Can towns benefit from the virtual economy?

 Covid-19 and the policy response to it have had a profound impact across UK economy and society. Devastating as the pandemic has been, the changes in behaviour under lockdown have allowed us to experiment with new ways of living and working. We at the Centre for Towns are keen to identify how we can seize the opportunities that have emerged. The significant increase in “homeworking” is the first such opportunity we have chosen to explore in detail. 

Faced with the unprecedented shock of Covid-19, businesses that could shifted to homeworking. So successful was the move – 47% of employees reported they were working at home in April[1] – it raised concerns about the future economic model of the UK’s cities. For the first time, the priority afforded to “agglomeration” in UK economic policy[2] started to be questioned. City-led growth has been a core feature of UK government policy for some time with the Northern Powerhouse and Midlands Engine two of the more recent, high profile initiatives, under the City/Region policy framework. 

Under lockdown, as behaviours have changed, the costs of agglomeration (such as the potential of people in dense areas to spread diseases faster, the high emissions caused by commuting and urban travel and the opportunity costs of travel to work) have become more obvious. The benefits have been widely felt: the reduction in commuting has driven air pollution levels down; commuters have relished their time savings; and office closures and restrictions on corporate travel and entertaining have highlighted to businesses just how much they spend on these activities. 

Early evidence suggests productivity has held up better than expected with employers and employees having responded positively to the changes in working practices. According to the “Homeworking in the UK” report, 9 out of 10 people who have worked from home would like to continue and 13% of London businesses reported plans to make working from home standard practice, with 27% expecting to reduce business travel out of their city. 

However, a shift to greater homeworking is not cost-free. While adjusting to homeworking is likely to be easier for mature workers with established contact networks and larger houses to work from, younger employees may find it more difficult to interact with colleagues and have direct exposure to the culture and work of the firm. This may mean they will have more trouble adjusting, won’t develop a sense of belonging and could lose out on mentoring opportunities. In addition, reduced visibility might hinder their promotion prospects. 

And there are other issues to address. Just as some people might find they are more productive working from home, others will miss the opportunity the commute provides to switch into work-mode. Some people have found that their mental health has improved, but others have felt isolated and miss the office as a place to socialise and have a conversation with like-minded people. 

Not all the changes in working models have been positive. While some workers have reported having more free time, research has found that people are receiving more emails outside of regular office hours, are having more meetings than usual and working longer on average. If people feel like they never leave the office as it is also their home, then stress levels could increase. 

We also have to recognise that the experience of homeworking will not be the same for everyone. For example, the evidence suggests that during the lockdown women with childcare duties have picked up most of the burden of home and childcare leading to greater difficulties to concentrate on their work. Similarly, people living in shared apartments have struggled to find enough working space, a problem exacerbated if their flatmates have different working hours or do not work at all. Broadband speed and quality limitations can lead to people living in rural areas experiencing connection issues that, without the right assistance, could make it impossible for them to work efficiently. 

And there is a risk that homeworking could increase inequality. If remote working does remain higher than before the pandemic, demand for low-paid workers in the hospitality and retail sectors is likely to fall due to lower spending in city high streets driving down earnings. By contrast, if homeworking does take off and productivity increases, employers may increase the pay of homeworkers, further widening the earnings gap.

The challenge is to identify a new way of working and living that achieves the best balance of benefits and costs. Concerns over the future of cities led to a call for a “return to the office” in early summer. As the resurgence in cases of Covid-19 has shown this was misguided in health terms. More importantly, it was a backward step that ignored the opportunity to reframe how we work. 

It is too late to go backwards: change is already underway. An increasing number of people are considering moving to suburban or rural areas where larger homes with outdoor space are available. In recent surveys, 71% of young buyers expressed the desire for some outdoor space and 4 out of 10 people found village locations more appealing to relocate compared to bigger cities. Estate agents have reported that cities such as London, Manchester and Birmingham are registering higher numbers of people interested in relocating in rural areas, confirming their expectation that they will commute less in the future.   

As well as shifts in the property market, changes in work patterns have started to impact the balance of economic activity between place types. As people have spent more time in their local area, a share of consumer spending has shifted from the city to the local high streets. Surveys suggest that changes in behaviour will continue to some extent even after the pandemic. EY’s research[3] found 40% of people expect to shop more locally in future with nearly 50% responding that they expect to bike or walk more to work/study. This in part reflects concerns over using public transport, 34% of people expect to change the way they use public transport. However, there are potential costs to as 31% of people expect to drive to work more often.

Not only have individuals begun to adjust their behaviours but businesses are very aware that change is underway. 61% of investors identified the changing economic model of cities as the number one theme influencing their current thinking on capital allocation[4]. Rarely does consumer and business sentiment align in this way. We must act now to capture the opportunities remote working offers to reshape the UK economic model to support levelling up while working to mitigate any costs. 

Most immediately, in the short-term, sectors heavily relying on the previous model such as transport, hospitality and retail, will need help with the transition. As we move out of furlough in the spring, support to help businesses restart will be important to smooth the path back to more normal activity. For people losing their jobs, additional support with retraining and job search will help minimise the economic shock. The ambition should be look forward and help people move into higher paid roles.

With the majority of the challenges relating to how to manage increased activity outside of city centres, most of the burden will fall on local bodies. Central Government should adopt a co-ordinating role and provide local authorities and other agencies with the funding required to enable change. 

A significant programme of change is required to ensure a smooth rebalancing of activity. With shifts in traffic and walking patterns, it will be necessary to adjust local planning and traffic management schemes and to inform the local population. 

With signs the demand for housing by place is evolving, new housing schemes and revised planning guidelines will be required to meet the demand for people relocating while ensuring new homes are built with access to more outside space as well as adequate space to work from home. 

Work will not become totally home based. Employees will still have face-to-face meetings to exchange ideas, retain a sense of belonging and limit the feel of isolation reported by some. To enable this, there will be a requirement for more flexible office type solutions outside of city centres that allow businesses to book event and meeting places at request, rent open co-working spaces and set up drop-in desks for employees. A flexible approach to development on high streets and in local areas will be necessary.

An increase in the population choosing to live outside of the largest cities will also increase the demand for local activities and require a reallocation of public spending in sectors such as the arts and leisure to reflect the changing location of activity.

With regards to homeworking, there is the need for a strategy to ensure employees are not disadvantaged by this new practice. Businesses and the government should work together to put in place infrastructures to support remote workers. This should include improvements to internet connections all over the country, specific skills training, mentorship programmes for young people and more support strategies for labour market newcomers. Universities could also help in this regard by taking a more active role in the training, mentoring and building of new networks of remote workers.

Covid-19 has had huge costs, changing lives forever. While we need to learn the lessons and ensure we are better prepared to deal with future pandemics, we must also begin to look forward. With both individuals and businesses recognising the potential benefits of more remote and flexible working, we must ensure we take the opportunity to support the transition to more balanced economic and social activity.

 

[1] ONS/MCHLG

[2] Agglomeration is the approach of encouraging ever larger cities to create a diverse and talented workforce leading to interactions that will generate innovation and knowledge sharing to drive economic growth

[3] EY: Future Consumer Index, October 2020

[4] EY: UK Attractiveness Survey, November 2020

Empty theatre

Rethinking the Arts

 It has been widely reported that the COVID-19 crisis has severely affected the UK economy and many employers have had to announce redundancies. Since March, 695,000 workers in the UK have lost their job and a recent report by the ONS estimated that the unemployment rate rose 4.1% in the three month up to July. Economists had predicted an even worse scenario due to the current Coronavirus Job Retention Scheme (i.e. furlough) expiring at the end of October, with predictions of a “tsunami” of job cuts, though the Chancellor has since announced a replacement, the Job Support Scheme, to help top-up wages of some workers. 

The sectors worst hit by the pandemic have been those most reliant on in-person business and therefore most impacted by restrictions aimed at social distancing. The struggles of sectors such as retail, civil aviation and hospitality have been widely acknowledged by both the media and the government with interventions such as the introduction of the “Eat Out to Help Out” scheme and the development of an aviation recovery strategy.

Another sector severely impacted by the pandemic is the arts sector. This sector includes theatres, cinemas, museums, galleries, and music venues. Remote working is unfeasible for most workers in these industries and many venues remain closed. Young artists are often freelancers, meaning they have been unable to draw on the furlough scheme. Job losses within the sector have escalated since the start of the lockdown. In the theatre industry alone 2,000 workers lost their jobs in just a month (from the beginning of June) and the total number has already exceeded 5,000 job cuts since March.  Announcements of 400 redundancies at both the National Theatre and the Southbank Centre and more than 300 at the Tate resulted in protests over the last month. In June, a study by Oxford Economics for the Creative Industries Federation projected a £74 billion drop in income and 400,000 job losses for the creative industries, which has the highest percentage of workers currently on furlough (more than 40%). As such the sector is highly exposed to a sharp fall in employment at the end of October. 

While the easing of the lockdown restrictions in June and July temporarily helped the hospitality and retail sector and encouraged more consumer spending on the high streets, the arts sector struggled to reopen. Social distancing rules present significant logistical challenges to theatres and art venues, which are able to operate at only around 30% of their full capacity – with the outlook now looking bleak for when full audiences will return. Some theatres have reopened to the public, but they can accommodate only small productions as bigger ones are too expensive and therefore not profitable due to the reduced audience capacity. Moreover, with cases of COVID-19 on the rise again and further restrictions being introduced, the public’s confidence to go out is fragile and this reduces the prospect of more arts venues from reopening. 

 

pexels cottonbro 4722577 

Some theatre productions have tried to adapt by staging shows outdoor to increase the space available while social distancing and giving the public an increased sense of safety. For example, in August the Turbine Theatre in London announced the revival of the rock musical “Hair” as part of its new open-air series. However, as we approach the winter, the colder weather makes these sorts of innovations less viable. This highlights just how complicated and volatile the situation is for arts venues trying their best to continue operating without further jobs being lost. 

Despite some help from the government such as the £1.57 billion Culture Recovery Fund, including the Emergency Grassroot Music Venue Fund worth £3.36 million, the arts sector is not considered a priority for the recovery of the UK economy as it is in other countries such as Italy and Greece. According to the “Cultured Communities” published by the Fabian Society in August, the underfunding of the arts started before COVID-19, especially outside London. Between 2009 and 2019, more than £860m was cut from annual council spending on arts and culture and those cuts were worse in the regions compared to London. Further, the Fabians report highlights that the largest proportion of cuts hit villages or smaller to medium-sized towns. That has meant that arts and cultural organisations in such places have become increasingly reliant on revenues from performances and from other services such as hospitality (e.g. bars, restaurants) within the venues. This means the arts and culture outside London, especially in smaller towns, have been left more vulnerable to the economic shock of the pandemic. 

We must rethink the arts as a powerful tool to improve wellbeing, encourage national unity in times of crisis and promote jobs and growth. In 2019, the arts sector added around £10.8 billion a year to the UK’s national income. Investment in local arts organisations, infrastructure and initiatives offers an opportunity for the government to advance its goal of ‘levelling up’ the UK. In recent years, funding has tended to favour the arts sector in London and major regional cities. As the pandemic has prompted a shift in thinking about where we live and work, the government should consider the importance of local arts in boosting the local economy and providing a cultural focus for communities facing challenging times. 

Football on the brink?

The shock announcement that Wigan Athletic FC have gone into administration once again highlights the lack of leadership and governance in English football. In the last year, three other clubs from the game’s North West heartland, Bury, Bolton Wanderers and Macclesfield Town have faced financial troubles, with Bury forced to drop out of the Football League, yet at the same time Manchester and Liverpool each boast teams amongst the richest in Europe.

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Our funding

The Centre For Towns is committed to funding transparency in accordance with Who Funds You? principles. Here we list our total income for the last reported year as well as all sources of income over £1,000. The Centre For Towns carries out original research on its own behalf, or in collaboration with external partners.

2018/2019 income: £17,000

Donations over £1,000

Ernst and Young: £2,000

Royal Institute of British Architects: £5,000

Arts Council England: £10,000

Levelling Up: It’s About More Than Infrastructure

Although his proposed freeze on public sector pay outside of the NHS and reduction in the share of GDP for foreign aid were extremely mean-spirited, the Chancellor largely resisted the temptation to squeeze public finances too hard in the 2020 Comprehensive Spending Review. Instead he concentrated on trying to limit the long-term economic consequences of the current crisis, allocating over £4 Billion to support the labour market by helping people back into work. 

Important as short-term support for the economy is, the Chancellor’s announcements on the future direction of policy were eagerly awaited. After nearly a year in office, the Government has provided little insight on how it plans to deliver on its commitment to “levelling up”. For the first time, we were given a glimpse of how the Government plans to level up the economy: areas outside of London and the South East will receive a significant share of the £100 Billion on public investment in 2020/21 on a revised National Infrastructure Strategy (NIS). 

Amongst the resources allocated to levelling up are:

  • £5 Billion to support Gigabit broadband and 4G mobile roll-out nationwide and a similar amount over the Parliament to support bus and cycling infrastructure;
  • The creation of a £4 Billion cross-departmental levelling Up Fund;
  • Investment of £5.2 Billion in intra-city transport in the largest city regions outside London; and
  • £5.2 Billion by 2027 to protect communities from flooding and coastal erosion

While the recognition of the need to improve infrastructure provision across the country is welcome as are the proposed changes to the Green Book investment appraisal methodology, we do not believe the proposals set out in the NIS focus will deliver on “levelling up” for several reasons. 

Firstly, spending on infrastructure alone will not deliver the magnitude of change required. The challenges facing towns and other places go far beyond the quality of infrastructure. Levelling up requires a more comprehensive approach including improving the quality of education across the country, investing in developing higher level skills that match the demand in local labour markets and delivering a step change in the level of health and social care on offer to everyone. A narrow definition of infrastructure will limit any progress: we need to make places appealing to live in to retain talent and to attract new people in – social and cultural facilities are important in this respect. Failing to match capital spend with a higher level of resources for local authorities will limit any economic rebalancing.

Secondly, it appears the Government has learnt nothing from efforts over the last 3 to 4 decades to reshape the UK’s economic geography. The NIS states:

 “The government shares the National Infrastructure Commission’s (NIC’s) view on the importance of strong regional cities; the vital organs of the UK economy. Cities drive economic growth through agglomeration effects; they encourage specialisation, drive competition and spread ideas and innovation faster than other places.”

Cities are an important part of the economy and require public support, but not at the expense of other places. Recent initiatives based on City/Region deals have tended to benefit a small number of large cities disproportionately while towns and smaller places have fallen further behind economically. The NIS lays great store on plans to improve the productivity of the UK’s mid-size regional cities even though it is not clear that alternative approaches might be more beneficial. More work is required to identify the most effective policy approach.

Further, the proposed approach in the NIS is backward looking. Although the pandemic has been an extremely difficult period, the response to COVID-19 has shown us we can organise ourselves differently, creating economic, social and environmental benefits along the way. By concentrating on road and rail schemes centred around cities, the NIS risks passing up the opportunity to learn from recent events and change how we live and work. We want to build back better not return to the past.

And finally, we do not believe that top-down initiatives are the most effective way to level up UK economy and society. The “levelling up” initiatives outlined by the Chancellor have been developed centrally and even proposals to relocate civil servants outside of London, appear to assume continuing central direction. Responsibility for identifying priorities and delivering them needs to reside at a local level. This means empowering local bodies and providing them with the resources to deliver their plans. Centrally driven competitions for resources such as the Levelling Up Fund are not the way to achieve economically balanced outcomes as they risk becoming politicised. We should move civil servants out of London to provide expertise to support and facilitate the best possible local decision-making rather than to deliver centrally determined priorities.

The 2020 Comprehensive Spending Review was the latest opportunity for the Chancellor to begin to articulate his vision for the post-pandemic economy. While there is no escaping the challenges in managing the public finances going forward, cost reduction and higher taxes will not solve the fiscal problem: as in the period after World War II, a higher rate of economic growth how we should seek to improve the UK’s finances. By maximising the potential of the whole of the UK, levelling up is the best way to accelerate the UK’s post-COVID recovery. However, it is about much more than spending money on infrastructure, a comprehensive plan that is rooted in local knowledge and preferences is the way to deliver it.

Weekly bulletin on COVID-related job losses, 14th July

COVID-19 is having an unprecedented impact on people’s lives and the economy. Not every industry has been able to shift to remote working and even those that have, have often experienced great reductions in demand. In the last few months, businesses in the UK have started responding to losses in revenue by announcing extensive job cuts.

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The “Levelling up” Budget – towns are still waiting

Forty years of hurt…

The Government has made it very clear that “levelling up”, reducing geographic inequalities in the UK economy, is one of its top priorities. With details as to what the policy means in practice thin on the ground in the Conservative Party manifesto, the budget was eagerly anticipated as the moment when the Government made ”levelling up” real. We are still waiting.

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elections

POLLING: How do our towns intend to vote?

At the Centre For Towns we make no apology for wanting our political parties to focus on the challenges our towns face. We see advocacy for our towns as one of our defining aims. To that end, we have repeatedly emphasised how any political party hoping to win power in a general election must win dozens of marginal constituencies comprised exclusively of voters in towns. The upcoming general election is no different. With the Conservatives piling up large leads in rural communities and Labour performing best in our largest cities, the remaining vote in our towns becomes the decisive battleground.

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Mark Gregory Appointed Centre For Towns Director

The Centre For Towns is proud to announce and welcome Mark Gregory, Chief Economist at EY (UK) and member of the UK Government’s Trade Advisory Group on Investment, as its 4th Director. 

Mark Gregory joins the Centre For Towns with over 30 years’ experience as a business economist in over 40 countries, advising governments and industry on economics, policy and regulation. 

With over 30 years working as a business economist in the UK and internationally, Mark Gregory is a leading voice on the UK economy and will bring an understanding of how best to engage the corporate sector in addressing the unique challenges facing our towns. 

Mark will work alongside Lisa Nandy MP, Professor Will Jennings and Ian Warren in making the case for our towns as the UK navigates the economic and political fallout of the COVID-19 pandemic.  

In his new role, Mark will Chair the newly established Centre for Towns’ Advisory Board. 

The Advisory Board will support the Centre For Towns explore and identify the best approaches for driving sustainable improvements across the whole of the UK. 

The Board is comprised of academics, analysts and activists with acknowledged expertise and experience of the needs of our towns, public attitudes and better public policy.  

Members of the Advisory Board include Kirsty Devlin, Professor Rob Ford, Professor Donna Hall, Professor Cathy Parker, Dr Marianne Sensier, and David Skelton. 

Lisa Nandy, Labour MP for Wigan and co-founder of the Centre For Towns, said:

This is a critical moment for Britain when old ways of thinking have been called into question and people across the country are starting to rethink the way we live and work. 

We’re delighted to welcome Mark to the Board of Directors as we make the case for a new and reformed country that works for all of our communities, large or small.

Mark Gregory said:

“I believe this is the perfect time to be joining the Centre for Towns and I am very excited about working with both the team and members of the Advisory Board to identify practical, innovative and sustainable solutions to improve the economic and social outlook for our towns. 

I am very grateful to EY for allowing me the flexibility to combine roles”

Commenting on the creation of the Advisory Board, Professor Cathy Parker, said: 

“Towns are facing challenges of a magnitude that was unimaginable even just 12 months ago.  

Understanding these problems and proposing solutions needs the interdisciplinary, collegiate and fresh thinking that Mark, the Centre for Towns and its Advisory Board can bring.”

Professor Donna Hall added:

"At New Local we have long admired the research work of Centre for Towns since its inception. Innovative championing of a new economic model has never been more important."

Dr Marianne Sensier said:

"City deals and austerity over the last 10 years have left towns falling further behind. Genuine investment is needed across the country to make the "levelling up" rhetoric a reality.  

I am looking forward to advising the Centre for Towns on future projects."

Ends. 

Chancellor's statement: No sign of levelling up

The Government’s response to the outbreak of COVID-19 was unprecedented in both scale and speed and was reasonably successful in protecting the economy through the most stringent period of lockdown. However, job losses have accelerated in recent weeks and, as restrictions have been eased, the sheer scale of the challenge facing the UK economy has become clear: businesses have cut back capital expenditure and consumers are reluctant to return to their normal patterns of activity.

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Budget 2020; what we'll be looking for

In tomorrow's Budget, the Chancellor and the government will rightly want to lay out how the economy deals with COVID-19 (Coronavirus). On that specific point, we at the Centre For Towns have produced extensive research showing the geographical distribution of an ageing population (towns getting older, cities getting younger). So, given that we know older people are most at risk from COVID-19, the issue of geography is likely to be important. That said, dealing with COVID-19 is obviously a priority for the Chancellor and the country and we hope the issue is covered well and in detail.

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REPORT: Our towns lag behind on foreign direct investment

The large majority of foreign direct investment (FDI) went to Core Cities in 2018. This reflects a continuing trend: our Core Cities are best-placed to attract foreign direct investment whilst our towns are starved of the investment they badly need. Today we release a joint report with Ernst and Young which looks at the distribution of foreign direct investment across the UK.

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