Britain is at a critical moment in its economic recovery. It's vital the Chancellor now tailors his policy response to the needs of hardest-hit places.
This week the Government has taken the first steps to wind down the Coronavirus Job Retention Scheme (CJRS) which has protected millions of jobs and supported families’ incomes, effectively putting them on furlough. This is a reminder that bold, compassionate action can offer people the security they need in these times.
However, we are only just beginning to see the full economic effects of COVID-19 and it is clear those effects are not going to be evenly spread. Our new research has for the first time identified the parts of Britain which will find it hardest to recover from the economic impact of the lockdown. The Government must do the right thing and help pull these places back from the brink of surging levels of poverty caused by unemployment. There is no one-size-fits-all recovery plan but the Government has the opportunity to act now, in a targeted way, that will make the economic recovery in these places easier in the future.
The economy is still far below capacity and the end of the furlough scheme will inevitably bring more business closures and job layoffs. The Office for Budget Responsibility predict that by the end of this year 12%, nearly one in eight, of the workforce will be unemployed.
It’s been widely noted that since most sectors are being affected, nowhere in the country has been spared the economic effects from this crisis. But that doesn’t mean every place is affected equally. In fact, there are several reasons why some parts of the country are being much harder hit than others:
- First, while hard-hit sectors exist across the country, some places have a greater concentration of their jobs in these sectors than others. For example, many tourist destinations have a high share of jobs in accommodation and food – such as one in eight jobs in Blackpool and nearly a fifth in Scarborough. Many outer London boroughs also have a large share of local jobs in hard-hit low-wage sectors, and people in these sectors are especially vulnerable to poverty.
- Second, people on low wages and insecure contracts are more likely to lose their jobs in recessions, whatever sector they work in. This leads to more job losses in weaker economies where low wages and insecure work are more prevalent.
- Third, people losing their jobs face very different chances of finding a new one depending on how many vacancies are available locally.
- Finally, local recoveries depend partly on people spending money locally. In the last few months we have seen richer households build up savings as they involuntarily cut back on spending; whereas low-income households have been more likely to turn to borrowing from friends and families, or debt, to cover the costs of essentials. There is talk that ‘pent up demand’ could support local recoveries in parts of the country, but this is unlikely in weaker economies.
Understanding which places could be most affected and take longest to recover from COVID-19 involves answering two important questions:
- Where is unemployment likely to peak highest?
- For people losing their jobs, how many opportunities will be available locally?
To answer the first question, we estimate how the OBR’s forecast 12% peak unemployment is likely to vary across the country, based on the rise places have so far seen in the number of people claiming out-of-work benefits (the claimant count), the share of local jobs in the hardest-hit sectors pre COVID-19, and the share of people currently supported by the CJRS.
On the second question, we have near real-time information on the jobs currently being created through work we have funded by the Institute of Employment Studies using online vacancy data from the job search engine Adzuna. This provides some indication of how the availability of new roles varies across the country
We give places a combined score on these two measures and have then compiled a list of the places where recovery from COVID-19 is likely to be hardest.
Ranking of places based on their combined score
|Ranking||Local authority|| |
Potential peak unemployment rate
|Current number of people out of work per vacancy|
|2||Barking and Dagenham||18%||49|
|14||Kingston Upon Hull, City of||17%||36|
Source: JRF analysis of OBR coronavirus analysis, Business Register and Employment Survey (via NOMIS), Institute for Employment Studies’ Weekly vacancy analysis, and ONS claimant count and vacancies time series.
Impact of COVID-19 could make levelling-up challenge even harder
Many of the places hit hardest by COVID-19 are those that entered this health crisis with the weakest economies. Topping this list are many seaside towns, and towns and cities in the Midlands and North, including several of the red-wall-turned-blue seats that helped deliver the Conservatives’ election win last year, such as Wolverhampton and Sandwell.
Many are being hit by both a high share of jobs in hard-hit sectors, such as tourism and manufacturing jobs which are now at high risk, and falling local spending.
After last December’s election, the Government made a promise to turn around these towns and cities that have been locked out of our national prosperity for too long. But there is a danger that, without action, the levelling-up challenge will become harder before the promised infrastructure spending takes root.
There is also a second set of places that may find it hardest to recover from COVID-19 despite a relatively strong local economy before the pandemic, notably places in our biggest cities and particularly outer London Boroughs such as Haringey, and Barking and Dagenham. These dense areas have been strongly affected by social distancing requirements and have a relatively large share of jobs in local services such as retail, hospitality and arts and recreation that rely both on office workers and tourists.
In these areas there are currently a very large number of people competing over each local job. Our estimates are likely to overstate this to some extent – as workers may be able to commute to neighbouring areas with more vacancies – but there is clearly still a significant amount of competition for jobs. Recovery may be helped by the fact that people in cities have the option to commute to nearby areas and our cities may prove to be more resilient economies, but we should not take it for granted.
The next stage of the economic response to COVID-19 needs to prioritise pulling the towns and cities at greatest risk back from the edge of a wave of unemployment that will lead to surging levels of poverty. Different kinds of places will also need different responses. For example, places with high unemployment but strong job creation are likely to be good targets for retraining schemes. Places with few job opportunities should be the highest priority for creating new jobs through the ‘Plan for Jobs’.
Understandably, the Government has so far been most concerned with the national economic response to COVID-19. As the Chancellor plans the next phase of the policy response it is vital that we now move beyond a one-size-fits-all approach. The response must be tailored to the needs of the hardest-hit places to prevent surging unemployment.