The Covid pandemic has caused the worst global recession since the 1930s. In the UK, millions of people have seen their incomes fall, either because they accessed the furlough scheme (which only paid part of their wages) or because they have lost their jobs altogether.
Despite this, for many of those who carried on working, particularly among higher earners, the effect of the pandemic has been to increase their wealth. Those on higher incomes tend to spend more of their money on non-essential services, such as eating out, entertainment and holidays – all of which they have been forcibly prevented from enjoying for much of the last 18 months. The Bank of England estimates that households across the UK have accumulated £150 million of savings in this way.
The economic impact of Covid has been geographically as well as individually unequal. A new Centre for Cities report found that people living in cities and large towns in the South of England have been disproportionately able to accumulative significant savings through reducing their spending. For example, in Reading, Cambridge and Oxford people have spent more than 15 per cent less than normal.
This makes post-pandemic economic recovery much easier as residents with accumulated wealth start to spend (at least some of) that surplus with local businesses. The report also found that those places tended to have relatively few people who had seen their income decrease through unemployment or furlough. Conversely, cities such as Liverpool where relatively few residents were able to accruing savings also tended to have a disproportionately high number of people who had seen their income decrease.
London, as in so many other things, is an exception to the rule. Around 50 per cent of the capital’s residents have been able to work from home during the pandemic, and a significant amount of wages will have been translated into savings. But according to the Institute for Fiscal Studies the city also lost the biggest number of jobs of any UK region last year. That is unsurprising given the capital’s disproportionate dependence on hospitality, entertainment and tourism – all sectors decimated by Covid.
By November 2020 London had both the highest percentage of claimants for unemployment-related benefits, and the highest percentage of workers furloughed anywhere in the country. Without the fact that many workers in these industries were migrants, many of whom returned to their home countries during lockdown, these numbers would have been higher. London’s unemployment rate has now fallen back overall as restrictions have eased, but it remains above the UK average and has topped 10 per cent in some boroughs.
Where does this leave the capital’s economic prospects? London’s businesses expect a strong recovery. The most recent Capital 500 survey for the London Chamber of Commerce & Industry shows that business confidence in London has dramatically improved in the last few months. Half of businesses think the UK economy will improve in the next 12 months, up from 31 per cent in the first quarter of this year, and the proportion thinking the economy will worsen over the coming year has shrunk from 52 per cent to 28 per cent.
Londoners themselves are optimistic. Last month’s London Intelligence survey from Centre for London found that 50 per cent think their personal finances will improve over the next 12 months compared with 19 per cent who think they will get worse, with BAME people (perhaps surprisingly) the most optimistic. But even a strong economic recovery may be unable to help those who are already in an unsustainable amount of debt. More Londoners are in a precarious financial position than in September 2020 – 48 per cent said they wouldn’t be able to meet an unexpected expense of £500 from their own money, up from 44 per cent in September 2020. 21% of Londoners would have no way of meeting an unexpected expense of £500 even if they borrowed money.
Private tenants in particular will face problems – they are less likely to be optimistic about their future finances than homeowners, and although rents in London have fallen, as Dan Wilson Craw notes this often does not benefit existing tenants. The eviction ban has ended and the government still plans to withdraw the £20 a week uplift to Universal Credit, which will hit the poorest.
These problems are not unique to London. But there is concern that the government might allocate resources aimed at alleviating these issues on a regional basis (in line with its “levelling up” agenda), potentially overlooking those Londoners who are in financial difficulties because of the capital’s overall wealth. A better approach would be to target the people who are in need rather worry about than their location, for example by making the £20 a week Universal Credit rise permanent. This would still mainly direct spending to areas outside London, but ensure that help reaches all individuals most in need of it.
Meanwhile, the end of Covid restrictions has come at a time when cases are still high. Leaving aside the potential health impact, high case numbers mean millions of people are being asked to self-isolate and therefore cannot go out and spend money. This comes on top of some continuing reluctance to return to previous behaviour patterns: the London Intelligence survey reveals that although residents feel increasingly comfortable about going out in Central London, over a third remain hesitant, including 45 per cent of those aged above 65.
For some businesses, a combination of self-isolation requirements and persisting public reluctance to resume normal activities, means they will likely run short of both staff and customers just as the Chancellor starts to withdraw financial support in the autumn. Meanwhile, quixotic arrangements governing travel between the UK and other countries remain in place and tourism will certainly not fully recover. London is set to face a difficult few months.
In the longer term, the pandemic will have an impact on the way we work and the way we shop. Undoubtedly, workers will eventually return to offices, but almost certainly not in the same numbers as before. About one million people used to commute into Central London every day, and businesses which have depended on providing them with food, drink and other services will be affected if that number falls. Some who currently live in London only because they want to avoid a long, daily commute will make the decision to quit the capital altogether if they are able to spend more time working from home. The pandemic has accelerated the decline of bricks and mortar retailers. The iconic Top Shop in Oxford Street has already disappeared. Others will surely follow.
London will, of course, survive. Only 13 per cent of people in the London Intelligence survey said they were unhappy living here. It will remain one of the world’s best places to eat out and to enjoy entertainment, arts and culture. There is no reason to think these industries will not bounce back with the help of the accumulated savings of those Londoners who have kept their jobs. But the structure of the capital’s economy and population is likely to go through some painful re-adjustment and there are still large numbers of Londoners who have been hit hard by the pandemic and may struggle to recover in the short-term. The government must not turn a blind eye.
Christabel Cooper is a data analyst and a Labour councillor in Hammersmith & Fulham. Follow Christabel on Twitter.
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