The UK government has been quick to realise the impact of the virus on those facing monthly bills now deprived of the income to service debt, those not receiving a regular salary such as the self-employed and contract workers, in other words the non-salaried who make up a large part of the workforce. Talk of mortgage holidays is welcome but how many lenders will actually take part and who will fund the shortfall in repayments? The lenders have borrowed and have creditors too.
A mortgage is only one of several monthly bills that an average family household incurs, even if these lenders permit a payment holiday, what of the other creditors such as utilities: electricity, gas, water and phone companies? Will their shareholders tolerate a shortfall and agree to later payment of their own debts to investment banks and private equity firms? Once you start letting people off payment obligations, where does it stop and who foots the bill?
Personal debt per capita in the UK is higher than most first world economies and most of us live on credit in some for more another. Many people are only a couple of pay-cheques away from the food bank and while this is not very prudent, it is where we are as a society. Private companies like our utilities and mortgage providers are beholden to their shareholders not their customers – these are merely one part of the business model. If income falls or debts mount these shareholders will revolt, giving the government an even greater headache than the coronavirus pandemic.
The UK Stewardship code, introduced late last year, suggests that corporations ought to serve the interests of a wider set of stakeholders not simply shareholders. A working definition of stewardship is provided as: ‘Stewardship is the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries, which leads to sustainable benefits for the economy, the environment and society’. Doesn’t this suggest that mortgage lenders and utilities ought to give payment holidays to customers unable to meet monthly payments by force majeure?
It is too early to say how this will pan out. It is unlikely that mortgage companies will be quick to repossess homes from those in genuine hardship but utility companies, especially phone and broadband suppliers, will have no qualms about terminating a service for non-payment. It is easy to do and they have contracts that give them rights if only to prevent abuse and ‘pour encourager les autres’. It is very much harder to self-isolate without a phone or broadband connection, and the withdrawal of service would make curfew breaking much more prevalent.The knock-on effect of the virus in terms of business interruption for the self-employed and small businesses has yet to fully impact, but the government would need to set out clearly how it plans to compensate those firms offering payment holidays to ease hardship. If left to the market it is unlikely that corporations will act for the ‘benefit of the economy, the environment and society’. A leopard doesn’t change his spots and the shareholder dividend is a key driver of corporate culture. This virus will severely test how serious big businesses are about stewardship and societal benefit.