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Understanding the Uneven Impact of Covid-19 and Helping Inform the Local Economic Policy Response

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This article was originally commissioned and published by the Campaign for Social Science as part of its COVID-19 programme.

Large shocks, unique circumstances and rapid policy responses are a challenge for those of us who promote evidenced-based policy making. At the What Works Centre for Local Economic Growth (What Works Growth), as with the rest of the What Works Network, COVID-19 has meant new challenges, but it hasn’t changed our belief that robust evaluation and high quality evidence still matter in formulating effective policy.

So how has our What Works Centre responded?

COVID-19 raises important challenges for the kind of impact evaluation supported by What Works Growth. We emphasise the importance of finding suitable control groups so that we can compare outcomes for individuals, firms and areas supported by a policy to a similar group that are not. That way we can more confidently attribute the change in outcomes to the policy rather than something else. But how do you find a suitable control group for a policy like Eat Out to Help Out, that supports any restaurant that chooses to be part of the scheme? What if a local area is already evaluating an accelerator programme which provides intensive advice and support to firms located in a shared working space? How can they adjust the evaluation to allow for a shift online and the fact that many of their supported firms are reeling from the economic impacts of lockdown? What if an area is thinking about starting an evaluation? Is it even worthwhile, given the huge economic shock from COVID-19? Behind the scenes, we are still helping local and central government grapple with these challenges. Indeed, we are currently upping our capacity to do so through recruitment of a new Evaluation Panel of experts to support our work.

We are also helping central and local government understand what is happening on the ground, building on earlier work on using data to inform Local Industrial Strategies. Understanding the local economy through data helps decision-makers identify issues and focus on those interventions which will have the most impact on their own area’s economic recovery from COVID-19. Our briefing offers an overview of available data sources and considers their advantages and limitations with a focus on early and leading indicators. Even well understood official statistics may be affected by the COVID-19 crisis and most of the unofficial sources raise concerns about completeness and biases and will need to be interpreted carefully. Despite these challenges, data used appropriately can provide timely and granular insights that can guide policy development and help target interventions.

Our piece, with Centre for Cities, for the Economics Observatory aimed to illustrate how some of this data could be used to look at the immediate impact of the crisis on local economies. We have been updating that monthly as new figures are released.

To inform the policy response, we have also undertaken rapid evidence reviews to see what we can learn from the past. Of course, circumstances are different. But we can still identify lessons on topics as diverse as how long the impact on public transport might persist post-crisishow we might diversify supply chains and the roles for local government in supporting firms in accessing finance and young people in to jobs. Our next briefing in the series will consider what we know about the likely employment impacts of different options for investments to support a green recovery.

We are also trying to help policymakers in local and central government think about what the future might hold. Which areas of the UK are likely to be hardest hit by the crisis? There are significant differences in economic performance and wellbeing between and within places. These differences are persistent over time, and along some dimensions the gap between places has widened since the 2008/09 global financial crisis. Spatial disparities mainly arise because of the strong tendency of economic activity to cluster, driven to a large degree by the co-location of highly skilled workers and highly productive firms. Austerity – the sustained and widespread cuts to government budgets in the UK since 2010 – is partly responsible for widening disparities. Several studies find that the resulting local government spending cuts varied significantly, with cities in the northern parts of England being particularly hard hit (for example, Centre for Cities, 2019).

The direct economic effects of lockdown have been mitigated to some extent by the ability of high-wage knowledge-intensive jobs to be done from home. In contrast, many low-wage service jobs cannot be done remotely. Taken together, the evidence suggests that lower-skilled workers are likely to be harder hit during lockdown, and that the immediate crisis may therefore accentuate inequalities both within and between cities. In short, the economic crisis caused by COVID-19 is likely to exacerbate existing inequalities and challenge the government’s ‘levelling up’ agenda.

Looking beyond the immediate impact, will the crisis induce changes in our economic geography, such as an exodus from our big cities, that will define the local economic growth challenge for a generation? Big cities thrive because of the economic and social benefits of proximity – but proximity also helps to spread COVID-19. Does this mean an end to the big city revival of recent years? Much will depend on how quickly we exit the pandemic – and how far the forced experiments of lockdown translate into new norms of how businesses and organisations behave.

There are several big unknowns. One key uncertainty is how we will exit this pandemic. We also lack evidence on how working from home might evolve, whether the density and proximity of big cities make them inherently vulnerable to globalised pandemics such as COVID-19, and how cities could adapt to those risks. Pulling together theory and evidence allows us to speculate about possible urban futures.

COVID-19 presents a profound challenge. In our own small way, we continue to demonstrate the value of social and economic evidence in helping all of us responds to that challenge.