- Britain's Leading Edge
Britain’s Leading Edge and Covid-19: the path ahead
The global community has responded in force to the emergence of the novel coronavirus that surfaced in December last year. Covid-19 has since quickly crossed international borders, requiring an unprecedented response from national governments to manage the treatment of those who have so far tested positive for the virus and to control its further spread. The NHS is buckling under the weight of this new adversary and hundreds of people continue to lose their lives each passing day. It is clear that despite the consistently bleak economic forecast, as a nation our principle focus should remain fixed on saving lives and supporting the health service.
So appropriate is this point that Dr Jonathan Michie, Professor of Innovation and Knowledge Exchange at the University of Oxford, asked in his recent article, ‘Firstly, at a time of such crisis, aren’t there other things more important to worry about than economics?’ (1). His own response to this pertinent question highlights the recession which shall follow this pandemic - and the austerity which shall follow the recession - leading to a likely rise in death rates as mental health deteriorates and suicides surge. Dr Rima Shretta, also at University of Oxford, argues that the economic consequences of Covid-19 are likely to stunt both global and national growth and debilitate even resilient markets, with signs the global economy has already begun to decelerate (2). In other words, economics remains a central factor in the management of this crisis.
The Regional Dimension
In terms of economics therefore, and in light of the ‘Levelling up’ agenda, it is crucial to reflect on the regional dimension of this pandemic and consider how future economic policy can continue to contribute towards the alleviation of regional inequalities. Yael Selfin, KPMG’s Chief Economist, suggests that the government’s ‘Levelling-up’ agenda may now be stalled, with the regional dimension of the crisis exposing itself as a widening performance gap between London and the rest of the country (3). KPMG analysis reveals the West Midlands could be the region that takes the biggest economic impact, forecasting a contraction of 10.1 percent in GVA, while the East of England is predicted to suffer a 10 percent fall in GDP for 2020. London on the other hand, with its comparatively higher level of professional and financial services which are more resilient to the restriction of lockdown and social distancing, is forecast as the least affected region with a contraction of 7.3 percent in GVA for this year.
Analysis undertaken by the Centre for Progressive Policy (CPP) this month concurs with KPMG’s findings, noting how the economic impact of the pandemic will be felt in ‘significantly’ varying degrees throughout Britain (4). A recent publication by the Office for Budget Responsibility examined the fiscal effects on the national economy, showing unemployment rising to 10 percent and real GDP falling by 35 percent in the second quarter of 2020 (5). This was measured as an average to the predicted impact on different sectors and weighted according to their size. The CPP have applied the methodology to examine every local authority district in the UK, in turn weighting the average hit per sector against every local authority’s GVA by sector. The results shown in the table below, demonstrate a clear regional dimension in terms of the size of the economic contraction, with output forecast to decline by almost 50 percent in areas of the North West and East Midlands. In fact, the full results reveal that none of the top twenty most affected local authorities are in London or the South East.
Chart 1: Estimated decline in GVA for the top 10, bottom 10 and median performing local authority districts in the UK. Source: CPP report 2020.
The Centre for Towns released a detailed report this month, examining the effects of Covid-19 on towns across the UK and the challenges that the pandemic is likely to produce or exacerbate (6). To more accurately rationalise the concept of regional resilience an Economic Wellbeing Index was devised, premised upon four factors: ‘unemployment rate’, ‘percentage employed in professional, technical and scientific industries’, ‘2018 median house prices’ and ‘average net annual income after housing costs’. The results, portrayed in the table below, reveal a similar pattern of regional economic contraction with Wales, the North West and Yorkshire and Humber scoring significantly worse than the South East.
Chart 2: Economic wellbeing score by region. Source: Centre for Towns 2020 report. The higher the ‘Economic wellbeing score’ the better the economic wellbeing of the region in question. ‘The Average ranking overall’ is the average taken out of 805 places measured.
The report further details how by type, coastal and ex-industrial towns are predicted to be amongst the worst affected towns economically. As the report lays out, many coastal and ex-industrial regions across the UK already experience the negative effects of peripheral isolation, unemployment, under investment and economic decline. Thus, the structural weakness of these local economies has inhibited their ability to develop a resilience strong enough to nullify the economic shocks of lockdown. Coastal towns, for example, are disproportionately affected by the lockdown, as almost a quarter of all those employed in these types of regions are employed in sectors which have been forced to shut. By measuring against ‘place type’, the table below predicts that the challenges these areas already face will increase throughout the pandemic in an unequal manner.
Chart 3: Economic wellbeing score by region. Source: Centre for Towns 2020 report. The higher the ‘Economic wellbeing score’ the better the economic wellbeing of the place type in question. ‘The Average ranking overall’ is the average taken out of 805 places measured.
Challenges for Britain’s Leading Edge
As an initiative Britain’s Leading Edge has already highlighted the impact of historic central government funding decisions which have exacerbated the social and economic challenges facing many rural and coastal regions on the periphery of the UK. Taking a critical view of central government’s narrow approach to place leadership and the emphasis on cities, Britain’s Leading Edge represents a population of almost 6 million, with average median earnings around £2,600 lower than the national average and the average per capita GVA also lower. Accompanying the predominantly rural and coastal makeup of these areas are perpetual transport challenges, digital connectivity issues and social isolation. It comes as no revelation therefore that the pandemic risks deepening these regional inequalities and pushing back the much needed ‘Levelling-up’ agenda which Britain’s Leading Edge areas require.
The recent report from the Centre for Towns uses four sectoral categories of ‘accommodation’, ‘non-food retail’, ‘pubs and restaurants’ and ‘arts and leisure’ as metrics against which the potentially worst affected areas from the lockdown could be measured against. The two worst affected areas are Newquay, Cornwall and Skegness, Lincolnshire, both of which are Britain’s Leading Edge areas. According to the data, 56 percent of the population of Newquay and 55 percent of Skegness are employed in at least one of the sectoral areas deemed most affected by the lockdown. In fact, 9 of the top 20 worst overall affected areas due to their shutdown sector exposure are Britain’s Leading Edge areas, including the Cornish towns of St Ives, Penzance, Falmouth and St Blazey, as well as Whitby, North Yorkshire, Mablethorpe, Lincolnshire and Swanage, Dorset.
The map below details the layout of the top 5 percent worst affected towns across the country, representing a clear peripheral dimension.
Chart 4: Areas with the highest exposure to the effects of the COVID-19 shutdown. Based on information from the Centre for Towns 2020 report
In their regional mapping of recent ONS data across local authority areas, the Royal Society of Arts also finds a ‘stark geographical divide’ in how coronavirus impacts local economies, citing major hotspots in the North and South West of England (7). For Cornwall therefore, there are widespread fears for the long term economic impact of Covid-19. Kim Conchie, Chief Executive Officer of the Cornwall Chamber of Commerce, especially fears for the decimated tourist industry which, through the hospitality and leisure sectors, employs almost 50,000 people and contributes around 30 percent to Cornwall’s economy (8).
For Cumbria, another Britain’s Leading Edge member, the speed at which the tourist industry can recover is also of critical concern. An industry worth almost £3 billion, Cumbria and the Lake District received over 47 million visitors in 2018, with tourism jobs estimated to total almost 20 percent of employment in the county. As such, the Local Resilience Forum has established the subgroup Business and Economic Response and Recovery, chaired by the Cumbria Local Enterprise Partnership, which is specifically responsible for assessing the direct economic impacts of the pandemic on Cumbria’s businesses. Locally driven groups such as this not only have the potential to collect much wanted statistics, but they also provide an important communication channel that can share intelligence between local authorities and businesses during this time of crisis.
Policy Response and Next Steps
It is clear that Local Government has a vital role to play throughout this pandemic. The analysis so far points towards the critical importance of adopting a place-based approach to viewing and managing the economic impacts of lockdown and Covid-19. Anjalika Bardalai, Chief Economist and Head of Research at TheCityUK, highlights the necessity for any post-coronavirus economic rebuilding strategy to integrate a more balanced economic development plan for the regions (9). Stressed is the notion that policymakers should reconsider previously argued solutions such as the devolution of fiscal and political powers; government should seek to provide a supportive environment that not only re-frames the narrative around ‘the central and the local’, but grants regions a greater level of control over their own policymaking and development.
The Centre for Towns report concludes with a number of recommendations for Government during this time, including developing a financial support package specifically aimed at those sectors most at risk. The idea of non-repayable grants is proposed, especially for sectors like hospitality and the arts who are key players in local economic prosperity for both the medium and long term. The report recommends that this programme be managed geographically, with local bodies utilised to disburse the funding. A further crucial development they would like to see at this time is the establishment of a commercial support mechanism that supports businesses at a local level to design their recovery strategies. For Britain’s Leading Edge regions, a locally led, place-based support programme from government that recognises the unique challenges its areas face is critical. Looking ahead, a restored and reenergised ‘Levelling up’ agenda will be one that takes stock of each region’s current place-based challenges and integrates these unique characteristics into a dynamic and locally orientated policy response.
(1) Jonathan Michie (2020): The covid-19 crisis – and the future of the economy and economics, International Review of Applied Economics, DOI:10.1080/02692171.2020.1756040 Available at: https://www.tandfonline.com/doi/full/10.1080/02692171.2020.1756040
(2) Shretta, Rima. “The economic impact of COVID-19”. University of Oxford, Coronavirus Research. 7 April 2020. Available at: https://www.research.ox.ac.uk/Article/2020-04-07-the-economic-impact-of-covid-19
(3) Selfin, Yael. “Levelling-up and COVID-19”. Insights, KPMG. 22 April 2020. Available at: https://home.kpmg/uk/en/home/insights/2020/04/chief-economist-s-note-levelling-up-and-covid-19.html
(4) Norman, Andy. “Which local authorities face the biggest immediate economic hit?”. Centre for Progressive Policy, Publications. 16 April 2020. Available at: https://www.progressive-policy.net/publications/which-local-authorities-face-biggest-immediate-economic-hit
(5) Office for Budget Responsibility. “Commentary on the OBR coronavirus reference scenario: Coronavirus lockdown to deliver large (but hopefully temporary) shock to the economy and public finances.”14 April 2020. Available at: https://obr.uk/coronavirus-reference-scenario/
(6) Warren, Ian., Houghton, John., Jennings, Will., and Gregory, Mark. “The effect of the COVID-19 pandemic on our towns and cities.” Centre for Town, Publications. 23 April 2020. Available at: https://www.centrefortowns.org/reports/covid-19-and-our-towns
(7) Wallace-Stephens, Fabian., and Lockey, Alan. “Which local areas are most at risk in terms of impacts of coronavirus on employment?”. Royal Society of Arts, Publications. 27 April 2020. Available at: https://www.thersa.org/discover/publications-and-articles/reports/local-areas-coronavirus-employment
(8) Vergnault, Olivier. (2020). “Coronavirus pandemic's effects on Cornwall's economy could be long lasting, business boss says.” Cornwall Live. 27 March 2020. Available at: https://www.cornwalllive.com/news/cornwall-news/coronavirus-pandemics-effects-cornwalls-economy-3979950
(9) Bardalai, Anjalika. “Covid-19 and the UK regions.” TheCityUK, Publications. 22 April 2020. Available at: https://www.thecityuk.com/news/covid-19-and-the-uk-regions/