Daily Coronavirus Webinar: Adapting to COVID-19: where next for business?

Overview:

Today's webinar took the form of a conversation between the CBI’s own Director-General, Dame Carolyn Fairbairn, and the Managing Partner for McKinsey & Company in the UK and Ireland, Dame Vivian Hunt DBE. Here are the main subjects they alighted on:

• The new phase of government support
• We’re getting targeted schemes – and we need more
• The importance of hybrid models
• The short, medium and long terms
• Britain and the world.

The new phase of government support

We began the discussion by looking back at last week – and particularly at Rishi Sunak’s economic statement on Wednesday. It was, Carolyn said, “all about the new phase”.

This new phase of government support is, in part, represented by the withdrawal of existing support measures. Month by month, the Job Retention Scheme (JRS) will require increasing contributions from employers until it is terminated at the end of October – and it really will be terminated in October. “One of the most significant things that Rishi said,” explained Caroline, “was that there will be no extension.”

But there are other schemes being introduced, many of them designed to “flatten the curve of unemployment”. These include the Job Retention Bonus, by which the government will pay £1,000 to businesses for each previously furloughed employee who is still employed on 31 January 2021. Carolyn described this as “quite a smart plan”, not least because it flips government policy from subsiding people who are out of work to subsiding those who are in work.

And there’s also the new Kickstart Scheme, which will target £2 billion at 16-24 year-olds who are on Universal Credit – covering the costs of employing them in a new job, up to 25 hours a week at National Minimum Wage, for six months. This is effectively a £6,500 grant for each young person employed. “It’s not capped,” Carolyn pointed out, “so if demand turns out to be more than the £2 billion allocated, there will be more.”

There are other jobs schemes that the CBI was “glad to see”, including: “more support for apprenticeships… more careers advice… the green investment package…”

As for the Stamp Duty cut – with no duty to be paid on transactions below £500,000 until 31 March 2021 – Carolyn described the policy as “quite controversial”. But even this, she said, will have positive ramifications for jobs: “If you get the housing market going, you get the economy going.” New home improvements will mean quite a lot of work for tradespeople.

Targeted schemes

Sunak’s statement also marked another change in government thinking: away from pan-economic support measures and – slowly, at least – towards targeted, sectoral ones.

There is now targeted support for the arts sector, in the form of a £1.6 billion package of grants and loans. And also for the leisure and hospitality sectors, in the form of a specific VAT cut from 20% to 5%, as well as the Eat Out to Help Out scheme. Carolyn said that this was a “pretty good step”.

However, Carolyn continued to say: “Whether it’s enough is a really, really big question.” And the answer? “Our view at the CBI is that it’s almost certainly not.”

She then described some of the parts of the economy that are under particular “stress” – and which may require more sector-specific, targeted support in future. “If offices continue to stay away, we will have very stressed high streets and local communities…. The university sector is going to be enormously stressed.”

Vivian supported this line of thinking by detailing some of the variances between sectors in taking government support so far: the rates of furloughing have been “as high as 70%” in hospitality and services, but “as low as 7%” in areas such as public infrastructure.

“Look at the most vulnerable sectors,” she advised, “and the most vulnerable jobs.”

The importance of hybrid models

Vivian joined the webinar from McKinsey’s offices, where she is working to determine how the company can operate – in terms of social distancing and hygiene and PPE – in the coming months.

One significant conclusion she has already reached is that a “hybrid model is better than the 100% extremes”. Which is to say, a model in which employees can work flexibly – sometimes from home, sometimes in the office, depending on the employee – is better than a model that imposes one form of working on all at all times.

This isn’t just about making it through the pandemic; it’s about best practice in general. There are productivity gains to be made by considering people’s different situations. Of course, some employees will have to be in their workplace: as Vivian pointed out, “50 to 60% of jobs can’t be done remotely”. But those who might be vulnerable, or who have children, may be better off working from home. The key thing, in any case, is to act “in consultation with your employees”.

Carolyn also advocated for the hybrid model. “One of the biggest contributions to productivity over the past 50 years has been female participation in the workforce…. What if people with complicated situations or in rural areas are more able to participate in the workforce? That could be great for the economy.”

The short, medium and long terms

The hybrid model was one of Vivian’s examples for the sort of thinking that businesses will have to do in the short term. The priority for the next three months must be a simple question, she said: “How can I work?” This involves choices around workplace safety, but also around what level of staffing can be supported by the balance of supply and demand.

Beyond those three months, a business has many other things to work out. These range from drawing up a recovery plan to considering your debt position – and they should also include productivity gains. “On cost, labour, the productivity side, do as much as you can,” said Vivian. “Maybe commit to a 5 to 6% improvement for when [the post-Covid economy really starts] in 18 to 24 months.”

How can those productivity gains be made? Vivian outlined three possibilities:

1. The shift towards a hybrid model of working.
2. Investments in technology – and especially in the skills that are required to operate and manage that technology.
3. Close attention to the resilience of your supply chain, depending on how domestic or global it is.

Businesses that consider these factors, said Vivian, “are going to be in much better shape”.

Britain and the world

Towards the end of the webinar, we turned to Britain’s place in the world – particularly now that we know there will be no extension to the Brexit arrangements, and the country will be fully leaving the EU at the end of the year.

Carolyn was unequivocal: “We really do need a deal.” But will we get one? At the very least, the “mood music coming out of the negotiations” has been “notably improved” in recent days. Besides, continued Carolyn, “Angela Merkel is taking over the presidency [of the Council of the European Union] – a known pragmatist.”

Vivian added that a good trade deal with the EU – “cumulatively, our largest trading partner” – is still a necessity for the UK, as is one with the US. But she emphasised the importance of an “open trading relationship with China and Asia more generally, which will have the most demand-led growth in the world in the next few years.”

Outside of those three areas, Vivian said that “we have optionality to trade with other types of fast-growth economies [such as in Africa] or mature economies [such as Canada]…. The opportunities for the UK are many.”

Key questions we answered:

1. Carolyn, what do you think the CBI should be pressing the government for on its interventions beyond October?

• We need a clearer idea opening of where the ongoing stresses in the economy are.
• If workers continue to stay away from offices, we will have very stressed highstreets and local communities. If there isn’t further support for those, they will fail. Additional support is needed to help businesses survive.
• The same is true for the university sector, which is going to be enormously stressed if there is a decrease in international student numbers.
• The national debt is eye-watering, so we must be evidenced based on what support is needed and where and now is the time to shape sector specific targeted support.

2. Carolyn and Vivian, should we be returning to the office or not? And which sectors will need support the most?

• Carolyn – we are seeing more and more people wanting to go back to the office, but we have no clarity from the government if business should be encouraging this or not. Constraints around public transport are still very problematic.
• Vivian – we need to look at two factors: the most vulnerable sectors and jobs. For larger sectors, with interconnectivity of supply chains and operations, there are very different needs to a local shop. We also must consider the total number of jobs and how many are currently furloughed in a business/sector.

3. Vivian, how can we get back to the office?

• Will businesses come back in a similar way?
• Some key things to consider:
  • Can you open safely and in a more cost agile way?
  • Can you manage costs and your employee base?
  • How are you going to work?
• We’re currently doing a test day with 5-10% of workforce. This is used to assess whether we can maintain social distancing, hand washing, appropriate PPE, temperature checks on entry, reporting illness promptly, and regular personal hygiene.
• We expect 50-60% of colleagues to come back to the office.

4. Vivian, what does the 18-24 month planning require you to believe and do?

• The first question to consider when looking at the next few months, is whether your business can survive. If not, what support do you need?
• The second consideration is debt – because you can’t invest in skills, digital channels etc. with debt.
• Thirdly, make commitments to cost/labour/productivity
• In summary:
  • How are you working? Ensure you have hybrid working sustainably
  • Assess and adopt technology infrastructures, particularly for SMEs
  • Look at whether you’re managing a tight local supply chain versus a business which is international and often more digital based.
• If you can do these now and grow 5-6% productivity, it will be key to business survival.

5. Vivian, how concerned are you by tensions between the US and China?

• The geopolitics of the US and China will have a significant impact on global mobility.
• We are co-dependent, so we have to proactively manage relationships.
• In the next 18 months, we need to focus on protecting and scaling our businesses, and finding demand in markets where we are still competitive.
• We should be in a better place than many European countries to come out of it, as we were a stronger economy going into the pandemic.

6. Carolyn, what is now happening in terms of Brexit and the wider world?

• We do not want to have to choose between the US and China.
• The UK will have a boost from the new change to a digital connectivity of the world, as we are a services-based economy.
• In regard to Brexit, the biggest clarity is that we will not have an extension to transition and at the end of the year, we will be leaving “economically”.
• Now businesses need to prepare. This is going to be enormously challenging.
• Even under a deal, there will be border checks between the EU and UK.
• The negotiations are going better, and Angela Merkel taking over is positive for Britain.
• Business needs to consider how it will find the bandwidth to deal with Brexit.