupled. Overall, the chain’s sales in Ireland and the UK were up 11 per cent across the second half of 2020. The sector in which it operates is resurgent – its rival, Harvey Norman (which hasn’t claimed any Irish wage subsidies, according to its filings), had a 53 per cent spike in sales during the same period.

Return the cash

Given its strong performance, it seems unlikely that Currys PC World, on a standalone basis, would have met the criteria to retain wage subsidies it received from the State. Perhaps it did, if you mix its finances with Carphone Warehouse. But when you view all of this alongside the parent group’s recent decision to cut the 486 Irish jobs, then it is easy to see why Dixon Carphone “decided” to return the cash to the State.

Imagine the panic that would have ensued among its Irish PR team if it had held on to the cash, cut the Carphone jobs, and then the parent group later decided to pay out a dividend to its shareholders? It would have been slammed, and rightly so.

Other large corporate organisations have also wisely “decided” to hand back wage subsidies to the State. Building materials giant CRH last November announced it had repaid the wage subsidies that it claimed early on in the pandemic. Its chief executive Albert Manifold said it was “the right thing to do”. It was also the clever thing to do from a PR perspective.

A few months later, it emerged that Manifold was paid €11.2 million in 2020, a rise of 20 per cent. His pay packet was 166 times the average salary of a CRH worker, up from 145 times in 2019. Justifying any State wage subsidies in that context would have required an Olympian level of PR gymnastics.

Stockbroker Goodbody paid back €450,000 of wage supports to the Government in December. Of course it did. A few weeks earlier, my Irish Times colleague Joe Brennan reported that it was in takeover talks with AIB. Last month, the two sides confirmed that a deal had been reached for €138 million, creating a bonanza for the staff who owned 49 per cent of the firm.

As of last month, it was reported that various employers were due to pay back €224 million to the State in wage subsidy payments that were claimed in the early stages of the pandemic. Many companies panicked during that initial crisis period. Some drew down State subsidies because they had no idea what was coming down the track. For a few weeks in late spring 2020, it seemed as if a total collapse of the global economy was within the realms of possibility.

Disaster was largely averted because the Government swiftly pulled one of the few policy levers available to it to prevent an economic meltdown – it spent like a drunken sailor, including almost €6 billion so far in wage subsidies and a further €7.3 billion in pandemic unemployment payments.

Fiscally unsustainable

Michael McGrath, the Minister for Public Expenditure (who surely by now has moved his desk on to the floor behind his couch, where he can hide in anguish, such is the level of public spending) has started to warn his colleagues that the current situation is fiscally unsustainable.

In coming months, the Government will have to whip away the wage subsidies from most businesses. When it does, scores of them will go bust – up to one-in-four SMEs could be insolvent, the Central Bank has warned.

In that scenario, all large and stable corporate organisations, especially those that are stock-market listed and plan to pay their shareholders a dividend without incurring a self-inflicted publicity wound, should look again at the subsidies they have claimed and assess whether or not any of those monies can or should be repaid. If nothing else, it might help their PR teams sleep better at night.

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