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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

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