We should ‘cocoon’ business to stop people losing their jobs

State should insure firms for coronavirus losses if they retain staff

Addressing the public health crisis caused by Covid - 19 is obviously the paramount concern. But, as everyone recognises, we must also address the consequent economic crisis so that it does not become as big a catastrophe as the virus.

The context is that the worldwide governmental response to the developing economic situation shows that there is massive State appetite in every jurisdiction to support economies. But the approaches are piecemeal. They are not having any immediate impact and they are not restoring any confidence.

So we see that:

The reduction in interest rates by Central Banks is having limited effect because this is not a financial crisis.


Loans are unattractive as they simply result in debt. Tax deferrals have the same effect. Offering credit to businesses which have no one to sell goods or services to is fundamentally unattractive for those businesses.

Business confidence has evaporated. Markets have no apparent floor.

Cash hoarding by businesses has begun. This brings mutual destruction for businesses.

Mortgage holidays and rent holidays are imperfect instruments which benefit certain categories (not only mortgagors and tenants are affected by the crisis) and simply pass on losses to other categories.

None of these policies will improve consumer sentiment. You don’t build an extension, buy a car or plan a holiday (we wish), if your job or business is at risk.

Social welfare payments also impact differentially and unevenly.

What other policies remain available?

Some, have elegantly argued that the State should become a purchaser of last resort and fill the vacuum in demand by simply buying goods and services that would have been sold by businesses in the normal course on the proviso that a business maintains employment and remuneration. While this would have an enormous cost, they argue that this approach would be better targeted and should have better results.

Others argue for direct State payments to citizens: people’s quantative easing or ‘helicopter money’ as it is termed.

A variation of these ideas is that the State should immediately create a State owned business continuity insurer and offer to insure, and therefore compensate, businesses for a certain proportion of losses caused by the crisis on certain terms. By so doing, the State could fulfil its role as a social insurer in much more effective and targeted way. In the lexicon of the moment, the State could cocoon businesses.

Here’s how it could work.

The State would indemnify businesses, both corporates and self-employed, against a defined percentage of losses (say 85%) caused by the public health crisis. The indemnity would apply to losses suffered in a defined time period, say the 3 months from 12 March. The period could be increased if needs be and the percentage of losses indemnified could be varied with any extension.

The conditions of any indemnity would include:

The business must retain (or re-engage) the employees it had on 10 March and must maintain the remuneration of such employees at the 10 March level, or a percentage of that (again say 85%) for the indemnity period.

The indemnity would apply to losses flowing from business that would, in principle, have been taxable in Ireland.

The indemnity would not apply until a business had exhausted commercial business interruption insurance which extended to coronavirus virus (few do).

The indemnity could be limited or capped so that it did not, of itself, create profit for external shareholders. Its aim would be to shield (or cocoon) a business from losses caused by the crisis. A business could earn profit from unaffected business lines in the normal way.

Businesses would be charged a premium for the cover that would be retrospectively calculated, perhaps based on a percentage of the indemnity amount and given years to pay.

What could this policy achieve?

First, it would eliminate, at a stroke, the wholesale transfer of employees and self-employed persons to social welfare caused by layoffs, redundancies and business failure.

Second, it would eliminate the need for State loans, bank loans and tax deferrals.

Third, it would eliminate the need for mortgage holidays, rent holidays and other forms of payment relief.

Fourth, and perhaps most importantly, it would restore some degree of business confidence and allow people to envisage normal trading after the crisis thereby restoring the confidence to price assets in markets.

Fifth, it would boost consumer confidence enormously.

Sixth, it doesn’t just shift losses around different players in the economy.

Seventh, it would mitigate against cash hoarding.

Lastly, the size of indemnity would be proportionate to the harm suffered. So a food delivery company may not make any claim while a tour operator would make a substantial claim.

How could it operate?

The State would likely have to use the Revenue Commissioners to deliver the service but they could be supported by the professional services community which will have thousands of under-utilised professionals available during the crisis. Cover for those firms could be made conditional on providing such service to the State at cost. Indeed, cover for all could be conditional on making appropriate and willing underutilised staff available to the State for some purpose related to the crisis.

The indemnity could be calculated by reference to the corresponding periods in 2019 and some of the data could be derived from last year’s tax returns.

The massive cost of the programme would be ultimately recovered through a combination of the premia and other progressive forms of taxation which would be devised when the cost is known. Or it is funded, perhaps in part, by money creation, accepting the inflationary risk.

What are the downsides?

Many of course.

Most obviously, there would be a massive cost to the State. But a massive cost will be suffered anyway. Will this cost be more? I’m in no place to do the sums and no one can truly tell. But, surely if such a policy led to a substantially intact economy emerging in 3, 4 or 6 months, that would be preferable to a prolonged depression with a fallout lasting years?

The complexity is another obvious issue. It probably can’t be perfectly done. But with retrospective adjustments, we might come close.

Time is another problem. Businesses need money now. But if this solution was offered and coming, then business could borrow with confidence to bridge a short gap. Moreover, interim payments to meet payrolls could be made swiftly.

The uncertainty of duration of the public health crisis would be another major issue. But if it was launched for 3 months it could then be adjusted and fine-tuned based on experience and the health situation at the time. And you’d have time to devise other policies.

Dislocation from other jurisdictions who follow other paths is also a problem. But if this was seen to be a viable policy, other countries, or ideally the EU, may follow. Macron has said that no business in France would be allowed to fail.

And the fact that we have started with piecemeal policies is also a problem as no one likes changing course. But surely that is no reason at all.

There are many good thinkers out there in Ireland and elsewhere. I ask you to shoot this down, augment it, change it, whatever. We should all now be offering ideas without fear or embarrassment, even if they prove to be of little merit.

Declan Black in managing partner of Mason Hayes and Curran which employs 540 staff with a turnover of €85 million