Hitting restart: what challenges do the economy and business face?
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From a flooded housing market, to an increased risk of human trafficking, to structural unemployment, experts have identified a myriad of issues the Government will have to tackle in the Covid-19 crisis. Lef Apostolakis from POST explains
In April, the Parliamentary Office of Science and Technology (POST) conducted a survey of experts to identify key concerns around the impacts of Covid-19. The survey asked experts what they were concerned about relating to the outbreak within the next three months and beyond.
Responses from over 1,100 experts were collected and analysed using thematic and computational analysis, to find patterns within that data. Fifteen broad areas of concern have been identified including economy and finance, business and trade, and work and employment.
On 11 May, the UK Government announced plans to restart the economy. In a statement on 10 May the prime minister said: “Throughout this period of the next two months we will be driven not by mere hope or economic necessity. We are going to be driven by the science, the data and public health.”
Here’s what the experts are concerned about.
Economy and finance
Experts raised nearly 200 concerns about the economic impact of Covid-19 and the risk of a recession.
In the short-term, they question how the possible loss of life from an economic downturn was factored into lockdown considerations. They also question whether potential health impacts from lockdown itself (such as increases in alcohol consumption or decreases in physical activity) have been taken into account when deciding what lockdown measures to put in place and for how long.
Experts suggest that lockdown measures will cause the UK economy to slow down in the short-term and potentially beyond that. For example, job losses and changes to consumer habits could result in deflation. Some experts are concerned about the housing and rental market in the coming months. They note that tenants may go into arrears because of financial issues. This could mean that there is a sudden peak in evictions once the moratorium on evictions is lifted. This could destabilise the rental market and leave some landlords without any tenants or resulting income. Landlords may decide to sell their properties to cover their losses. This could lead to a flooded housing market, which would result in a fall in house prices, contributing to further financial issues.
Experts are concerned in the long-term that there is no current Government plan to mitigate the effects of the highly likely economic downturn on businesses or individuals. Some experts suggest that the UK could use the current situation as an opportunity for change. They suggest that the UK could consider prioritising growth in other indicators besides GDP, such as population health, productivity or well-being.
Beyond that, experts were also vocal about economic policy. Over the next three months, they were concerned about the monetary policies needed to manage inflation, stabilise the stock market and prevent currency depreciation. While longer term, experts expressed concerns about public spending and public debt.
There were also concerns about the widening of economic inequality. Experts noted that some high earners may be able to profit from the ensuing economic uncertainty. But people who were already living with low income may be pushed into poverty.
Business and Trade
Experts raised over 100 concerns about issues with supply chains and logistics across all industries. They note that the global nature of many supply chains means that they have already been disrupted by events in other countries. This disruption has been compounded by many businesses in the UK being unable to operate as normal. They also note that there are logistical issues in distributing goods across the UK. This is due to infrastructure limitations and increased demand on delivery and logistics companies, who are also facing reduced staff capacity. They were particularly concerned about the food and healthcare industries.
Experts note that most businesses could be at risk of collapse without adequate support. Particularly at-risk industries include: arts and culture, hospitality and tourism, retail, manufacturing, and agriculture and horticulture.
There are also general concerns about industry behaviour during the outbreak and the state of entrepreneurship in the UK.
Experts are concerned that not enough is being done to monitor industry behaviour during the Covid-19 outbreak. Businesses might not comply with their legal duties to staff or their procurement obligations. More serious concerns include a potential rise in corruption, embezzlement and human trafficking.
Entrepreneurship will also be needed to establish and re-energise businesses following the outbreak. Current laws disqualifying directors of failed businesses from being directors in the future could be damaging in this period. They note that greater funding for research and development may be necessary to help bring new products created over this period to market.
Work and employment
Experts raised over 100 concerns about unemployment and lack of income. Experts are concerned that unemployment will rise as businesses lay off staff or close down. Experts note that some groups are likely to be more affected by lay-offs and may struggle to find another job. These include those with less experience, those with fewer qualifications and those working in more vulnerable industries. They are concerned that there could be a rise in long-term unemployment (being jobless for over 27 weeks). Some experts are also concerned that the UK will experience structural unemployment. This is where there are jobs available but there is a lack of people with the skills to do those jobs. In the long-term, they suggest that the Government will need to offer support for retraining unemployed people to address this issue.
Experts are also concerned about people in the coming months who cannot work but are not considered officially unemployed. These include people who work in the gig economy and those on zero hours contracts. They express concerns that some people may not be able to earn but may also be unable to access benefits.
There are also concerns about the delays in receiving the first payments for new recipients of Universal Credit. They note that many people’s personal finances are already in a precarious situation. They express concerns about people taking out risky personal loans.
Other areas of concern include productivity, continuation of work and general concerns about the labour market.
Experts are concerned that there is likely to be a drop in work productivity in the immediate future. This may be due to caring responsibilities and added anxiety. There may be further issues with furloughed workers returning to work. Experts note that it will be a difficult transition for some people to return to their normal work pattern after being without work for a long period. Experts also suggest that people’s motivation and mental health could be affected if employers expect them to switch back to ‘normal’ work without support.
The labour market could also be impacted. Some industries, such as agriculture, that rely on seasonal migrant workers may have too few workers to function. This could cause otherwise viable businesses to close and have cascading effects on the supply chain.
Lef Apostolakis is Communications manager at the Parliamentary Office of Science and Technology (POST). This is a summary of three individual reports on finance and the economy, business and trade, and work and employment. Another eight reports have been published on areas ranging from public health, to media and communications, and international affairs. The final survey results on crime, justice and policing, education, infrastructure, and the environment will be published shortly. You can view all published survey results here.
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