Daily Coronavirus Webinar: Unlocking regional growth in a post-COVID economy

Overview:

For today's webinar, the CBI’s own Chief Economist, Rain Newton Smith, was joined by Dr. Abigail Taylor, a Research Fellow at the City-Region Economic Development Institute of Birmingham University, and Karen Finlayson, a Risk Assurance Partner and Regional Lead for Government at PwC. Here are the main subjects they discussed:

• The economic outlook
• The importance of devolution
• Upskilling, everywhere
• New measures of success
• The North East as a case study.

The economic outlook

Rain began her remarks, as Carolyn Fairbairn did in yesterday’s webinar, by highlighting the “pretty depressing” economic data that was published last week. According to the Office for National Statistics (ONS), the nation’s GDP fell by just over 20% in April – by far the sharpest drop on record. Meanwhile, the Organisation of Economic Cooperation and Development (OECD) is anticipating that, over the whole of this year, the UK will experience a “larger economic contraction” than all other comparable countries.

To some extent, said Rain, this isn’t surprising. “In terms of health outcomes,” she continued, “we’ve borne the brunt [of the pandemic].” And, what’s more, “service-based economies” such as the UK’s are particularly vulnerable to any crisis that limits face-to-face contact and travel.

But Rain did also offer some cause for hope: “In some of the data, it does look like that trough in activity was in April. Over the course of May, we have started to see a gradual opening-up of the economy.” She also emphasised that the UK is “going to escape the worst of the unemployment that some countries [such as the US] have seen”. This is a testament to the impact of the Job Retention Scheme (JRS).

It is, however, no time for complacency. Rain mentioned two of the crucial questions that we now face: “Where does unemployment end up in October [when the JRS is ended]?” And: “How quickly does the pick-up in growth happen?”

The importance of devolution

The UK’s regions were hardly evenly matched before the pandemic began. As Rain put it, “We have one of the highest levels of regional inequality in Europe.” But the pandemic could make the situation worse, as it impacts different regions differently.

How so? Karen explained that it is less to do with the regions themselves; “It’s more around sectors.” Some business sectors have been hit harder than others by the virus – in terms of output and employment – and that will have regional effects.

The CBI has long advocated devolution as a solution to some of these problems. Locally empowering measures, such as Metro-Mayors, can bring fresh attention, funding and coordination to regional economies. Regions can then get behind the drivers of their own growth – such as, Rain suggested, “education and skills… R&D spending… transport connections”.

But both Rain and Karen agreed that devolution is not a panacea by itself – it needs to be introduced in the right ways. They used the example of Local Enterprise Partnerships (LEPs), where “some are much more effective than others”. In general, LEPs need to coordinate better with each other as well as with other local bodies, such as councils.

Hence why the CBI is calling on the government to set out a “framework on devolution” later this year – to ensure that, as Rain put it, “all regions are benefitting from the ability to tailor policy and set spending”.

Upskilling, everywhere

One of the themes of the conversation was upskilling – the need to train people for the new jobs that the future will require. Of course, this training could come from many places, from schools and Jobcentres to, as Abigail suggested, “a greater focus on short courses and vocational learning”.

It could also come from online – and this, said Karen, is one of the potential upsides of the lockdown. Before, many people were fearful of using the internet for their work or training; whereas now, they’re much more used to doing everything digitally. “The upskilling opportunity from this is massive.”

But we shouldn’t forget those who have lost out, warned Karen. The closure of schools, she said, “is going to impact the pre-16 population significantly” in terms of both their education now and their life chances later. “The younger generation are probably the hardest hit – again.”

New measures of success

A new framework for devolution, said Rain, should also go beyond the old ideas of “what success looks like”. No longer, she added, should officials concentrate solely on “narrow measures of productivity”.

Rain demonstrated her point by comparing London and mid-Wales. The former is one of the most productive parts of the UK, “but one of the least happy”. The latter is one of the least productive, “but also one of the happiest”. We should be looking to develop more “holistic measures” – particularly now that, in an age of connectivity and home-working, some of the differences in productivity might be evened out.

Karen put it in terms of “liveability” – making sure that regions are places where “people want to live”. Liveability is already a factor behind people choosing to remain in or move to particular areas, but could become even more significant in the post-Covid years; for example, because “cities are still seen as areas of higher risk”.

The North East as a case study

One of our audience members raised the issue of the North East, which has been one of the poorest regions of the UK for decades – and could, unless the right actions are taken, fall further behind as a result of the pandemic. Our panellists’ responses summed up much of the discussion.

Karen returned to the idea of liveability: “The North East is beautiful; it could capitalise on factors of wellbeing and the environment.”

And Rain talked about the new opportunities of a low-carbon economy: “Carbon capture is something where the UK could really lead the world. You could site some of that around the North East, and there have already been pilots around that. You could link the area’s heritage in manufacturing to some of the new technologies around carbon capture and storage.”

Key questions we answered:

1. Rain, why is the government’s focus on ‘levelling up’ even more important now?

• We’re seeing the impact of the virus hit hardest those areas already struggling with high levels of deprivation and inequality.
• ‘Levelling up’ in this case does not just mean productivity, but happiness as well.
• Some solutions for regional revival:
  • English devolution – this is still in its formative stages but is key to allowing decisions to be made closer to the areas they’ll affect
  • Metro Mayors – these have been a huge success, but not every region has one.
• To tackle this, the CBI has set out a three-step plan that government should take to maximise the potential of all regions in England:
  • Step one – develop and publish a framework for devolution that includes the means to assess current and future deals, and a clear definition of a functional economic area
  • Step two – prioritise regional growth within the Cabinet and across Whitehall, including reviewing the Green Book and establishing new ways of working with Metro Mayors.
  • Step three – commit to new deals and to reducing the layers of local government with a drive towards better local collaboration.

2. Karen, what role do you think regions can play in shaping the recovery?

• Regions have a strong sense of community, and we can see how local businesses have supported schools, health bodies etc. This happened quickly without any infrastructure or governance to propel this action.
• Local businesses have benefitted from having a more local footfall during this time. I would like to see this continue after the crisis as it will help ensure jobs and skills are retained regionally as we come out of the crisis.
• For a long time, the regions have suffered from a ‘brain drain’ where moving to London was seen as viable for success.

3. Karen, how important is focusing on skills to the recovery?

• It is fundamental – skills and education are a key part of providing sustainable growth.
• One of the opportunities from this pandemic is the digital space. 73% of people we surveyed wanted to use digital platforms to upskill but were afraid to. But these people are changing their minds. The upskilling opportunity from this is huge.
• We’re disappointed about schools not going back sooner. I think that puts us on the back foot on a global scale with more countries going back earlier.
• We’ve also seen a destabilisation of the higher education sector as a result of this. The government needs to prioritise this sector to ensure our younger generation are supported as they have been the hardest hit by this crisis.

4. Abigail, what work are you doing to understand the impact on the regional economies?

• We launched a weekly economic monitor that we use to bring together data and intelligence on the economic impact of this crisis by region.
• We then collate the data and intelligence and share it with decision-makers across the country. This intelligence informs their decisions.
• We aim to provide a rapid and practical report that identifies the issues as they emerge, and our work has been used to inform regional economic planning.

5. Karen, how difficult is it to navigate the differences between the regions when doing your work?

• There are some schemes that need to be rolled out nationally, such as the furloughing scheme. This had to be done on a national level, as doing it at a local level would have been very inefficient.
• However, going forward, we should trust localities and regions to understand how to deploy government support in a way that maximises the effect locally.
• This would involve local authorities taking the government’s support schemes and deciding where that money goes to have the biggest impact in the local community.

6. Rain, traditionally the North East has been the poorest English region. How can we help it close this economic gap?

• We have great universities in every region so we can build on that. Transport connections are also key – the airports, railways, and roads we have across the country are hugely important.
• Low carbon transition is a huge opportunity for the North East. This is an emerging area where the UK could lead the world and we could site some of it in the North East.
• Schools and education are key. The majority of your workforce in any area are school leavers – people who go into the workforce post-16 and 18. We need to think about younger people in those localities, as we don’t want to end up with a lost generation.

7. Karen, what things could be useful for the North East?

• Liveability is important – creating a place where people want to live.
• We could prioritise the environmental qualities of the region and maximise digital connectivity so people can work from home, as people are recognising you don’t need to work from London to maximise your career or work effectively.
• There may be opportunities to boost manufacturing to be more self-producing. We have become more reliant on other parts of the world so we could focus on producing more goods ourselves. This would strengthen the supply chain and strengthen local communities regionally.