Nigel Wilcock, Executive Director, Institute of Economic Development, considers the issues caused by the Coronavirus outbreak
In a time such as this, our first thought must be about the immediate and distressing public health consequences of coronavirus. In trying to pull together a position on economic development, the Institute of Economic Development (IED) is not making light of that situation. It is also clear that health outcomes will continue to deteriorate before they get better.
The IED has deliberately delayed any response to the economic impact of increasing social restrictions until after yesterday’s statement by the Government, and especially the Chancellor’s update. We stress that the IED is a non-political Institute and the Government is undertaking policy to work in the national interest. However, the IED made a cautious welcome to last week’s Budget, and we give a similar welcome to the measures announced yesterday.
The immediate response
It is clear that the Government is seeking to protect the travel, hospitality, retail and leisure sector, all of which are major contributors to economic development. It is also important to note that policy at the current time must have a ‘compensatory’ supply side element – it is impossible to create a demand side response when the official instruction to the public is to stay at home (and avoid spending in the sector).
The responses by HM Treasury, however, highlight that policy and intervention mechanisms are rooted in an economy of the past. Whilst the Chancellor is desperately trying to support registered businesses, mortgage holders and provide statutory sick pay (all of which is laudable), the reality is that the section of the economy where the bottom has just dropped out of the world is the self-employed and/or ‘informally’ employed sector – many of whom may be in the rented residential sector.
The headlines have been around hospitality and leisure – and this sector is likely to feel the difficulties first given the social isolation announcements this week – but it will very rapidly spread into the entire personal service economy and all of their suppliers. We need to spare a thought for the zero-hours sandwich shop worker, the hairdresser, the taxi driver, the entertainment industry worker, and countless others.
In response, the Government should:
• Urgently and rapidly increase the local hardship social fund for the self-employed and ‘informally’ employed sector.
Provide all lower rate tax paying self-employed with a cash grant to help them survive.
Do not provide a blanket £10,000 grant to all qualifying SMEs but make this means tested to better target the intervention and help fund the remaining recommendations.
For our local authority members, the mechanisms to distribute hardship funds and grants through the business rate system will create additional burdens at a time when staff absence is likely to impact resources. The Government should be reminded of the importance of local response mechanisms and ensuring they are properly funded when this crisis has abated.
The medium-term response
This is where economic development professionals are likely to play an increased role. With the country implementing social isolation measures, there is little that can be done immediately to mitigate problems and boost demand.
If the Government undertakes the policy recommendations set out above, there is probably an 8-10 week window to work hard (out of the office) on a specific policy intervention that is appropriate for the location but makes a big difference in the future. Such a considered approach is likely to be more effective than hurried policy measures whilst we remain locked down. There are probably hundreds of examples of interventions, but these may include:
• Re-launching festivals (big or small)
• Preparing for a large media visitor launch
• Establishing local markets/fetes/craft fairs
• Developing local supplier networks online
• Creating local business networks
• Establishing portals for supplying local needs
• Developing/updating business contact databases
• Updating directory of services relevant to business
• Working up capital business cases to be ‘oven ready’ for announced funding measures
• Devising initiatives that match the requirements of National/Local Industrial Strategies
• Developing local and very specific immediate interventions for businesses as they emerge from lock-down
• Account management of more successful local businesses with joint forward planning made a priority
In all of these measures the IED is keen to help, suggest, discuss and share best practice.
In response, the Government should:
• Provide local authorities and Local Enterprise Partnerships with a modest special initiative fund to work up one or two post-coronavirus crisis intervention measures.
• Abandon wasteful and time-consuming business case competitions in areas such a Towns Fund and Future High Street Funds in favour of a simple business case sign-off process.
• Expedite proposals for the Shared Prosperity Fund (and a new Emergency Fund).
The longer-term response
The longer-term response will need some serious thinking; however, the following are provided as considerations for policy. They are not intended as political but have leaning towards socially-minded capital markets:
• There needs to be better resilience factored into economic planning and general economic resilience. Crises happen more often than expected – major disruptors to a greater or lesser extent in 20 years have been the fuel crisis, foot and mouth disease, the financial crisis, and now coronavirus.
• An informal labour market economy has been argued as a reason why the UK has maintained full employment – but the informal labour market tends to be the lowest paid and is hit immediately and hard in a crisis. With crises increasing, workforce contracts and safeguards need strengthening.
• The current situation is creating unbelievable strains on hard-working individuals who would formerly have bene protected by the welfare state and, going forward, all these elements of the economy need to be brought back under this protective umbrella.
• The strong economic times over the last 20-30 years have favoured capital and business owners – often because they have benefited from informal labour practices. There is a need to maintain a link between risk and reward, but in recent crises the ‘left behind’ and informal workforce are those disproportionately affected. Paying back the deficit post-crisis will need to address this inequality more effectively than took place after the financial crisis – considering both accumulated wealth and income.
• Above all, this crisis should remind us that whatever happens a post-Brexit economy we need to enshrine the rights of the individual worker and ensure owners of capital make their fair contribution in all times – good and bad. It should remind us that a society in which everyone has a stake is likely to be more resilient and provide for all.
The conclusion is that all the evidence of the last 30 years supports a model of a socially-minded market economy – let’s hope that we quickly reach a new normal and get the chance to implement some of these philosophies.