Daily Coronavirus Webinar: Latest insights from government and lessons from abroad

Overview:

This morning, as workers in England who cannot work from home begin returning, we convened a panel on what British businesses can learn from Italy and China about the reopening of businesses after lockdown. The CBI's Director-General, Dame Carolyn Fairbairn, was joined by her Italian counterpart Marcella Panucci, Director-General of the Confindustria, and Jeff Walters, Managing Director & Senior Partner in the Hong Kong branch of the Boston Consulting Group.

Here are the main points they discussed:

• The latest government guidance on Covid-safe workplaces
• The extension of the Job Retention Scheme (JRS)
• Lessons from Italy’s return to work
• Lessons from China’s return to work
• How the economy will change after Covid-19.

The latest government guidance on Covid-safe workplaces

This week has been a “huge week,” said Carolyn. On Sunday night, we had an announcement from Boris Johnson outlining the first steps towards an easing of England’s lockdown measures. He stated in the briefing that “anyone who can't work from home, for instance those in construction or manufacturing, should be actively encouraged to go to work,” with these measures starting from Wednesday.

Sunday’s speech “set a lot of hares running” said Carolyn. But she was pleased that, since then, the government had published guidance for firms on how to get back to work safely, including “pretty detailed practical advice on what Covid-secure looks like,” across eight different workplace scenarios.

Carolyn noted that this guidance was welcomed by businesses and, importantly, was “marked as a step forward” by trade unions. However, questions still remain about the the legal liability of employers for the safety of their workers under these measures. Other questions have arisen about the need for firms that have already been open to complete and publish risk assessments. Also in need of further clarification is “how this integrates with transport and schools and the other enablers of the return to work,” said Carolyn.

However, Carolyn explained that there may be a utility to the guidance being less specific on areas such as transport. “The guidance is not hugely prescriptive on that to enable a proper conversation between employee and employer about practicalities,” she said. Discussions on shift patterns and the potential for staggered working to enable off-peak travel were raised, as were measures for employee travel such as private lift-sharing and partnerships with companies like Uber. “There’s a lot of innovation going on,” she said.

The extension of the JRS

The news of the extension of the JRS until October, announced by the Chancellor Rishi Sunak yesterday, was a “massive announcement” and “absolutely necessary,” said Carolyn.

She explained that, in her estimation, it signified three important announcements in one:

1. The extension of the furlough scheme to October was good news for businesses. “It does enable firms to avoid those rolling cliff-edges of redundancy notices.”
2. Sunak also announced a “flexible option” to allow furloughed employees to return to work part-time from August, although Carolyn noted that there were not yet many details about this scheme.
3. The need for employers to make a contribution to cover their employee’s wages was the third element of Sunak’s announcement that interested Carolyn. Again, there are as yet few details of what that will entail, although Carolyn suggested that this might be “more challenging” for businesses. Likewise, Carolyn acknowledged that “there is logic” to this announcement from the government. “We do have to find a way to taper this scheme,” she said.

Lessons from Italy’s return to work

We were joined on the webinar by Marcella Panucci, Director-General of the Confindustria, Italy’s equivalent of the CBI. Carolyn noted that this was the first time in many weeks that she had spoken to Marcella while Marcella was in her office, having returned to work only last week. “It is a sign of light at the end of the tunnel,” she said.

Marcella described how lockdown measures in Italy had been loosened gradually over the course of the past few weeks. “Since 4 May, lockdown has been softened in Italy, which means that many economic activities have restarted,” she said. So far, 4 million workers have gone back to work and most of the industrial system has restarted.

Conversations with trade unions were important to manage the return to work and to establish protocols for working safely, she said. Companies have put in place measures to protect employees such as social distancing within the workplace, changes to shift patterns to enable this, and schemes to support workers in travelling to work safely, such as shuttle buses.

When asked about her advice for UK policy makers, Marcella said that “planning is essential” – “Companies need certainty and clear guidelines and clear rules.”

Lessons from China’s return to work

Jeff Walters, a Managing Director & Senior Partner at the Boston Consulting Group, joined the conversation from Hong Kong. “China is an interesting case study in what things tend to look like as you come out of lockdown,” he said.

At present, 88% of small businesses are operational again and most manufacturing has returned, he said. The remaining constraints on the manufacturing sector in China were largely focussed on difficulties facing the migrant work force and low-wage workers from the countryside, as travel remains challenging.

Given Hong Kong’s prominence as a global travel hub, Jeff was asked about how air travel is faring in the region. Although international routes are restricted, air travel within mainland China is gradually resuming, he said. One option for the re-establishment of international routes could be to create “green corridors” between places such as New Zealand, Taiwan and Hong Kong, where new cases of Covid-19 are in the single digits.

One key takeaway from the example of China is that consumer behavior doesn’t come back straight away. Although public spaces, shopping centres and public transport systems are largely open, consumers remain reluctant to expose themselves to crowds. Chinese companies have sought out means of adapting to doing business digitally. “They fundamentally recognise that the new normal will be different,” he said.

How the economy will change after Covid-19

As England follows in the footsteps of these international examples and takes the first, tentative steps towards reopening the economy, Carolyn was asked how the Treasury might begin to look ahead to the future implications of the costs of the schemes it has launched during the crisis and how the economy might be reshaped.

Carolyn said that, at the CBI, “what we are hoping to see is a Budget possibly combined with a Spending Review sometime in the summer,” with information on fiscal policy, monetary policy and spending plans.

In a new Budget, Carolyn said that the CBI is calling for “a reprioritisation around infrastructure spending,” as this could be “one of most powerful stimuluses to the economy”.

Carolyn also suggested that, given the light the coronavirus has thrown on digital consumers, companies and workplaces, that this Budget could offer a chance to make changes to tax policy to “rebalance the tax base in a way that works for the economy,” specifically regarding property taxes and business rates.

Today, the CBI is reconvening its restart and recovery taskforce, Carolyn said. The taskforce will be thinking carefully about “digital investment, productivity improvement, the housing market and innovation. Many of those issues that were there pre-Covid that now need accelerating, reshaping, and turning into a new economic plan for our country.”

Key questions we answered:

1. To Carolyn, international cooperation has been cited as a weakness in the response to the crisis. What has been your assessment of the international coordination, and what can we learn from our international partners in reopening their economies?

• The first response to this crisis has understandably been domestic. In one sense, this is right. In a crisis, solutions have to begin at home.
• At the same time, there are some worrying signs as countries turn inwards. Early on we saw some putting up barriers to the export of medical equipment, for example.
• There has been more encouraging international coordination in recent weeks, but we’re a long way from the scale of international coordination during the financial crisis.
• Next year UK hosts the G7, and Italy the G20. So, CBI and Confindustria will be hosting the B7 and B20 respectively (meetings of the business organisations that feed into the G7 and the G20).
• This is an opportunity to lead and coordinate the international response.
• Finally, we’ve learnt some important lessons from China and Hong Kong:
  • Businesses are back up and running in China, with 98% now reportedly back at work.
  • SMEs are finding it harder to return to normal.
  • There is widespread use of apps for contact tracing.
  • When lockdown was initially lifted, commuters were asked to book a time on the underground, to prevent overcrowding.

2. To what extent is business back online in China? How has this impacted global supply chains?

• Across China, since April, we have had many cities effectively coming out of lockdown.
• 88% of SMEs are back to work today.
• Most manufacturing is back but some constraints are placed on migrant workers and low-wage workers from the countryside.

3. What are you seeing regarding air travel in China?

• Air travel is still very restricted.
• There has been some resumption of internal domestic travel, but consumers are still very reticent to get on the planes, even when the flights are running.
• It is important to consider that the increase of new cases in China is in single digits, but people are still very worried regardless.

4. What lessons can firms in the UK learn from the business experience in China?

• There are some interesting takeaways from the experience in China. For example, restaurants and shopping centre are open, and schools have resumed.
• But we haven’t seen an immediate return to normal on consumer behaviour.
• Take the metro system as an example. They are open across China, but metro traffic is still 30-40% below what we would expect.
• Retail sales are still down between 10-30%.
• There is still a conservatism and cautiousness from people due to fear of exposing themselves to large and crowded spaces.

5. To Marcella, to what extent is business back online in Italy and how might the economy have changed for the long-term?

• The lockdown was softened in Italy on 4 May. The manufacturing, construction and distribution sectors reopened on that date.
• Four million workers have gone back to work. Nearly the entire industrial system has re-started.
• Businesses had to adopt many protocols and security measures to ensure safety when working. The protocols the Confindustria created with trade unions enabled public sector agencies to conduct risk assessments of the safety of workplaces.
• So far, we haven’t seen many problems with the companies that have re-opened.
• There are some challenges around shift rotations and other measures to ensure social distancing.
• Transport is a critical area. Decision-makers are strictly monitoring this as we are aware that this is the area where an increase in infections could occur.

6. What lessons can companies in the UK learn from the business experience in Italy?

• Planning is essential. All measures necessary to keep your employees safe must be taken.
• This also means communicating with your employees. Be transparent. What measures are you putting in place and why? This will help to build employee confidence and mitigate against them not wanting to come back to work.
• Companies need clear guidelines and rules. So, governments must provide a clear framework to companies so they can be prepared to go back to work.

7. Does Italy’s guidance say which specific sectors can re-open and when? Are businesses content with the nature of guidance they are receiving?

• Currently, the discussion is around whether restaurants, leisure, and service sectors such as hairdressers can reopen.
• We expect them to be reopened by 18 May. They are in contact with the government to ensure clear guidelines are given as for these sectors as social distancing is far more difficult to implement.
• They are considering ideas such as hygiene measures and glass dividers to protect employees and customers.

8. Are you beginning to see structural changes to the way some businesses in some sectors are operating?

• Chinese companies have recognised, even during the lockdown, that the new normal will be very different than before. Many are focusing on how they can re-wire their business to be more digital.
• In Italy, it is too early to assess whether there will be a permanent transformation within the economy.
• That said, we do expect some patterns to change in Italy:
  • We expect to see a much greater digitalisation of how we conduct our day to day operations.
  • We think will be an impact on global value chains, in that they will regionalise and become shorter than they were before.
  • The crisis exposed the lack of resilience we had in the supply chain.
  • The organisation of the workplace will be a challenge for all companies. Again, we suspect digital solutions will be accelerated and could make us more competitive.

9. In Italy, are you seeing a full recovery regarding transport?

• We are still far from getting back to normal in this respect. Rail and roads have not recovered fully.
• We have very few flights coming across Italy at the moment.
• It is difficult to find reservations on flights given the social distancing requirements. Flights are much more expensive as a result. We expect travel to become more expensive than it used to be.

10. To Carolyn, what do we know about the Treasury’s thinking around how it pays for the support schemes it has laid out?

• The Treasury are definitely thinking about this now. We know the JRS scheme amounts to £10bn per month – an eye-watering sum.
• How our public finance and economic policy responds will, of course, be key.
• We are hoping to see a budget, possibly combined with a spending review, perhaps some time in the summer.
• The sooner we have a sense of the monetary and fiscal policy from the government, the better.
• We want a re-prioritisation of infrastructure spending as that will be a powerful stimulus to the economy. This could be a very good time to, for example, build full-fibre broadband.
• On tax, this could be a moment to re-visit the thorny issue of business rates. This could be an opportunity to re-balance the tax base in a way that works for the economy.
• We will want the Treasury to begin to set out answers to these questions before the Autumn as people will want certainty about the government’s monetary and fiscal agenda.