What does the recovery mean for London: 3 areas to consider
The London Transition Board has been introduced to co-ordinate London’s recovery. Julia Root-Gutteridge, ICAEW’s Board Effectiveness Manager, considers what the capital will look like as it emerges from the lockdown and begins to reopen its economy.
June 2020
On 22 May, the Communities Secretary Robert Jenrick MP and London Mayor Sadiq Khan launched the London Transition Board. The Board will draw on wide range of London’s expertise to restart the capital, including opportunities for Londoners to be involved in setting priorities and shaping the city’s recovery and renewal from the COVID-19 lockdown. It will work alongside a new London Recovery Board, which will oversee the wider long-term economic and social recovery.
So far, the London Transition Board has announced it will look at infection control, phasing in and out of varying levels of lockdown, and the recovery of public services, such as transport. The programme of work being put in place will be the biggest since the end of the Second World War, though it has yet to set out further detail of its scope.
Out of any part of the UK, I spend most time thinking about what the recovery means for London.
I live in East London, in Zone 4. On my daily walk, I can now clearly see the top of the Shard, 11 miles away. I have never seen it from here before, which I’m guessing is down to pollution, but could also be because I’d never previously looked. Since the 23 March lockdown, traffic levels on TfL roads have fallen by around 60 per cent, and harmful nitrogen dioxide has fallen by around 50 per cent on some of London’s busiest roads. I used to ask myself how long we could maintain this positive shift, before the answer came: not very long, since traffic and pollution are now starting to rise again.
For businesses operating in London, these are three interlinked yet distinct areas I most think about in terms of recovery:
Transport
Short term
As the Government announced a £1.6bn bailout package for Transport for London (TfL) in May, the Mayor announced some changes for road users.
For one, temporary suspensions of the ULEZ and Congestion Charge, designed to help key workers travel safely, ended. Further, the Congestion Charge will rise to £15 per day, and will now operate 7am to 10pm, every day, from 22 June (it currently runs from 8am to 6pm on weekdays only).
These increases will be felt across the city, particularly by small businesses and sole traders, who had got used to the old charging regime and worked their schedule accordingly. A rise in operating costs in an environment where businesses will be opening up with vastly adapted operating models will deal another blow. For many businesses, there is no getting around the need to travel around London –pricing up jobs, managing their estates, despatching, receiving and delivering goods – one can hardly do all this on a bicycle.
They will need to question how businesses can adapt their transport patterns to minimize the impact on their finances. Buying or leasing a fully electric fleet would exempt them from congestion and emissions charges, but was out of the reach of many businesses even before the effect of the lockdown. There’s now likely a CBILS loan, a Bounce-Back Loan or some other debt to service, with reduced turnover.
Long term
The opening of Crossrail, which was expected between October 2020 – March 2021 (already 2 years behind schedule), will fall within the recovery phase from the lockdown. Businesses expecting to see a boost in trade from the opening of Crossrail could be disappointed, as passenger numbers on tubes and trains will most likely be beneath pre-pandemic levels, not least because of social-distancing measures. Crossrail-derived fares at one point looked like TfL’s way out of its financial troubles, but that is now in doubt too.
They rarely agree, but both the Prime Minister and the London Mayor now want more people to cycle to work. Businesses may want to consider promoting incentives to cycle – such as Cycle-To-Work schemes, which will keep the pressure off TfL’s network as more people return to the office on socially-distanced transport. They have the added value of tax incentives for the employees that use them.
Property markets
The impact on the commercial and residential property markets is much harder to predict and depends on widespread business and consumer decisions.
Short term
Commentators are predicting that mass working from home is the ‘new normal.’ Twitter notably announced its staff could work from home forever, if they so desired. This is in line with many conversations I’ve had with stakeholders, businesses and friends who don’t envisage a return to London offices before the end of 2020. If they do, it will be a gradual, careful return, with many adaptations meaning reduced capacity for staff. This is likely to mean empty offices and under-used commercial space will remain.
Members I have spoken to whose leases have come up for renewal during lockdown have chosen not to renew to save on costs. Is it possible then, for those who will keep significant London office space, that rents could fall from lower demand?
Long term
If working from home is truly a new normal, this is likely to have a real impact on the London housing market. Will people shun expensive, small flats in central London once their commute vanishes and they need office space at home? Could this lead to a flight of people from London to smaller towns and the countryside? For businesses, this could have a real impact on their talent pool. Without a need to relocate to the South East, this could unlock their ability to tap into the labour market in the rest of the UK. It will also bring into focus the disparity of broadband speeds across the country.
Culture and creative industries
Short term
Sadiq Khan announced on 30 April a new emergency £2.3m fund to support culture and creative industries in London at risk due to the impact of the virus. While this is of course very welcome, it’s quite small beer. In 2015, the gross added value (GVA) of the creative industries in London was estimated at £42 billion, accounting for an estimated 11.1% of London's total GVA. These businesses reliant on social consumption are at a high risk of not opening their doors at all as the lockdown eases.
Long term
There are no easy answers. The creative industries will have to look for more innovative modes of funding, which might include crowd-funding, new forms of sponsorship, and new ways of delivering their services. Galleries and museums that are currently free could consider charging for entry, in line with US and European counterparts; the quality of exhibits means that they would still be very good value to visitors.
Future of London
Underpinning these presumptions are some big social questions we can’t yet answer:
- When will it be and feel safe to work and meet in London again?
- Does London’s working and residential population miss the buzz and variety of normal life?
- Or does the recovery present an opportunity to change habits and priorities?
Until the answers become clear, London’s businesses must manage the risk posed by the virus as best it can, whilst working on a recovery focused as much as possible on the opportunities to come.
Julia Root-Gutteridge is Board Effectiveness Manager at ICAEW. She also supports members across the UK regions. Contact her on Julia.root-gutteridge@icaew.com
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