A shadowy cabinet

Thanks to my good friend Vladimir who is big in the security industry, I was able to obtain a verbatim transcript of this week’s Cabinet meeting. And they say fact is stranger than fiction.

Boris Johnson: Well good morning colleagues. It has certainly been, um, an eventful week but there is light at the end of the tunnel. Or maybe it’s an oncoming train, who knows? But nil desperandum, we are putting new restrictions in place to combat Covid-19. Brexit is going terribly well and I think it’s safe to say that people have forgotten all about last month’s difficulties with the exam results. I would like to take this opportunity to thank you all for your hard work. To give us a flavour of what each of you are up to, I want to go round the table and ask you to give us a brief synopsis of the things which currently concern your department. So, Dishy, sorry I … I mean, Rishi, maybe you could kick us off with a view from the Treasury.

Rishi Sunak: Thank you Prime Minister. Well as you know we are committed to phasing out the furlough scheme at the end of next month and I presented my new measures to parliament on Thursday. Unfortunately it won’t be as generous as the existing Job Retention Scheme. What we plan now is a scheme where we pay up to one-third of wages for any shortfall in hours worked, subject to employees working one-third of their normal hours.

BJ: That sounds very generous, Dishy. Sorry, I mean Rishi. Do you think I could take a sabbatical by working one-third of my usual hours and the taxpayer would fund the rest? And then I could get on with making some real money by going back to write for the Telegraph. After all I do have a wife, an ex-wife and six children to support. Or is it seven?

RS: Err, no. Sorry, that’s not how it works. Whilst we pay a third, the employer also has to pay a third.

BJ: But the taxpayer is my employer. So I could do one-third of my hours as usual funded by the taxpayer. Then the taxpayer could pay for half of the shortfall in hours whilst my employer, the taxpayer, funds the rest.

RS: Well Prime Minister, the taxpayer will only fork out a maximum of £697.92 per month.

BJ: Ah, not so good then. That’s not going to address my financial woes. I took a big enough pay cut to do this job in the first place. Honestly, how do people manage on £155,000 per year?

Dominic Cummings: Pity! If you worked a third of the hours, Boris, maybe you would do only one-third of the damage to my grandiose plans to restructure the economy.

BJ: Oh, ha-ha, Dom! I didn’t hear you come in. Wasn’t this meeting only for cabinet ministers?

DC: Don’t flatter yourself Johnson. I appointed half the cabinet!

BJ: Touché. One last question, Dishy. Sorry, er … Rishi. Doesn’t this all sound a bit expensive? I mean the plebs aren’t going to be happy if we have to put their taxes up to pay for it.

RS: Well the good news Prime Minister is that I have cancelled the Budget scheduled for November. So we won’t be announcing any tax rises this side of Christmas, though we will clearly have a bit of a deficit problem.

DC: Why don’t we just whack up the fines for people not complying with the new lockdown restrictions. That way we would enforce compliance with the new rules and claw back some money. Obviously there would have to be some exemptions. For instance, I’m not going to be paying any fines.

BJ: Obviously. Good idea, though. Let’s look into that. Now, Michael, let’s have an update on those Brexit preparations.

Michael Gove: Well Prime Minister, as you know we are three months away from finally being free of the EU which will allow us to do all those things that sovereign nations do. Like controlling our own borders.

BJ: Ah, yes, on that point. I’m hearing whispers about problems in Kent.

MG: Yes, well you see, it turns out that the road haulage industry has not been listening to a word we say and they have failed to make preparations for a no-deal Brexit.

BJ: The one we said wouldn’t happen? What seems to be the problem?

MG: Quite. Well it turns out that in the event of a no-deal Brexit this will mean customs checks on both sides of the Channel and it might lead to some big queues on the motorways towards Dover.

BJ: Worse than it is already? I was driven down there the other day and the traffic was horrendous. We were held up by an hour due to road works.

MG: It could get a tad worse. We are potentially looking at queues of up to 7000 lorries, meaning it would take a couple of days to clear the ports. Of course, it won’t always be that bad. Eventually, hauliers would realise the situation is so bad that they will stop delivering goods into and out of the UK, so the queues would diminish of their own accord. The slight downside with that is it might impact on food imports. Moderate avocado shortages and all that. The good news is we have a better solution.

BJ: Which is?

MG: We’ll put the customs border in Kent. So any lorries which don’t have the requisite paperwork can’t enter the county. All those Tory voters in Kent won’t see any horrendous queues. The genius of it is that with city centres deserted thanks to Covid, we can back up the lorries into urban centres such as London which is stuffed full of Labour voters, thus minimising the electoral damage.

BJ: Well it has its charms but I get enough grief from backbenchers about putting a border in the Irish Sea. We are trying to pass an Internal Market Bill in which taxes and tariffs are the same across the country. Now you tell me you want a border in Kent?

DC: You do realise that if we put the border in Kent, illegal migrants landing on the beaches will be able to claim that they are still in French customs territory and therefore cannot be sent back to where they came from because they’re still there?

MG: Don’t worry, Prime Minister. I have it on good authority that the French will cave. After all, they need us more than we need them.

BJ: Jolly good. I’ll leave it in your capable hands then. We’re running a bit short of time but I just wanted a quick update from Matt Hancock on the health situation. Everyone has dealt so well with the big issues that I’m sure you won’t want to let the side down.

Matt Hancock: Thank you Prime Minister. As you know, because you announced it, we implemented new restrictions which will force pubs and restaurants to close at 10pm. And I am confident that the world beating test, track and trace system will be in place soon.

DC: Good, because I believe we cannot process enough tests due to extremely high demand. And is it true that such high demand has meant we are running out of the chemicals to process the Covid tests?

MH: Look, if we make the tests free then obviously demand is going to be high. As for running out of chemicals, that’s fake news. You shouldn’t believe anything you read in a newspaper unless we leaked it in the first place. In fact the Test and Trace app is now ready to download as we speak.

DC: Except that the tests aren’t free. They are paid for by the taxpayer. As for the app, it doesn’t work on anything older than an iPhone6. And that’s a pity, Matt, because I want to collect all the information to build a huge database that I can let my team of data scientists loose on.

MH: Dom, this is irrelevant. What matters is we halt the spread of the disease. The latest plan is to lock students into their universities for the next six months and prevent them from going out and enjoying themselves. In this way we should be able to curb the rate of infection by next year, but also ensure that students do what they are supposed to do at university which is to study.

BJ: I’m not sure about that. When I was at university I partied hard for three years. Did I ever tell about that time at the Bullingdon Club when we had a Rolling Stones themed evening? It involved a lot of Goats Head Soup and Sticky Fingers as I recall, though I don’t think it had much to do with the albums of the same name. Anyway, I digress. Afraid I will have to call a halt to proceedings here. I have to dash off to listen to the Attorney General explain why our Internal Market Bill can break the law without actually breaking the law. So keep up the good work, and remember the old motto, Lex enim homines parum. Cheerio!

Here we go again

It was inevitable that we would see a sharp rise in Covid cases as the restrictions on social distancing were progressively eased over the summer, and we find ourselves celebrating the autumnal equinox with a big rise in infections and a major equity selloff as markets digest the implications of further lockdowns. It feels a bit like March all over again except that this time we have some idea of what we are letting ourselves in for. With the total of Covid deaths in the US today edging above 200,000 (roughly equivalent to the population of Salt Lake City), this should act as a reminder that the pandemic is quite literally a matter of life and death.

Turning first to the rising Covid infection rates, we should note that more tests are being carried out so it comes as no surprise that there are more positive results. The last time the UK 7-day average of cases burst through 3600 in early April, the daily number of deaths was already averaging 400-plus. Today it is running at just 22 – admittedly triple the number three weeks ago. According to estimates made by epidemiologists at the London Schoolof Hygiene and Tropical Medicine on Day One of the lockdown in March, around 100,000 people were being infected every day but at the time the official statistics were showing just 1000 new cases per day. One worrying development is that the number of positive cases relative to the total number of tests has picked up recently and it is now running at its highest since late-May. Roughly 2% of all tests show a positive result compared with 0.6% in late-August (chart). For the record, in early-April more than 35% of all tests registered positive though this is because initially testing was restricted to hospital patients.

We have learned from experience that the trends in other European countries should be followed closely. In March, Italy was the canary in the coalmine. Currently, we should be paying close attention to trends in France and Spain where the 7-day average mortality rate has risen from less than 10 in mid-August to 53 and 107 respectively. It thus should not come as any surprise that Boris Johnson announced a further raft of UK restrictions including the forced closure of pubs and restaurants at 10pm each day and the scrapping of efforts to open up sporting events to crowds from October. With official guidance now exhorting workers to work from home wherever possible, this marks a U-turn from previous policy to force them to return to the workplace. Whilst it is easy to criticise governments for the about-turn, it does appear to make sense to put some form of restrictions in place if we are to avoid over-burdening an already overstretched health service.

But it is less the imposition of restrictions that are the problem than the ill-judged rush to get people back into the office in the first place. Although government ministers did continue to highlight the risks of a second Covid wave, their actions were inconsistent with this caution. More than 64 million meals were served up at restaurants under the government’s Eat Out to Help Out scheme during August. Bringing people together in this way is likely to have played a role in facilitating the spread of the disease. Nor is it any surprise that the rate of infections has risen as schools across Europe reopened from late August. According to a study published last month in The Lancet the reopening of schools needs to go hand-in-hand with a coherent track and trace system in order to keep infection rates down. As the authors note in the case of the UK, “reopening of schools together with gradual relaxing of the lockdown measures are likely to induce a second wave that would peak in December, 2020, if schools open full-time in September, and in February, 2021, if a part-time rota system were adopted.”

Indeed, here we have the nub of the problem: The track and trace system has been a complete shambles. Just to give some anecdotal flavour, a friend of mine works in the NHS and was seconded to the testing team in the spring. He recently quit the role citing the shambolic nature of the organisation, and a lack of experience on the NHS Test and Trace board only one of whom has a background in public health. This rather supports the lurid media stories reporting the difficulties people face in obtaining a Covid test anywhere near their home (another friend faced a 110 mile round trip for their test, only to find that after they were not given the results within the mandated period, the testers claimed to have “lost” them). 

One of great misnomers is that the system goes under the banner of NHS. But in fact large parts of the testing have been subcontracted to private sector companies (talk about destroying a brand!). This is another illustration of the point I have made numerous times on this blog that the private sector often struggles to generate the scale necessary to manage big projects. Yet all this aside, there was a case for a limited reopening of the economy over the summer. However, it needed to be backed up by a coherent testing infrastructure and in the UK we are not at that point yet.

Medical experts are not particularly enthused by the new measures. Paul Hunter, professor of medicine at the University of East Anglia was quoted as saying “It is doubtful that the measures currently being enacted will be sufficient to reduce the R value to below one much before this side of Christmas.” Indeed, closing pubs at 10pm when people have been drinking for the previous 2-3 hours seems to be at best a marginal response.

As for the economic implications, it seems likely that the burden on the service sector will increase still further. Just when it thought it had a fighting chance of survival, additional lockdown rules will deal another heavy blow. The furlough scheme has so far prevented the worst of the recession from hitting the labour market, but it is set to be phased out at the end of October. So far the government has given no indication that it plans any extension. But by imposing restrictions on the economy, voters will expect some form of quid pro quo. There are suggestions that the Chancellor is considering a scheme in which companies would pay staff for the time they are at work, while the Treasury would cover part of their wages for time when they have no work (similar to the German Kurzarbeit system). This is naturally going to come at a big financial cost.

One of the calls made during the lockdown is for a more coherent approach to pandemic planning. Although the government claims to have followed the science, there is an argument that says a whole range of disciplines need to be involved in setting up a national contingency plan (as Tony Yates pointed out here). It is right that societies do their best to protect their citizens and we have to give governments credit for that. But this does come at a huge cost – financially and in other ways – which means that we need to have a proper debate about weighing up the costs and benefits. Governments will be judged on how they reacted to the pandemic and just as they have outsourced aspects of monetary and fiscal policy to experts, there is a strong argument to suggest that at some point we will have to consider outsourcing pandemic planning as well.

No-one is above the law

Since early 2016 the well of public debate has become increasingly poisoned by rising levels of mendacity. It had been occurring before that, of course, but the Brexit referendum campaign brought out the worst in the political class with both sides – but especially the Leavers – making increasingly outrageous claims. One of the lasting consequences of the referendum is that public figures have realised that since there are no sanctions for lying in public debate, this tactic can be repeatedly applied. At some point, however, the lies begin to catch up with you. This week marked such a point with the government apparently intent on trashing its international reputation with its blatant willingness to break international law in order to secure the Brexit deal it wants. 

What happened? 

Earlier this week the UK government presented the Internal Market Bill (IMB) which, as a government minister admitted to parliament, would “break international law in a very specific and limited way.” That is a bit like saying a criminal charged with theft could claim that since they were not charged with murder, they breached only a limited part of the law in a specific way. The legal profession was quick to point out that the Attorney General’s defence of this action was “risible”. The shadow Attorney General noted: “The rule of law is not pick and mix, with acceptable laws chosen by the home secretary or an adviser in Number 10.” Such was the strength of feeling within the civil service that the head of the UK government’s legal department resigned. Clearly this action flies in the face of the image that the UK has tried to project for decades that it stands for the rule of law, and has prompted warnings from three former leaders of the Conservative Party that it threatens to undermine the UK’s standing on the world stage. So why has the government taken such a stance? 

What is the government trying to do? 

The government’s biggest concern is that the Withdrawal Agreement, drawn up by the UK and EU in October 2019 and passed into British law in January 2020, draws a border between Britain and the island of Ireland which runs down the middle of the Irish Sea. This has significant legal and economic consequences. One of those consequences is the treatment of state aid which underpins the enforcement of the European single market. In the Northern Ireland Protocol of the Withdrawal Agreement, Article 10 makes it very plain that “the provisions of Union law [relating to state aid rules] shall apply to the United Kingdom.” In other words, the limits on state aid which were in force when the UK was a member of the EU will also apply in the event that the Withdrawal Agreement comes into effect.

In the IMB legislation presented this week, the Bill states that “Regulations … may (among other things) make provisions – (a) about the interpretation of Article 10; (b) disapplying, or modifying the effect of Article 10”. Clause 45 of the IMB goes on to say the provisions in the bill “have effect notwithstanding any relevant international or domestic law with which they may be incompatible or inconsistent.” In other words the government has given itself carte blanche to take actions which are unlawful. This is not “a very specific and limited” breach of the law. The government intends to drive a coach and horses through it.

What is the point of such action? 

A number of well-placed sources have reported that the UK has taken specific exception to state aid rules because it wishes to provide support to the tech industry as the economy repositions for the digital age. Ironically, the UK has traditionally been opposed to state aid to support particular industries. According to the EU’s State Aid Scoreboard the UK share of state aid spending in 2018 was 0.34% of GDP versus an EU average of 0.76%. It could thus double its support and not be out of line with the rest of the EU. Without knowing exactly who in government is pushing the idea, we know that Dominic Cummings, Boris Johnson’s key adviser, is passionate about all things tech. According to Cummings: "Countries that were late to industrialisation were owned/coerced by those early (to it) ... The same will happen to countries without trillion dollar tech companies over the next 20 years." 

But the UK’s efforts to back industrial winners over the last 70 years have been abysmal. British Leyland, the former state-owned car giant, was a microcosm of all that was wrong with state-backed capitalism: Management which did not know how to manage organising a labour force which did not want to work to produce cars for a public which did not want to buy them. Previous efforts to back tech companies include ICL, formed in 1968 to create a British computer industry that could compete with major world manufacturers like IBM - an experience that did not end well. ICL was sold to Fujitsu in 1990. Nor did the Conservative government raise any eyebrows when ARM was sold to Softbank in 2016. In any case, for all the noises about generating tech titans to compete on the world market, the UK will not be able to develop one if it is unable to sell into the European market. And that is precisely what will happen if the current spat results in no trade deal between the UK and EU. 

Implications 

It is worth noting that the agreement which Theresa May’s government reached with the EU did not envisage a border in the middle of the Irish Sea. In her words to parliament, “no UK Prime Minister could ever agree to” such a plan. Her government therefore reached an agreement with the EU which created a UK-wide ‘single customs territory’, avoiding the need for customs checks between Great Britain and Northern Ireland although the province maintained regulatory alignment with the EU. But Northern Irish politicians objected because it would have introduced differences in regulation between Northern Ireland and the rest of the UK, even though a majority of the population were in favour. Hardline Brexiteers (including Johnson) objected because it would have meant the UK remaining in a customs territory with the EU, removing the UK’s ability to vary its tariffs. Therefore the plan which the Johnson government signed up to allowed the UK to vary tariffs but in return reintroduced the sea border. 

For anyone in government to argue that they did not understand the implications of the plan is disingenuous. This was a plan the Johnson government negotiated and signed up to in October 2019; sold to the electorate during the election campaign (“Our deal is the only one on the table. It is signed, sealed and ready”) and was passed by a majority of 331 to 231 in the House of Commons on 9 January. Johnson owns this – there is no getting away from that fact. So why undertake such a stupid act? 

Perhaps one of the objectives is to prompt the EU to walk away from negotiations, thereby delivering the no-deal Brexit which some in government appear to want. With the EU rather than the British government withdrawing, the government could then blame the adverse economic fallout on the EU. But the experienced EU negotiators are smarter than to fall for that trick and have instead called for the UK to withdraw its plans to override the Withdrawal Agreement by end-September or potentially face a legal challenge. The US has also applied pressure with Nancy Pelosi, speaker of the House of Representatives, warning that if “Brexit undermines the Good Friday accord, there will be absolutely no chance of a US-UK trade agreement passing the Congress.” The Johnson government is thus looking ever more diplomatically friendless. Going ahead with a policy which jeopardises a trade deal with both the EU and the US would be the height of stupidity.

As to how all this ends, the next few days will tell. The IMB may fail to pass the House of Commons if sufficient MPs rebel against the government. It may be blocked in the Lords where by convention manifesto commitments are not blocked (the Salisbury Convention), but a policy which contravenes promises made to the electorate is likely to promote significant resistance. It may even be passed into law! However, I maintain that there is still a Brexit deal to be done but the limits of what the EU will tolerate are being tested. Whatever happens, this is a government which is rapidly losing the trust of large parts of the electorate as well as unsettling the international diplomatic community. At a time when it is drawing up new measures to combat the spread of Covid-19, it would do well to remember that they will only be successful if people comply with the law. And as last year’s legal challenge made clear, even the government is not above the law.

Perfidious Albion

As the eighth round of post-January talks between the UK and EU gets underway this week, the newspapers are today abuzz with rumours that the British government is about to renege on the Northern Ireland protocol, signed alongside the EU Withdrawal Agreement only last year. Specifically, the FT reports that it plans to “‘eliminate the legal force of parts of the withdrawal agreement’ in areas including state aid and Northern Ireland customs.” Such a move would constitute a breach of international law and jeopardize any attempt to ensure a trade deal can be reached between the two sides before year-end. This would dramatically raise the risk of a no-deal Brexit on 31 December. Politically it is a big deal: It threatens to become a major economic issue.

Up to now I have taken the view that despite all the bluster, the UK will eventually sign a trade deal – however suboptimal compared to current arrangements – simply to allow Boris Johnson to say that the deal he promised has been achieved. However, the suggestion the government is prepared to renege on previous commitments implies that the risks to this view have taken a quantum leap higher. Recall that during the election campaign 10 months ago, Johnson promised that the deal was oven-ready. It turns out that it was merely half-baked.

What might the motivation be for taking such a stance? It could simply be a negotiating tactic: a mad dog strategy to convince the EU that the UK is crazy enough to do anything in order to force more concessions. Indeed I have learned to be wary of stories which the government plants in the press – even sources as reputable as the FT – because it has a habit of leaking stories to suit its own purposes. Or it could be that the UK really wants to avoid a hard border between Northern Ireland and the mainland, which as it currently stands would run through the Irish Sea (recall Johnson’s mid-August quote that “There will be no border down the Irish Sea – over my dead body”). The problem with this, of course, is that the alternative would be to impose a hard border between the Irish Republic and the North. Interestingly, although both the UK and EU are committed to upholding the 1998 Good Friday Agreement, the Agreement itself says very little about a physical border: The only place in which it alludes to infrastructure at the border is in the section on security (there should be a "removal of security installations").

Only this weekend Johnson sounded relaxed about the prospect of no-deal suggesting that it would be a “good outcome for the UK.” I hardly need repeat my long standing view that nothing could be further from the truth. All the economic evidence suggests otherwise (here and here for example). Nor does the electorate appear to buy into the idea with survey evidence continuing to show a lack of enthusiasm for Brexit, let alone the no-deal version that the government is edging towards (chart). This may in part be due to an erosion of trust in the government following a series of high profile missteps in the course of this year with latest polling data showing a sharp fall in the government’s approval rating.

However, this episode raises two major issues. On the domestic front, it is unclear in whose name a no-deal Brexit is being conducted. The Johnson government might believe that its whopping election victory last December gave it the green light to pursue the form of Brexit which its more hardline proponents have always advocated, involving independence at any price from the EU. That is a very risky calculation. The fact that many voters held their nose when voting for Johnson since the alternative was to vote for Jeremy Corbyn suggests that support for the government’s position may be less deep-rooted than supposed. Moreover, with the UK suffering the biggest contraction in Q2 GDP of all the world’s industrialised economies, it is evident that the economy faces significant economic headwinds. There may be some elements in government that believe they can hide the consequences of a hard Brexit behind the smokescreen of a Covid-induced recession but it would be a major political gamble to assume that the electorate will not see through the ruse.

The second issue is the international dimension of the government’s threat. Issuing threats to your main trading partner during the course of tense negotiations when they hold all the economic aces borders on lunacy. Michel Barnier has already expressed irritation that the UK has wasted time over the summer. In his words: “Too often this week it felt as if we were going backwards more than forwards … I simply do not understand why we are wasting valuable time.” The problem remains the same as ever: The UK simply does not understand (or refuses to do so) the EU’s position on the conditions for access to the single market. This is not to say the EU is blameless. The fact that it treats the UK differently to Canada in terms of access to the EU market is a genuine source of UK irritation. Nonetheless, with positions hardening in a number of EU capitals, the risk of miscalculation is mounting. If the EU simply refuses to budge – and it would have every right to do so, given that the UK is prepared to tear up agreements to which is a signatory – the prospect of a no-deal Brexit becomes more real.

In addition, as I have pointed out before, the tectonic plates of globalisation are shifting. The UK is not alone in wanting to follow a policy of economic nationalism and it does not have the clout on its own to secure the trade deals it wants with the partners of its choice. And even if it were, the latest threatened actions by the Johnson government do not paint it as a reliable partner in international agreements, which will raise the risk premium baked into sterling denominated assets.

What to make of it all? I am inclined to see the UK’s latest threat as an increasingly desperate negotiating ploy by a government which (a) does not have the experience to conduct complex trade negotiations and (b) is finding it far harder to deliver on its promises than it believed. You do not have to be a great poker player to realise that the UK has a weak hand and is bluffing. The EU knows it, but I am not sure that the UK knows that the EU knows. Whatever one’s views on Brexit, this is not the way to conduct trade negotiations and even if the UK does get some of what it wants, the Johnson government’s dwindling reserves of goodwill are almost exhausted. It does not pay to make enemies of your friends for in the words of country singer Merle Haggard, “Someday you're goin' to need your friends again.”

The pros and cons of returning to the office

Governments face one of their biggest economic dilemmas of recent times: How quickly should they withdraw the support provided to the economy during the Covid-19 crisis in order to minimise the hit to public finances, in the knowledge that this risks derailing the nascent recovery? However there are big question marks as to whether they should even be thinking on such lines in the current climate. Indeed, the French government last week launched a €100bn (4% of GDP) plan to boost investment in green energy and transport and support industrial innovation to help the economy recover from the recession. In recent days, governments in Austria, France and Germany have announced plans to extend their labour market support programmes to prevent a big rise in unemployment as activity levels prove insufficient to support pre-recession levels of employment.

It is against this backdrop that the start of the new school year in the UK has prompted a debate about how to get employees back to their workplaces after more than five months working from home (WFH) or on furlough. A month ago, a survey by Morgan Stanley suggested that UK workers were slower to return to their offices than in other European countries. According to the survey evidence, only 34% of white-collar employees had gone back to work compared to a European average of 68% (in France and Italy these figures were 83% and 76% respectively). More recent evidence suggests that British workers are now returning to the workplace, with the ONS reporting that 50% worked exclusively in the workplace in the last week of August compared with 30% in June.

Nonetheless, the data indicate that British workers lag behind their continental counterparts in this respect. Google mobility trends data (chart) bear out the view that between May and July fewer British workers had returned to their offices than in other European countries (the recent dips in Spain, Italy and France represent a holiday effect rather than a Covid-19 effect). This is sharply highlighted in the residential data where UK home footfall remains higher than elsewhere, implying a greater degree of home working.

The British government is currently advocating that workers return to their offices as it seeks to get the economy on a more solid footing. We should acknowledge that large numbers of workers were unable to work from home in the first place, with essential staff continuing to travel to their place of work throughout the pandemic. But of those who were able to work from home, the bigger question is whether they need to return to their offices. After all, many of us manage quite happily with an internet connection which allows us to do our jobs whilst remaining connected with the outside world. Whilst accepting that it is not to everyone’s taste, since a lot of people require the buzz of interaction with their colleagues, the idea that white collar workers need to be in the office to do their jobs is increasingly anachronistic. That said, there are positive externalities associated with workplace clustering so it is premature to conclude that office working is finished.

Consider the evidence

The demand by the head of the civil service that 80% of civil servants should be back at their desks at least once a week by the end of September needs a stronger economic rationalisation. According to Sir Mark Sedwill (who is technically the outgoing head, as he was effectively sacked by the government in June) “getting more people back into work in a Covid-secure way will improve the public services we deliver.” That is a bland statement which may or may not be true. But the limited evidence available on the benefits of WFH suggests that there are many upsides. 

A reputable study conducted on Chinese travel agency workers in 2014 and published in the Quarterly Journal of Economics (if Nick Bloom has his name attached to it, it’s worth taking seriously) found that “home working led to a 13% performance increase, of which 9% was from working more minutes per shift and 4% from more calls per minute. Home workers also reported improved work satisfaction, and their attrition rate halved.” The study went on to point out that: “The overall impact of WFH was striking. The firm improved total factor productivity by between 20% to 30% and saved about $2,000 a year per employee WFH. About two thirds of this improvement came from the reduction in office space and the rest from improved employee performance and reduced turnover.”

So why the rush to get people back to their offices? On the one hand, those businesses which depend on passing trade in crowded city centres are struggling. The proliferation of sandwich bars, coffee shops and pubs in our city centres rely on the lunchtime or evening crowd for their revenue and nobody wants to see our town centres becoming more hollowed out than they already are. But as Sarah O’Connor recently pointed out in the FT “Britain’s economic geography was under strain even before coronavirus. Good-quality jobs had grown ever more concentrated in London and a few other big cities like Manchester. That didn’t work for the rest of the country, and it didn’t work particularly well for the city dwellers either.” Her argument is that crowded city centres lead to spiralling accommodation costs, which is a particular problem for the low-paid, and those seeking to avoid them move further out and thus face long commutes on overcrowded (and expensive) public transport.

If we accept this view, one consequence of the pandemic will be to allow us to rethink the world of work and how we use our city centres. Assuming that at some point the social distancing measures are relaxed, businesses will need less expensive city centre real estate which will reduce costs. There will be losers, of course: property developers for one, and companies which rely on passing traffic for another. As noted above, however, this does not mean that there is no need for office working. Aside from the social aspects, office working does promote a greater delineation between work and leisure time; it allows the creation of more robust networks via face-to-face interaction; it creates a sense of belonging, which is important to company attempts to create a corporate culture, and it is a more efficient way of passing on experience as staff of different levels of seniority mix together. It is thus possible to imagine a world in which workers will be encouraged to spend some, if not all, of their working time in the office. The era of hot desking may be at hand (though not under current Covid restrictions).

Ultimately, how the world of work develops will depend on the needs of companies and their employees. It is possible to imagine a world in which the Covid crisis has accelerated a move away from the 9 to 5 drudgery although long-term predictions of working practices are fraught with uncertainty. Back in 1930, the economist John Maynard Keynes predicted that technological change and productivity improvements would eventually lead to a 15-hour workweek. Despite significant productivity gains over the past few decades, on average we work more than double (and in some cases treble) that. Nonetheless, if governments are so keen to allow market forces to operate, maybe they should let private sector companies figure out what works best for them and not impose 20^th century working practices on a 21^st century workforce.