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COVID-19: “Snapshot of our economic development community may support understanding of the national picture”

 

In my ‘day job’ as Director of Hardisty Jones Associates, a specialist economic development consultancy, we have been working with our public and private sector clients to understand the immediate and likely implications of Covid-19.

There are not yet any robust quantitative measures of the economic impact of the crisis, but a snapshot of our own community may support understanding of the national picture. Local authorities are talking to their businesses to build up a local picture, LEPs are collating data and informing government, and national data is starting to emerge on indicators such as claimant count and business confidence. Monitoring and data-gathering processes already in place for Brexit have quickly been repurposed for coronavirus. Some ‘immediate’ observations from the economic development community include:

• As per the headlines, tourism, leisure and hospitality businesses have virtually no income so are badly hit. Many were looking at online/delivery-based alternatives to on-site face-to-face service, but this carried a risk of much lower income, so many are furloughing staff instead of pursuing diversification.
• Food and drink businesses that sell directly to customers are generally thriving. Some wholesalers and distributors are quickly re-purposing their business model to sell directly to customers. Agriculture and food processing are expecting to struggle during the upcoming harvest period due to a shortage of overseas workers.
• Businesses relying on overseas supply chains in badly impacted parts of the world are affected, and activities tied to a particular workplace and which are deemed non-essential appear to mostly be stopped.
• Despite the increase in home-working and subsequent need for IT support, longer-term investment in areas such as IT has been paused, causing problems for some IT companies; and previous investment in areas, such as innovation in medi-tech, has been redirected to efforts to cope with the health service impacts of coronavirus.
• Professional and office-based activities are largely continuing albeit at a reduced level, with many people able to work from home with a laptop, mobile phone and internet connection.
• Whilst there are government funding schemes in place to support workers, the self-employed and business rates payers, some businesses are falling through the gaps. Whether the level of government support to businesses is enough to prevent significant contractions, closures and loss of jobs remains to be seen. News reports have indicated that the take-up of the furlough scheme is far greater than initially expected, with 50% of companies furloughing staff.

In the medium-term, our clients are predicting that some things are likely to get worse. For example, the structural change in town centres, which has already left many struggling, will be accelerated. Many businesses will not survive the crisis, and others may consolidate online. Vacant retail units will become more prevalent in many town centres. Emergency legislation allowing tenants of commercial properties to defer their rental payments may help some businesses manage their short-term cashflow.

However, the (hopefully) unintended consequence is landlords and investors will suffer from deferral and possible loss of income. Whilst there are mechanisms in place to underwrite loans to businesses, there is likely to be reduced confidence in the commercial property market. This could constrain the private sector’s ability and willingness to invest in new property and regeneration which will be badly needed when the recovery begins, especially in town centres.

That said, the public and private sector organisations we work with are suggesting that there could be positive impacts in some areas of the economy: there is already growth in the digital sector for the delivery of products, services and entertainment, including gaming; some supply chain activity may be brought back to the UK; and the focus on local community-based solutions has the potential to become deeply embedded.

There is, therefore, a mix of accelerating structural trends that were already in process (e.g. flexible working and the transition to online) whilst potential for the reversal of other trends (e.g. elements of globalisation and distant supply chains).

The longer-term impacts of the crisis, according to those we spoke to, will depend on the length of the lockdown and subsequent rate of easing of restrictions on daily life and economic activity – which may be sudden or, more likely, gradual.

Sudden release from lockdown could stimulate a mini-spending boom. Domestic tourism and leisure businesses could see a surge in demand, if they can survive long enough. However, seasonal businesses may never recover if they lose trade for most of the summer.

Supply chain resilience could become a bigger concern in many sectors, ranging from food and drink to advanced manufacturing. This could lead to increased domestic demand, but the corollary is that overseas customers may also turn to their domestic suppliers in preference to UK businesses.

Working practices may change as people become more comfortable with home-working and video conferencing. This could impact on travel and commuting patterns, infrastructure capacity requirements, and the demand for offices.

Residential preferences may change. Lower density living, natural light, and access to a garden may become more important. This could be enabled by greater openness to flexible working.

So what are the public and private sector organisations we are working saying about the support they are receiving in response to Covid-19, and the processes around implementation?

Generally central government is leading the immediate economic response to businesses with a job retention scheme, the award of grants and under-writing loans (albeit protecting the lender rather than the borrower). Local authorities are distributing funds, but there is currently little discretion and local direction of spending. Local authorities are feeding intelligence to LEPs, who are then collating and passing it to central government. Intelligence is being gathered on high-priority businesses and sectors.

Providing advice to businesses as well as funding is paramount. Some businesses will not survive the crisis, but others may if they are given some support with business planning, financial management, staffing, marketing and other issues. There are some experienced business advisers, but other local authority and public sector staff can help with signposting and ensuring businesses can access emergency funds.

In the longer-term, the following suggestions were made:

• Matching redundant workers to job opportunities could be important to get people back to work as soon as they are able. Local authority intervention, in partnership with Jobcentre Plus, could help to deliver a portal or service.

• For places that have an existing, up-to-date and robust economic strategy, recovery planning can be built around this. The challenges that places face may be slightly different to before the crisis, but the competitive advantages and opportunities of particular places may remain the same. It is worth reconsidering strategies in the light of the ‘new normal’ after the crisis.

• If lessons are learned and structural change takes place in society, the economy, infrastructure and the physical fabric of localities, then closer collaborative working will be needed between all stakeholders: including local authorities, businesses, infrastructure providers, transport providers, education and training providers, employers, developers, investors and others.

• Ensuring the delivery of effective digital (superfast and 5G) and telephone infrastructure everywhere, including rural areas – many of which still have poor quality mobile phone signal – is likely to be paramount.

• Promoting the growth of digital-based industries and activities is looking even more attractive in the light of the current crisis.

• The planning system may need to be reshaped after the crisis. Changes in people’s behaviour, working patterns, travel preferences and residential demand may all impact on the way spatial plans are formulated. Local plans currently in development may need to revisit their assumptions and evidence base. Planning use classes may need to be more flexible, especially in town centres.

• Town centres, in particular, need to be reimagined. Some smaller retailers will not survive this crisis, and some larger retailers may retreat to an online focus. The vibrancy of town centres will depend on leisure, niche retailing, the provision of public services, employment, public transport hubs and more residents. Planning and investment will need to support this change.

Stuart Hardisty is Director of Hardisty Jones Associates and a Director of the Institute of Economic Development

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