Levelling up or treading water?

Levelling up or treading water?

At long last, business confidence is roaring back.

In survey after survey, and as more firms report strengthening results, the UK economy is accelerating quickly after one of the worst years in living memory. Many economists believe that a short-term boom is on the cards, with pent-up demand from cash-rich consumers and businesses set to power a strong summer and autumn to come.

For some firms, the rebound is putting a new spring in their step; for others, starved of cash and custom for over a year, the fight for survival continues.

Yet it’s not just individual businesses that are changing. Our towns and cities – and the economic geography of the UK as a whole – are also in flux.

15 months of repeated lockdowns, changes to working patterns, shifts in consumer spend and revised business strategies are set to reshape places all across the UK.

Governments, too, are keenly interested in the UK’s post-pandemic economic geography – and have demonstrated very clearly that they wish to use the tools at their disposal to alter it.

The flurry of bills in the latest Queen’s Speech have the potential to transform the economic map of the UK. Another ‘bold’ set of planning reforms is on the cards for England, as are sweeping changes to the training and skills system, giving local employers more say over what gets taught and how. Changes to UK-wide public procurement and subsidy rules may also offer ministers significant new tools to direct investment toward favoured places, such as the ‘red wall’ areas of the North and Midlands and the Nations.

If realised, all of these shifts signal government willingness to influence where and how businesses create jobs – and thus, by extension, how we live and work.

Place has always mattered. Yet a moment quite like this one comes rarely. Pandemic-induced economic change, coupled with the interventionist plans of governments in all four nations of the UK, have the potential to redraw the map. We have not seen a demand boom and a public investment splurge at the same point in the economic cycle in most of our lifetimes – nor do we know exactly where it will lead. 

Here are three key trends that businesses, investors and policy-makers will need to watch over the months to come:

Urban recovery

Repeated lockdowns, and the success of the shift to remote working, have hammered Britain’s city centres – and London in particular. Will Britain’s great city centres come back, in this new era of shifting life patterns, hybrid working, and changing consumption preferences?

We’d better hope so, given the immense economic benefits that the agglomeration of economic activity has for the UK economy as a whole. As Phil Aldrick has recently noted in The Times, towns succeed in part due to the spill-over generated by successful cities.

So we should all be watching urban footfall, public transport usage, city centre residential and commercial rents, and the turnover of bellwether businesses in hospitality and the night-time economy very carefully – and supporting innovative Mayors and council leaders as they attempt to bring life and activity back into our shell-shocked city centres.

Government spending priorities

This is also a time to keep a close eye on where governments choose to spend money.

Ministers are already using spending, procurement, and incentives to redraw the UK’s economic map. Not for the first time, UK government jobs are being moved out from Whitehall to the regions and nations. Heseltine-style competitive challenge funding pots are mushrooming, in the name of ‘Levelling Up’. ‘Freeports’ are the 2020s version of Enterprise Zones, with resulting tax and customs advantages. And with the Union in question, we can expect to see some big projects in Scotland, Northern Ireland and Wales get the green light, and the UK government to try to take the credit.

So far, so eye-catching. Yet all these initiatives are just a small part of the hundreds of billions spent per year by the public sector. Businesses and investors need to look carefully at the statement of intent in the Spending Review and Budget to come, and take advice on whether they have an opportunity to shape or contribute to these priorities.

Business and individual choices

However important, the choices made by government over the coming months pale in comparison to the choices made by businesses and individuals.

Will B2B services firms embrace agile working forever – or call people back to their offices and meeting rooms to rebuild the social capital that secures contracts and delivers innovation? I believe it’s still premature for businesses to consider permanent changes to their physical footprint, until such time as they understand the implications of hybrid working for their people, and for their P&Ls. Yet many firms are already taking decisions, and where first movers go, others will follow.

Manufacturers and goods businesses are also making choices. With supply chains upended by global logistical challenges, Brexit-related barriers and materials shortages, diversification and resilience have come to the fore. Whisper it, but could that mean more on-shoring, and more preference for domestic suppliers, if reliability is prioritised over cost? And if so, will competition intensify between our towns and cities for trophy investments, beyond just gigafactories and wind turbine manufacturing?

Conclusion

The 2020s could yet be the decade when Britain’s economic map finally changes.

There could be significant opportunities for early investors over the coming months and years, as local economies recover and transform.

We must all be listening carefully to the signal in the noise – in our cities, in government, and amongst firms themselves –  at a time when place and geography matter more than ever. The potential scale of these shifts make it ever more vital for businesses to engage with governments across the UK as they shape the policy response.

Adam Marshall is one of Flint’s Senior Advisers and advises clients on policy issues and business strategy, including local and regional growth and investment across the UK.  Before joining Flint, Adam spent 12 years in the leadership of the British Chambers of Commerce, one of the UK’s foremost business organisations, and was its Director General from 2016-2021. He led BCC through the Brexit process and the Coronavirus pandemic, campaigning for broad business interests and securing significant support for UK firms.

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