Covid has accelerated UK structural change: how should we respond?

For the past fifty years the stock answer of politicians under pressure when jobs are threatened, has been to talk of ‘retraining’. Usually ‘retaining for new skills in new technologies’, or something similar.

The UK conference season in early Autumn this year saw  both Government and Opposition floating offers of ‘retaining’ to address the undoubted loss of jobs that will follow the Covid-19 pandemic. Two months ago Government in the UK was eager to talk of anything other than the pandemic. How quickly the landscape changes. With the welcome news that there are now three effective vaccines against Covid-19 becoming available to the western world Government talks of the pandemic rather than discuss the possible consequences of Brexit.

Some observers, including the Governor of the Bank of England, have suggested that a ‘no deal’ Brexit could be even more costly than Covid. But with light at the end of the tunnel Chancellor Sunak’s seemed content to focus his spending review statement on the need to restore something approximating to normality to the public finances somehow contriving not to mention the imminent impact of the largest change in the UK’s ongoing business climate in half a century. The statement was deeply ideological pointing toward a return to Conservative dogma from 2010 onwards – the entirely false notion of ‘debt repayment’ as a cloak for tightening spending in a public sector already shrunk to ineffectiveness and the re-packaging existing spending commitments as ‘fresh’ announcements.

The Conservative press has been quick to sing the praises of Mr Sunak since he was frequently rolled out during last December’s election to be the token competent TV speaker. Through the Covid crisis the Chancellor has been the one cabinet minister to hold a positive approval rating throughout. This is, of course, something that is pretty easy when your flagship policy is handing out free money and inviting the public eat subsidised lunches.

No surprise then that after his Pandemic honeymoon Chancellor Sunak’s comments about the (non) ‘viability’ of jobs were seized upon for criticism. But is this criticism entirely fair?

In one sense, of course not – there are jobs in the pre-covid economy that are simply not coming back; politics isn’t fair and it is hardly surprising that the Labour opposition jumped upon Mr Sunak’s remark eager to place the top hat on the Thatcherite stereotype. A series of rather crude attacks on Mr Sunak’s personal wealth and success in finance didn’t and won’t dent his perceived competence – in fact they just enhance it. However, Mr Sunak, a former Goldman Sachs staffer and hedge fund partner, nicely fits the typecast of the finance high-flyer with little regard for or knowledge of the ‘real economy’. But, even if the criticism was unfair, Mr Sunak’s failure to choose his words more carefully was nobody’s fault but his. When the Chancellor called on ‘musicians’ and other apparently frivolous creative professionals to ‘retrain’, it seemed to suggest that he thought that they should ‘get a proper job’. The hopelessly off beam ‘Fatima’ ad confirmed all of these fears and more – not least an inability to think through the likely reaction.

More disturbingly Mr Sunak’s comments reveal a failure to understand the make-up of employment in the UK economy and the wider role of creativity. The last 60 years have seen the UK’s creative industries became seriously profitable export earners, backed by educational institutions that have also grown to be among the UK’s leading export earners. In the modern productive economy the overlap and synergy between the creative professions, design and engineering is not a coincidence – it is utterly critical to modern manufacturing. All the more so when an up-to-date, fit-for-purpose definition that encompasses digital products as well as physical products is applied. It reveals a worrying misunderstanding of the future.

Unfortunately however, Mr Sunak is right to point out that no Chancellor could save every job. Even through the ‘re-opening’ of the UK economy in 2021 will release significant pent up demand, possibly even enough to mask some of the immediate effects of Brexit, more job losses are undoubtedly coming. and by the Chancellor’s own reckoning the effects of the pandemic will take till 2024 to pass (1). For some sectors, however, there will be no return to past glories. Recognising that certain sectors will not recover is fine, so long as there is a serious commitment to reequipping those losing their jobs, and in doing so aim for something better as a country.

Retreats accelerated

In some sectors the impact of Covid will be dramatically to reverse long-term trends of growth, while in others it will accelerate existing trends of decline to crisis point.

Traditional retail jobs, for example, were already declining. In-store retail, and it use in city centres as a tool of regeneration policy, peaked in the 2000s. It is no longer viable as a driver of policy to create ‘destinations’.

The growth of online shopping, stronger in the UK than in the rest of Europe, has had a structural effect on physical retail. Online sales have grown by 50% since 2016, now accounting for 20% of the retail sector as of February 2020. The pandemic brought about a further 54% increase, taking online sales in June to 226% of 2016 levels.

As the ability to order and return goods has become smoother, the value of physical stores – whether in the old high streets or the modern malls – is less and less obvious. Large scale retailers speak of the future of physical stores as ‘showrooms’, but too often for their comfort they serve as showrooms for online competitors offering the same goods for less. The pandemic did not trigger the decline of traditional retail it merely accelerated and emphasised the direction in which we were already heading. In 2019 16,000 UK stores closed with the loss of 140,000 jobs, half of which were directly attributed to the rise of eCommerce. The projection for 2020 was a further 171,000 before the pandemic struck with125,000 reported to the end of August. Meanwhile food retail sales benefitted from people not visiting restaurants, but this was limited and will not compensate for overall displacement in the sector.

Remote working was also a steady trend before the pandemic. Some businesses that wanted to go virtual lacked either the imagination or management expertise to take the plunge till the pandemic force their hands. The ability of desk-based service businesses, digital manufacturing and much public administration to carry on through lockdown was enabled by remote working – and it is reflected in sectoral output figures. Real estate, financial services, IT and information services, as well as public administration, saw relatively minor impacts.

The exhortations of ministers and their supporters to “get back to the office” -now rapidly buried in the face of a widely predicted resurgence of the virus – were all very well, but to paraphrase; the Government doesn’t get to decide how private enterprises organise themselves. If many businesses find that having a good proportion of their staff working from home actually suits them, then they have every reason to continue. There are many very good reasons why people working in their own environment can be more productive than in an office – and consider for a moment how much unproductive time people can generate, while in the company’s building. How many people return to working in office environments is a decision the market will make, and if the public sector can save resources and improve productivity, it will follow – though perhaps more slowly.

Love or loathe the office – nobody likes the getting there. Not commuting is one of the most immediate benefits of home working. However, in another example of the pandemic accelerating existing trends, fewer people travelling to work compounded by a disinclination to use public transport is threatening the viability of local networks. The ONS reported a fall in rail transport activity to 20% of pre-pandemic levels and a recovery only to around 30% in June 2020. A permanent or extended drop in ridership and fare income will, on the current financing model, result in services being reduced in frequency, which in turn further reduces ridership.

Forward marches halted

By contrast, hospitality, which had been a long-term growth market pre-Covid has seen some of the most dramatic consequences, and now faces an unpredictable future with the probability of a smaller sector for some time at least. If city centre footfall is reduced permanently, the range of cafes and restaurants is likely to follow. Some chains delivering corporate formula offers, already massively over expanded, may fold, others may find a way, but the consequences for employment are obvious. Some independents, not tied to any set-offer, have been able to adapt their offerings and generate new income. But hospitality is more than food and drink – hotels, venues, events and conferencing have each struggled with restriction and dramatically changed patterns of activity. In the long term, assuming the pandemic eventually passes, the hospitality sector should recover; but the loss of skills, staff and the contraction of capacity may constrain further recovery.

A similar mixed picture effects the live performance segment of the creative industries. While production, writing and recording may have been possible if difficult and where digital communication opens possibilities unavailable to previous generations these changes were already challenging the business model of the sector. Having placed greater emphasis on live performance that channel was effectively closed. The future development of the creative sector may not be constrained by the metaphorical ‘Fatima’ re-training as the opportunity to perform being limited by a lack of viable venues and limited openings. Culture, however, will out and re-opening may well result in a boom.

Aviation with a slump to 4% of pre-pandemic levels is the worst hit sector of all. It had been an area of strong growth and fierce competition with constantly rising passenger numbers for half a century. Damage to the sector is likely to be long term. IATA projects industry global loses in 2020 at $252 billion and cuts in capacity at around 90%. BA alone furloughed 36,000 staff at the onset of the crisis, announcing 12,000 impending job losses. Employment related directly to airlines, airports and the supply chains of both have dramatic local impacts. While most forecasters foresee short-term travel booms post-covid, the demand for business travel may be permanently reduced and capacity constraints is likely to force up fares. It is hard to see swift recovery to anything like the pre-covid world. Aviation historically has had a greater than normal level of state intervention and support from governments. While it has been saved from high profile bankruptcies and suffered demand crises after events such as 9/11, the pandemic is of a different scale. It has the potential to suppress demand long term, to damage operating capacity and significantly increase the cost of air travel well into the future. The future of aviation may well depend on how much governments wish to save it.

Things to come

Jobs in other sectors, manufacturing, automotive, chemicals face short-term threats from supply chain disruption, reduced demand and the imminent added threat of the uncertainty around Brexit. As of June 2020 many sectors reported activity and demand well below pre-pandemic levels. Outfits are not purchased when people are not going out, lipstick is unnecessary when masks are being worn – though apparently eye make up has seen an increase in sales. Sales of cars always fall as economic uncertainty rises, and indeed crashed to almost zero in March 2020 when there was nowhere to go. A sharp recovery left sales around 20% below their February level with manufacturing trailing behind at less than 50% as the sector seeks to reduce inventory. Even without the added disruptive elements the recessionary effects of the pandemic would be sufficient to threaten jobs in both productive industry and in the business services sector.

The ONS reported in August on a loss of employment of 730,000 from March to July 2020. The figures were based on tax return data and stemmed largely from businesses having frozen recruitment and so do not reflect redundancies which may follow the ending of furlough schemes and various job support measures. Estimates vary, some talk of 700,000 redundancies in the autumn, with more than a million in 2020 overall. There are few, if any, optimistic forecasts for 2021 and while Bank of England projections were still talking in the Summer of unemployment peaking at 7.5% we can wonder how their underlying assumptions might have been revised. The Office for Budget Responsibility cites a “central scenario” which peaks at 12% (4 million) out of work by the end of December. A report by the Alliance for Full Employment states than 1 million young people will be out of work by November. These are levels of unemployment not experienced in the UK for any prolonged period since the Thatcher-Howe induced slump of the 80s.

The pandemic has both accelerated structural change and reversed the growth in sectors that may have absorbed some of those displaced. The need for re-skilling is certainly clear, but part of the challenge is that the affected sectors are largely customer facing, but frequently low paid areas of the economy. If the ‘retraining’ offered seeks to channel generally low paid staff into other low paying areas, the exercise will have failed. There is as yet little evidence that the UK will seriously address the needs of those worst affected.

The UK economy has for too long suffered from skill shortages ‘in country’ resulting in demand for staff from overseas, not because they were less expensive, but simply because they were well trained and could do the job.

But the pandemic and Brexit are just a foretaste of what’s in store. If the UK is to address the long term underskilling of its economy it will need a training and skills strategy that goes well beyond the immediate pressures cranked up by the pandemic. In doing so there will need to be a recognition first, that the UK has never fully addressed the skills needs of a modern economy; second, that the needs of the economy and it’s potential workforce largely coincide, which means raising expectations and aspirations toward a better skilled workforce and third; that the changing nature of work will make ongoing reskilling an essential part of working life. Those three factors lead to the biggest change in thinking about education and skills development the UK has had to contemplate.

A strategy of ambitious realism

Perhaps ‘Fatima’ will not need to find her next job in Cyber after all but the structural changes in the economy that were taking place long before covid was an issue will remain a central challenge for government in the UK and beyond. Covid has provided a taste of problems that will remain an issue and politicians must learn to should be treat employees in challenged sectors as grown ups. Those in the centre and left of politics need to be the people speaking the truth and not simply providing band aid to address amputation. A strategy for success and genuine just transition will require multi-pronged approaches and a sea change in our country’s approach to re-skilling that goes beyond simple faith in technological salvation. Any strategy for success will need to include:

  • Establishing an honest narrative about technological, social and cultural change. To do so an approach of just transition must replace notions of ‘saving’ the often unsavable old.
  • A much greater educational emphasis on developing the creative abilities of the individual. Far from retraining Fatima, growth industries will require creative input across a much broader front.
  • Increased emphasis within education on team-based co-operation.
  • Bringing together business, professional and public employer stakeholders into decentralised training and skills bodies that have genuine influence over and which help fund skills development – all of which has knock on implications for how businesses exercise a legitimate, collective voices and the equally necessary representation of employee interests.
  • Decentralisation: to not only to ensure that the needs of different regional economies are met but also to ensure effective delivery. The structures of governance in England are over centralised unable to address the needs of any part of the country effectively. An effective governance structure will also address accountability.
  • A sea change in the purpose and nature of examinations within the school system to ensure that formal assessment serves more than the narrow requirements of elite universities.
  • A recognition the ‘modern apprenticeships’ offer a woeful experience and a frequently poor level of qualification that short-changes many who too often find they have been cynically exploited. The aspiration ought to be the raising of apprenticeship training to provide a clear route to a graduate equivalent qualification.
  • The creation of genuine on-going learning that continues through working life, recognising that the notion of training for a single career will be of limited value and that ‘fixed point’ education and training will never keep pace with the digital world.

These are only elements of an overall approach, but if the pandemic forces the UK to confront its ongoing failure and think seriously about how it seeks to reposition its workforce then some progress could yet be salvaged from the wreckage.


Note on sources and statistics

Sources in this article are refenced by links, in the main the Office of National Statistics, Office of Budget Responsibility, Institute for Fiscal Studies, Centre for Retail Research and other industry sources have been used. Many of these sites update their information – links are correct at the time of publication.

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