Shared & Halved - COVID-19: The road to economic resurgence

To support our clients and colleagues, Shoosmiths hosted a webinar on 6 May 2020 which discussed the recovery of the UK economy post-lockdown as part of the Shoosmiths Shared and Halved series of COVID-19 webinars.

Introduction

Coronavirus COVID-19 is a crisis unlike any other we have faced as a country, presenting a new and varied set of challenges to UK and global businesses.

Based on what you’ve told us is most pertinent to you in the current climate, we have devised a series of webinars to look at implications of the outbreak and what is required to take us forward. In this webinar, Shoosmiths partner Vaqas Farooq (Real Estate) chaired a discussion with panellists David Jackson (Head of Commercial, Shoosmiths), Kitty Ussher (Chief Economist, Demos),  Lee Scott (former special advisor to Govt. and former MP) and Stephen Kinnock MP and Shadow Minister for Asia and the Pacific to discuss how we, as a country, can look to recover and surge in a post-COVID-19 world. Below are the key tips and takeaways from our webinar.

How do we get business motoring again?

• Return will be gradual and not quick. Health priorities and logistical challenges mean that many workplaces will not be able to return to full activity for some time. Some (such as hospitality) could be delayed a long time.  However, it is clear that different sectors will have different paths out of lockdown.
• The requirement for continued Government support is inevitable, particularly for those businesses that will be paralysed for longer.
• Continuation of the Job Retention Scheme is essential; but in nuanced form so that it continues to avoid redundancies in businesses that cannot return quickly.
• At the same time, the furlough scheme must not act as a disincentive to return to work as quickly as possible in those businesses that can return more quickly. They must re-mobilise quickly to take the burden off the furlough scheme.
• The Government cannot afford to “do whatever it takes” forever. A key pivot point will arise when the furlough scheme cannot be continued any longer. Every business will need to think about what it will do then.
• Government-led practicalities such as schools, public transport, testing, tracing, shielding and PPE will all be important in the road to recovery.
• Banks also have a part to play. Many businesses and individuals will struggle and banks will need to show compassion. (At least low interest rates make the burden less painful than otherwise might have been the case.)

“Never let a good crisis go to waste – it’s all about rescue, recovery, reform.”

Will the recovery be V shaped, U shaped or skip-shaped?

• Current baseline modelling indicates a V-shape, with a 30% contraction in Q2 and a bounce-back to pre-lockdown levels by this time next year.
• Pent-up consumer demand and savings gives cause for some optimism
• But the inevitable phasing of the return to work, combined with the burden of £400bn of public debt could affect the recovery.

“We can come out of this with a V-shaped recovery.”

So how will Government borrowing be paid for? And what will be the effects of repaying that debt? What might fiscal policy look like?

• Government needs to consider this very carefully. The approach taken can have dramatic socio-economic effects. The Government had the aspiration to level-up inequalities, and this may be the opportunity to move further towards that.
• Increasing the minimum wage would stimulate demand, as would reducing tax relief on personal savings.
• But it poses important choices. For example, should we tax air travel more given the benefits to climate? Or, on the contrary, should we support the struggling airline industry given its importance to our tourism sector? Should we impose a food-miles tax to support local shops?

“This recovery should be about the whole country coming together.”

How does this compare with 2008? Can we expect a Government policy of austerity like we saw back then?

• An austerity-driven recovery created problems following 2008. It lost the UK the opportunity to achieve a V-shaped recovery then.
• Investment-driven recovery is proven to be far more effective. And this Government was promising strong investment before this crisis hit, so it would be right for that to continue now. If anything, investment should be accelerated.
• Also the economic backdrop in 2008 was very different. Consumers realised they had borrowed too much and demand contracted. Now we have a situation of pent-up demand after a period of effectively forcing consumers to save.

“Austerity is not the answer this time. Stimulus is required and is what I am hearing from Government.”

Is this an opportunity for a resurgence in the UK’s manufacturing industry?

• There is an opportunity for a new strategy. It could be argued that the shift to services from manufacture has not served us well. For example, the shortage of ventilators and PPE can be attributed to long and complex supply chains ultimately originating from China and other distant sources.
• A change now in procurement strategy could assist greatly in rebuilding our economy.But this can’t be done in the short term and may require more collaborative working, both across political parties and across industry (including our excellent HE sector) to build foundations right across our economy.

“This crisis presents a real opportunity to drive a new industrial strategy.”

Which businesses will emerge as winners and which as losers?

• Already we can see from FTSE performance that healthcare, tech and food and other staples have faired well. On the other side we see airlines, hotels and hospitality struggling.
• And that picture may continue as we move out of lockdown, but in more nuanced form.
• The ultimate winners will be those businesses that can return to work more quickly given health constraints. Those that will be in stasis for longer will be far harder hit and need Government support.
• The Government’s plans for easing lockdown, when revealed, will give a clear picture on who will prevail.
• And at a personal level also, there have been winners and losers. Obviously, those workers who cannot work from home have been most affected. And as they are also generally the lowest paid, they have not accumulated savings during lockdown in the way that professionals in the service industry have. Again, support will be needed for the most vulnerable.

“Never let a good crisis go to waste – it’s all about rescue, recovery, reform.”

And what will be the impact on our towns and cities? Will the high street survive?

• Regeneration of the high street is vital to our economic recovery.
• Local authorities can play a very important role and are arguably best-placed to revive locally.
• This may go hand in hand with us seeing greater devolution to local authorities and a less centralised approach.

“No one will be allowed to fall between the gaps. I have great optimism for how we can come out of this.”

And as businesses emerge, will we see “the new normal” that everyone is talking about?

• War and pandemic are usually the catalysts for major change, and this is no exception.
• Change was already happening and this crisis will accelerate that change. We will not return to type.
• Already in a short time we have seen a real change to the psychology of home-working, with workers feeling less guilty and employers seeing that productivity can be maintained or even increase.
• And people have embraced technology to communicate in ways that have shown that we do not need to travel as much or be in the office as much.
• In any event, home working will be inevitable for as long as social distancing measures remain in place.
• This is a testing time for businesses who have been slow to digitise and may lead to the demise of outdated businesses if they do not come onboard.This also arguably demonstrates that investment in digital infrastructure is more important than in improving transport.

“The culture of working from home will change forever.”

Are we likely to see an extension to the Brexit transition period as a result of this crisis?

• All the messages from Government indicate that there will not be an extension.
• Some businesses may therefore be facing the possibility of a no-deal Brexit very soon after being hit by the COVID-19 crisis.
• There are also practical concerns. For example, 50,000 people were being trained to cope with the potential new customs arrangements, but that training has now had to be put on hold.
• There is an argument that the current crisis will make Brexit easier for the Government to manage, as it can bring nationalism to the fore to promote British business ahead of European competition.

For further details of our future webinars please visit our Coronavirus COVID-19 hub here.