UK Economic Recovery - the Local Picture
In mid July, Remarkable City founder Duncan Ray caught up with Tom Congrave, founder of Edge Economics, to talk about the UK economic recovery from the standpoint of regional and local authorities in the context of recent support measures made by the Prime Minister and Chancellor.
We focussed on two questions -
How do we view the government’s support for the UK’s economic recovery?
What does this mean for Combined Authorities, LEPs and Local Authorities?
If you’re from a Combined Authority, LEP or Local Authority Tom and I would be delighted to have a virtual meeting with you to explore your economic strategies in the lead up to the crucial autumn budget.
1. How do we view the government’s support for the UK’s economic recovery?
DUNCAN: The first thing to say is that it’s good to have a Chancellor who seems to have command of the situation. He’s a Chancellor who listens to and understands different viewpoints and isn’t only going to focus on his parties’ political base.
Whilst he’s a Keynesian, and his early measures no doubt prevented mass redundancies, there hasn’t been as much clarity as we might have expected on the future areas of growth for the economy. We had the European Green New Deal announcement in December 2019 and US Presidential candidate Joe Biden’s climate plan, which are another order of magnitude higher spending than what we’re seeing in the UK on sector support.
A global sector strategy for the UK would help partnerships form nationally and globally and help the UK compete for talent.
For town centres, it is going to be very challenging with reports of drops of 50-60% in footfall. The retail and hospitality sectors already had preexisting issues and we need to be very careful with policies in town centres and high streets, for instance allowing land owners to convert retail into housing.
I suspect further town centre policy and investment announcements will be made in the Autumn Budget and this is an area where there is time for regional and local authorities to present the view from the ground to central government and explain what they need and also the consequences of acting rashly.
TOM: It’s certainly true that local areas are facing a somewhat unique set of challenges at the moment. The government interventions announced will soften adverse impacts such as those on employment. A critical issue however is that they are constrained by their short-term focus. In some ways this is reminiscent of the handling of the EU’s handling of the 2008 financial crisis - with potential problems being stored up for the future.
Overall, many of the measures appear based on boosting confidence among the general public. Whilst these may support the economy, what is urgently needed is:
A comprehensive and integrated sector based approach;
A long term plan - and critically funding - to deliver recovery; and
Clarity about the local level and role of devolved powers in CAs/LEPs.
It looks like we may have to wait until the autumn and the Comprehensive Spending Review to see to what extent these are forthcoming. In the meantime, CA’s and LEPs can still take action to develop a portfolio of projects that support a longer-term vision for their economies.
DUNCAN: Yes, I agree with all of those suggestions, and especially with the idea that it falls to CAs, LEPs and LAs to take the lead on the ground. I also think these authorities need to think about those on furlough now who might not have a job to go back to and what that will do for local authorities. This is an area we’re working on with some of our clients. The 2008 financial crisis gave us a centralised clusters such as Tech City, and I think this one will give us a set of more dispersed clusters. There’s now the opportunity for places that previously didn’t have strong economic bases to become mini CBDs. In those days it was ‘tech’ focussed, and now we have the idea of a green recovery, but I can’t see that play out in a big way in the investment to date.
TOM: Indeed, the 'green recovery' element of the government’s strategy does appear weaker (including in terms of funding allocated) than the EU proposals. The EU’s Just Transition Fund is expected to generate £150bn of investments in green transition. In contrast, the Chancellor’s plan was limited to a £3bn Green Jobs Plan aimed primarily at saving consumers money. That said, the picture may change in the autumn depending on the investments laid out in the National Infrastructure Plan.
DUNCAN: Economic activity is also moving to local centres as a result of companies shirking their central office locations. And there seems to be a feeling of WFH fatigue setting in with., and people preferring to work locally rather than from home.
Given the rise of these local economies, it was puzzling to hear the Prime Minister suggesting that a wider range of commercial buildings could be switched to housing without a planning application.
A transformation to reset town centres is going to be needed and to paraphrase Lord Heseltine, who has been a long term advocate of devolving funding and powers to city mayors, ‘no one is in a better place to understand the local challenges and opportunities than the places themselves’, which is fine for the 100 places benefiting from the Town Deals and the 100 recipients of the Future High Streets Fund but what about more generally beyond? Will these funds always be ‘competitive’ or will the government start to provide devolved funding?
I had a good catch up with Diane Cunningham from the Assembly Line recently and we discussed this funding picture and the need everyone has now to properly understand the local economic picture. We also talked about the useful resources that are being created by the High Streets Task Force.
TOM: Yes, managing change in town centres will be very important for the prosperity of local areas. It may be that local areas need to look at other options to deliver this.
The government’s recent announcement on the allocation of its £900m Getting Building Fund very much underlines the point that there is a substantial gap between local 'asks' and the amounts allocated. This also comes at a time when local areas will be facing reduced income on some of their activities and indeed previous investments made on the basis of payback into revolving LEP/CA funds. In the absence of further funds from the government, many areas may feel forced to borrow through prudential borrowing. There are clearly risks attached to this - you only have to look at the US where cities go bust from time to time. That said, it is an option that should be considered in taking a longer term view and in attracting private sector investment that will be increasingly fought over.
2. What does this mean for Combined Authorities, LEPs and Local Authorities?
TOM: For Combined Authorities and LEPs, the present circumstances underline the value of taking a longer term approach when revisiting portfolios of potential projects.
Taking a pragmatic approach to working with the private sector in leveraging investment will be important - especially in terms of the type of private sector contribution and timeframe for activity. At the same time, it may be that a number of existing projects in the pipeline are now unable to proceed due to less willingness by private sector partners. Whilst presenting a challenge, this also presents an opportunity to put work into new project inception targeted at long-term economic growth.
There will also be gains to be had by putting projects together that work in synergy - for example by using innovation based projects to stimulate economic activity around town centres as well as to deliver long term growth and productivity gains. In this way, areas may position themselves to gain as much as possible from the ongoing process of creative destruction in economies. Yes there will be some hard losses in the short-term but those who invest wisely could achieve transformational economic gains for their areas in the long-term.
A significant amount of hard work has been invested in developing the evidence base for investment - including economic strategies and Local Industrial Strategies. This should not go to waste but at the same time, gains will be maximised by recognising where the changing circumstances require a revision in approach.
A three-pronged approach can maximise gains:
Critically review the existing evidence base and ‘pivot’ where necessary;
Take a longer term approach in managing your portfolio of potential projects, put work into developing new projects where the existing pipeline is unsuitable; and
Develop a portfolio of projects that work in synergy to deliver change and maximise the breadth of potential funding sources that can be drawn down.
DUNCAN: The excellent “facing up to the challenge of the coronavirus labour market crisis” report from the Resolution Foundation contains a number of useful, but also worrying, insights. It says the most likely destination for those in the ‘lockdown sectors’ is other lockdown sectors and therefore if we can’t open up these areas of the economy, or don’t continue to support staff, it will be difficult to avoid higher unemployment.
Those local areas that have an increase in economic activity will have more of a market for retail and hospitality, and we’ve seen local centres benefit during lockdown. The Paris-based professor and urbanist Carlos Moreno has developed the idea of the ‘15 minute city’ and this is now getting more widespread coverage with the Mayors of Paris, Amsterdam and Milan all taking on board his ideas. It has been covered over the last few days by Bloomberg, FT (behind paywall) and New York Magazine.
Something we haven’t mentioned yet is the hundreds of thousands of graduates coming out of university this year. If they don’t have work they will move back to their family home and thus be another addition to talent in these local areas. Universities UK have put together a useful report into how to support the post-Covid graduates.
The issue of business rates was raised by the Chancellor in his Budget in March, where he said he was launching a “fundamental review, to be concluded at the Autumn Budget, into the long-term future of business rates”. Business rates provide critical funding to local and regional authorities and this is an area that isn’t as straightforward as it appears.
From discussions across the industry, my sense is that it might be replaced by more of a ‘real time’ tax that taxes earnings as they are made by companies, rather than taxing the buildings themselves. This could also be a philosophy taken by landlords, taking a so-called turnover rent approach.
Local authorities need to tool up to support their economies and to get their local residents back into work. Not every person is cut out to be an entrepreneur, but by supporting entrepreneurship, you can help spur on grow local jobs.
I suggest that areas lobby on getting both capital and revenue for three areas:
The high street so it can be reconfigured;
How to best support local entrepreneurs to get their businesses off the ground; and
How to best support residents into new employment.
Discussing these areas further
If you are a Combined Authority, LEP or Local Authority, Duncan and Tom are available to provide more detailed guidance that will help you to understand more about your local economies, to build up a new evidence base and make informed recommendations about how to recover in the medium and long term.
We can facilitate workshops on strategic change and support business case development, either in the context of a Town Deal or Future High Streets Funding or to help you understand what is possible given your specific situation and what action you can take to get yourself onto a better long term footing.
We would also appreciate hearing any thoughts that build on this conversation, so that the discussion continues over the coming months and can inform the decisions made ahead of the crucial Autumn Budget. Please add any comments under the original LinkedIn post.
Duncan Ray, Remarkable City, duncan@remarkable.city.
Tom Congrave, Edge Economics, tom.congrave@economiccase.com
20th July 2020