Local Economic Development in the Time of Coronavirus

Local Economic Development in the Time of Coronavirus

Hardisty Jones Associates is a specialist economic development consultancy. We have spoken with a number of our clients and contacts about impacts of the coronavirus crisis on their activity, including local authorities, LEPs, other public and public/private agencies, planners, developers and investors.

Some initial messages from these conversations are set out below. We will update and expand this note as we continue with our conversations and will re-circulate it when we have more to say.

We would welcome any feedback on this note, including suggestions on how we can make it more useful to you. Please let us know.

Economic impact of the crisis

Immediate impacts

There are not yet any robust measures of the economic impact of the crisis. 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 observations from the economic development community include:

  • Tourism, leisure and hospitality businesses have virtually no income so are badly hit. Many are looking at online/delivery alternatives to on-site face-to-face service, but this carries a risk of much lower income, so some are furloughing staff instead of pursuing online opportunities
  • Food and drink businesses that sell directly to customers are generally thriving. Some wholesalers and distributors to the retail trade are quickly re-purposing their business model to sell directly to customers. Agriculture and food processing are likely to suffer during the upcoming harvest period as workers cannot travel from overseas for seasonal jobs, and their replacement by UK workers is uncertain. Clarifications to the furlough scheme issued on 8 April suggest that furloughed workers from other sectors could undertake work in agriculture and food production
  • Businesses relying on overseas supply chains in badly impacted parts of the world are affected
  • Activities tied to a particular workplace (factory, workshop etc.) and which are 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 the immediate 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 on 8 April suggest that the take-up of the furlough scheme is greater than initially expected, with 50% of companies furloughing staff

 

Medium-term impacts

Some things are likely to get worse. Examples include:

  • The structural change in town centres, which has already left many already 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 that landlords and investors will suffer from deferral and possible loss of income. Whilst there are mechanisms in place to underwrite loans to businesses, there may 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

But 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
  • The focus on local community based solutions has the potential to become deeply embedded

There is 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).

 

Long-term Impacts

The longer-term impacts of the crisis will depend on the length of the lockdown and the 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 videoconferencing. 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.

Changes in the ways of living and working could lead to a growth in construction activity.

 

Responses to the crisis

Immediate responses

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.

Staff in roles which cannot be carried out under current restrictions are being redirected to tasks which can, including intelligence gathering.

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 that businesses can access emergency funds.

Many organisations are getting on with strategy development and are looking to longer term economic growth.

 

Longer-term responses

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, then recovery planning is being 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 coronavirus crisis. Changes in people’s behaviour, working patterns, travel preferences and residential demand may all impact the way in which 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, particularly 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.