When government imposed the Covid-19 lockdown in March 2020, working patterns were radically altered overnight. Alongside the millions of employees temporarily furloughed, huge swathes of the UK’s workforce shifted to working from home (WfH). And although a return to pre-Covid working conditions seems a long way off, people are gradually returning to the office, even if only for one or two days a week. Of course, there are huge economic ramifications attached to this ‘new normal’, and a new white paper published by PwC explores the potential economic impact of a long-term WfH versus a return to pre-lockdown practices.
Reduced GDP and employment
The startling conclusion from PwC’s analysis is that, under a scenario where workers are advised to continue to work from home, the UK economy would take an annual hit of around £15bn, with total employment suffering a 250,000 FTE negative impact, resulting from a reduction in direct consumer spending, the knock-on effect of reduced spending through supply chains, and lower incomes for employees in affected sectors.
In any normally-functioning UK town or city, workers play a major role in driving the local economy. They spend time and money in the area’s shops, bars and restaurants, and through their relationships with local partners, they keep local businesses thriving. This process is known as agglomeration, and it’s an important component of regional economic activity. But when people cease to commute into commercial zones, agglomeration breaks down, and the impact can be sizeable. PwC estimate that through the normally vibrant swathe of southern England spanning from Central London to Heathrow and Slough, economic activity due to agglomeration will fall by 10% - 30% under a continued WfH policy. PwC also highlight potentially large falls in agglomeration in the Northern Powerhouse cities of Liverpool, Manchester, Sheffield, Leeds and York. Of course, there are likely to be winners as well as losers, and the areas set to gain most economically are those with higher concentrations of residential property, where WfH staff will increase consumption within in their local areas.
The impact of WfH on productivity is unclear and varies significantly from sector to sector and from firm to firm. Much of the evidence is anecdotal, with some workers reporting that they get more done at home, and without having to endure a lengthy commute, they feel more energised. Surveys indicate that many workers have experienced an enhanced work-life balance and enjoy greater job satisfaction since commencing WfH, and this can have a positive impact on productivity. But the flipside is that for some people, and in some sectors, productivity can be degraded by isolation, particularly where face-to-face communication and personal collaboration are required.
Businesses across all sectors have engineered seismic shifts in the way they work, and those best placed to succeed in the new normal will be the ones that find the right blend of working from home and office attendance, putting their employees at the heart of their operational plans. With many workers now expressing strong preference for working from home, it seems unlikely that our economy will ever return to pre-lockdown working conditions. So those regional economies that rely on commuters to drive local business will undoubtedly face disruptive change.
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