How do we grow back our local economies?

By Michael Palin | 15 April 2020

The Cabinet Office describes recovery as the restoring and rebuilding of a community in the aftermath of an incident. In the eventual aftermath of COVID-19, the need to rebuild our economies will be huge.

To give you a sense of scale, in England, more than 5.5m people were employed in the retail, accommodation and food and arts, recreation, and leisure sectors, representing more than 21% of all employment. Add wholesale and transportation, and that is another 2.3m people. In total, more than a quarter of all work in the country. A large proportion of this activity has had to come to a stop.

Those sectors buy or move goods from manufacturers (employing more than 2m people) and require services from professional and business service firms such as accountants and lawyers (another 5.6m people).

The taxes of all of those, as employing businesses or as employees, fund the roughly 6.6m that work in education, health, and public administration.

And all of those wages in aggregate form provides the spending power for the further purchase of more goods and services and critically, in the UK, are what allow people to obtain credit in buying a house.

When one part is hit, so is the rest; it has its very own contagion effect.

Economists are now estimating that just the current short lockdown could result in a near 10% drop in GDP for 2020. That is 10% of all output lost. But, extend the period of closures, and the recessionary impact dramatically grows. We could be facing one of the deepest recessions of all time.

And these economic effects will be felt bottom-up – the businesses that have been closed, and the demand that may have been lost, will play out in every corner of the country. It will be very definitely felt at the local level.

A job for local government will therefore be to understand those local consequences, plan to mitigate them, and then hope to assist in a recovery. But it will not be easy.

First, the public health emergency is quite rightly more dominant than responding to the economic challenge. We don’t however know how that public health response will really play out and hence, it is almost impossible to know when ‘recovery’ may begin.

Second, because we do not know how long the public health emergency will last, we do not know how deep, or how long, the economic impact will be.

A ‘V’ shaped recession which will see the economy quickly bounce back can only occur if restrictions are lifted quickly and we all act as we did before. The longer restrictions need to apply, the deeper and more ‘L’ shaped the recession will be. A deep recession, with considerable losses of jobs, will need a far greater policy response.

Third, the public health emergency response has initiated a necessary economic emergency response. Furloughing, grants, and an underwriting of loans – all by the state – is exceptional, but also intended to be temporary. It is a set of emergency measures to be exited from quickly when the public health emergency has passed.

It is inevitable that when these measures do end, some businesses will still fail, and some redundancies will still occur – but how many, when, and where?

Fourth, demand in the economy has been severely affected and trying to predict how demand will pick-up is exceptionally hard in part, because it will very much depend on how confident we are that the public health emergency has really passed.

Will we all suddenly start going to restaurants again when such uncertainty remains? Who is likely to buy a car, or go on holiday, or commission a new office block even, until there is confidence and trust that the emergency has really gone? And if we do not bounce-back to buying what we did before, how is the supply chain impacted?

The problem with a demand side economic effect is that it will almost always have a secondary impact further along a supply chain. Mapping this is mammoth but avoiding a collapse in demand is essential. Government will likely need to stimulate demand at the point the response phase ends and even more so when they end the emergency measures of furloughing and grants.

Returning to emergency planning principles, the task at hand will be to try to make sure that as the response phase goes on, we start to plan for what the recovery phase may be. And as valuably, preparing now might even allow for some mitigation of the worst negative effects, especially from when Government emergency measures are withdrawn.

This might not seem an immediate task, but the reality is that a transition stage will come fast, and a failure to plan could see the impacts become much worse. So what could local government be doing now?

First is a principle. You know your economy best and in this recession supporting local growth will be particularly key. Local government should be at the forefront of any plan.

Second, you will need to monitor when it is that an economic recovery phase may begin. This might be based on a view of social-distancing ending quickly (and an economy ‘bouncing back’) or, the scenario of social-distancing continuing for much of the year. When the public health emergency ends will directly impact on what any response will be.

Third, plan what the immediate local impact might be of Government withdrawing their emergency economic measures. If the end to furloughing causes a sudden spike in unemployment, how ready will you be? Given you know your economy, and training and unemployment support is something you may commission, then you can start preparing in advance for what best to do to mitigate the negative effect.

Fourth, plan for an actual recovery phase in which there will be a need to maintain demand in the economy, and especially at a local level. The more demand is maintained the better the chance of recovery – so anything you can do to stimulate that demand will have a positive benefit.

Fifth, local government needs to make sure that the interests of all places and industries are heard, and not just those of a select few. The reality is that Government will have to make exceptionally tough decisions that will benefit some people, some industries, and some places, more than others – so make the case for what is best for most of the country as a whole.

The mantra before was to ‘level up’, but if COVID-19 means we’re all levelled-down, that is not a great result.

Michael Palin is former chief executive of St Helens MBC and now managing director of GC Consulting

@mikepalinmmp

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Local economies Economic growth Public health Emergency planning Coronavirus
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