Precis of latest Council Economic Briefing

Set out below is a precis of the latest Economic Briefing on the Leeds economy. 

“Purpose of Report

This briefing note provides an update on the Leeds economy during the course of this week, including policy announcements from Government, work undertaken by Leeds City Council and an analysis of business and sector information across the Leeds economy.

Headlines

Some of the largest UK councils have said they may have to declare themselves effectively bankrupt unless the Government agrees to further support. The authorities have said that emergency spending controls (section 114 notices) could be needed due to the impact of COVID-19. These include some of the UK’s largest unitary authorities – Leeds, Wiltshire, Trafford, Tameside and Barnet. Liverpool previously warned of a section 114 notice being used, but it is now planning to set a revised budget in September 2020. Nearly 150 authorities have forecast a combined budget shortfall of at least £3.2bn and at least 20 plan to hold an emergency or in-year budget.

On 23rd June 2020 the Government announced the reopening of much of the Hospitality sector more broadly in England from 4th July 2020 if they can follow safety guidelines. Furthermore, following a review of the two-metre social distancing rule, the Government also this week announced that from 4th July 2020, where it is not possible to stay two metres apart, guidance will allow people to keep a social distance of ‘one metre plus’. This means staying one metre apart, plus mitigations which reduce the risk of transmission.

Early results from the Quarterly Economic Survey with the Chambers of Commerce in Leeds City Region show that more than four in five firms have or are planning to implement social distancing for staff (85%) and/or enable remote working (83%). Around two thirds are sourcing Personal Protective Equipment for staff and around two in five are planning steps to enable staff to get to work safely (42%) and/or staggering arrival times. In most cases, around three quarters of businesses expect the measures they have put in place in response to the crisis to remain in place for between three and 12 months. However, around a third expect remote working to last more than a year, with 22% expecting this shift to be permanent.

In Leeds, the wards with the highest Universal Credit claimant count for May 2020 were Gipton and Harehills; Burmantofts and Richmond Hill; Armley; Middleton Park; and Killingbeck and Seacroft. This was for both total claimant count (those in-work with low income and out-of-work claimants) and for claimant count for those not in employment. This is a continuation of previous trends, with the most disadvantaged being hardest hit.

KPMG has published a forecast showing Yorkshire’s economy is set to shrink by 7.1% this year, with unemployment set to reach as high as 11% next year, as the impact of the COVID-19 crisis looks set to continue into 2021.

A survey undertaken by the Third Sector Leeds alliance in April 2020 and May 2020 found that almost a quarter of respondents thought their organisation may not even remain viable beyond three months. Almost two-thirds of community and voluntary organisations fear they will not survive the year as they are seeing rising demand for services whilst dealing with the financial hit of lockdown. With 44% of those unlikely to last the summer having an annual income of less than £100k, the research suggests grassroots organisations in the city are at particular risk.

The Council continues to pay out grants to those who qualify either through the Small Business Grant Fund or the Retail, Hospitality and Leisure Grant Fund immediately. Figures from Wednesday 24th June 2020 indicate a total of 11,830 grants valued at £145,645,000 had been paid.

There have been 870 applications received by the Discretionary Grant Fund to date, 134 have been approved and processed for payment amounting to £879,535 in total. The team is currently reviewing rejected applications (for all reasons), live and still unallocated applications. Further information will be available next week when the scheme has closed to new applications.

A business funding matching tool to revolutionise access to finance for businesses in the West Yorkshire region has been launched. The Chamber Finance Finder will allow Chamber member businesses fast and simple access to all funding options across loans, equity and grants – simplifying, speeding up and streamlining the application process. The tool is intended to help businesses who may be struggling to access the financial support need.

Good News Stories

A business funding matching tool to revolutionise access to finance for businesses in the West Yorkshire region has been launched. The Chamber Finance Finder will allow Chamber member businesses fast and simple access to all funding options across loans, equity and grants – simplifying, speeding up and streamlining the application process. The tool is intended to help businesses who may be struggling to access the financial support needed. Further information can be found here.

Leeds Indie Food, an independent food and drink festival which is usually held in May, has become a business support network after creating an online directory promoting local food and drink businesses and re-launching its branded merchandise. Leeds Indie Food has been working alongside Leeds BID and Leeds City Council to support small businesses across Leeds and recently started hosting weekly Zoom calls to bring together independent business owners with local finance and HR specialists.

A University of Leeds graduate has launched OnePoundMask, a start-up designed to make face high-quality masks affordable and from a reliable source. The company was launched in response to rising levels of fraud linked to coronavirus, with Action Fraud, the UK’s national fraud and cyber reporting centre, recently estimating victims have lost £4.3m to fraudulent sellers since the start of the pandemic – mostly related to online shopping scams such as buying Personal Protective Equipment. 

Business Intelligence

Through the weekly conference call with business representatives the following issues have been reported:

 Overall economic activity is slowing increasing from the low point in April.

 Businesses are not yet or temporary, short term, local lockdowns.

 Business representatives are expecting to see an increase in unemployment as the furlough scheme comes to an end.

 Confidence continues to be a long term issue, both for consumers and companies.

 

Retail, Leisure and Hospitality sectors update

 

Following the announcement by Government that non-essential retailers could open from Monday 15th June 2020, most, although not all, retailers in Leeds city centre have now reopened. John Lewis opened on 25th June 2020 and McDonald’s opened on 24th June 2020 and more will follow between now and mid-July 2020. Amongst the retailers remaining closed for now are Harvey Nichols, Argos and around half of the Victoria Gate/Quarter tenants, whose footprints are generally smaller so social distancing is more difficult. Retailers put in place a range of measures to ensure their businesses were COVID-19-secure and the queuing seen on the first day of opening (15th June 2020) has not been repeated to the same degree since then.

On 23rd June 2020 the Government announced the reopening of much of the Hospitality sector more broadly in England from 4th July 2020 if they can follow safety guidelines. Those able to reopen from this date include: pubs; restaurants; hairdressers; cinemas; museums; galleries; theme parks; arcades; libraries; social clubs; places of worship; community centres; outdoor gyms and playgrounds; zoos; wildlife centres; hotels; holiday apartments; campsites; and caravan parks. Theatres and music halls can open but will not be allowed to hold live performances. This does not include “close proximity” venues such as nightclubs; soft-play areas; indoor gyms; swimming pools; water parks; bowling alleys; spas; nail bars; and beauty salons.

Following a review of the two-metre social distancing rule, the Government also this week announced that from 4th July 2020 that, where it is not possible to stay two metres apart, guidance will allow people to keep a social distance of ‘one metre plus’. This means staying one metre apart, plus mitigations which reduce the risk of transmission (such as wearing face coverings).

Guidance has been published to assist businesses in reopening safely – this can be found on the Government’s website here. The guidance includes general advice for all businesses, as well as guidance for specific sectors. Businesses should carry out a COVID-19 risk assessment to ensure the safety of their workplace, which should be shared on their website, and also develop cleaning and hygiene procedures. Measures include, for example, avoiding face-to-face seating by changing office layouts; reducing the number of people in enclosed spaces; improving ventilation; using protective screens and face coverings; closing non-essential social spaces; providing hand sanitiser; minimising self-service; staggering arrivals; and changing shift patterns so that staff work in set teams. The mandate is also already in place for face coverings to be worn on public transport. Guidance for close-contact services, such as hairdressers, says employees should wear a visor where it is not possible to maintain distance and customers could also be separated from each other by screens. Places like pubs, restaurants, hotels and hairdressers are asked to keep a temporary record of customers and visitors for 21 days, to support the test and trace system.

From the intelligence we have to date, it seems that most, but not all, licensed premises will open on 4th July 2020. Plans are in place by the Council to work towards the next key date of 4th July 2020. These include:

 

 A team of night marshals to assist with queuing and ‘gathering’ issues for the first two weekend.

 Pavement widening and street closure proposals in selected areas to make more room for outdoor seating.

 A streamlined street café application process.

 Coordination of increased resources on street, such as Police, Licensing, City Centre Management and Safer Leeds.

 Importantly, a communications campaign advising members of the public on how their visit to pubs and restaurants will be different to normal.

LEP / WYCA analysis

Early results from the Quarterly Economic Survey with the Chambers of Commerce in Leeds City Region show that more than four in five firms have or are planning to implement social distancing for staff (85%) and/or enable remote working (83%). Around two thirds are sourcing Personal Protective Equipment for staff and around two in five are planning steps to enable staff to get to work safely (42%) and/or staggering arrival times. In most cases, around three quarters of businesses expect the measures they have put in place in response to the crisis to remain in place for between three and 12 months. However, around a third expect remote working to last more than a year, with 22% expecting this shift to be permanent.

Regarding business and workforce activity, as more businesses appear to be returning to a greater degree of activity there are increased instances of businesses taking active steps to adapt. For some, this has resulted in redundancies, though these are at a relatively small scale so far. Others are looking to reduce overheads by reducing their office footprint. Businesses in the Hospitality and Events industries, and those supplying them, are yet to see an upturn in activity. With many events planned for the coming months already postponed to 2021, some in the sector do not expect a pickup in activity before the Autumn.

There was a 20% increase in people claiming out of work benefits in Leeds City Region in May 2020, and a 22% increase (22,000 total) in West Yorkshire, according to data from the Department for Work & Pensions published on 16th June 2020. The increases were below those recorded nationally but still increased at a faster rate than at any time recorded prior to the onset of the COVID-19 lockdown. Comparing May 2020 with the pre-lockdown period in March 2020, the number of claimants has increased by 63,100 (94%) in Leeds City Region and by 49,600 (87%) across West Yorkshire. The national average increase was 114%. This means there are now 129,900 claimants in Leeds City Region and 106,700 in West Yorkshire, compared with March 2020 figures of 66,800 and 57,100 respectively.

There were 260,000 people on Universal Credit in Leeds City Region in May 2020 and 146,000 in West Yorkshire. Between March 2020 and May 2020 the number of claimants in Leeds City Region increased by 103,500 (66%) and by 61,200 (72%) across West Yorkshire.

In Leeds City Region the total number of employments supported through furlough was 344,000 and in West Yorkshire 256,000 at the end of May 2020. In both cases this was equivalent to around 28% of employees, a similar proportion to the national average. In Leeds City Region there were around 99,000 claims to the Self-Employment Income Support Scheme, equivalent to 72% of those eligible for the grant. In West Yorkshire 72,500 had claimed, 71% of those eligible. The rate of take-up was slightly higher locally than nationally (which was 70%).

Centre for Cities – High Streets Recovery Tracker

Centre for Cities has produced an analysis of the footfall of visitors in cities and towns across the UK. Some headline information includes:

 Since lockdown there has been a large drop in visitors from outside the city across all five areas in Leeds City Region. Across all areas 40-60% of workers came from outside the city prior to lockdown. This has now been reduced to c. 20-30%, with a higher proportion of workers coming from inside the city in Bradford, Leeds and York, whilst in Huddersfield and Wakefield most workers come from suburbs.

 Across the country some of the biggest cities outside London (Leeds, Manchester, Birmingham and Liverpool) have been slow to see footfall recover. All are in the bottom 10 for the recovery of footfall in the last week. In comparison, smaller urban areas such as Huddersfield and Wakefield have seen much greater recovery in footfall in recent weeks and/or have not seen as sharp a fall from the pre-lockdown period. This suggests that individuals are staying in their local areas rather than travelling to visit the cities for either work or leisure purposes.

Yorkshire’s economy forecast to shrink by 7.1% this year – KPMG

KPMG has published a forecast showing Yorkshire’s economy is set to shrink by 7.1% this year, with unemployment set to reach as high as 11% next year, as the impact of the COVID-19 crisis looks set to continue into 2021.

The forecast states that the economy is unlikely to be able to fully restart until a vaccine or effective treatments for coronavirus are available and in its latest quarterly Economic Outlook, KPMG predicted GDP would contract slightly more national than regionally, with a 7.2% reduction. It forecasts a modest return to growth in 2021 of 2.8%.

As well as the fall in GDP, KPMG is predicting the unemployment rate averaging at 8.6% this year and 11% in 2021. Investment is set to shrink by 12.6% in 2020, before another modest recovery of 1.8% the following year. Consumer spending is also set to fall sharply, down by 9.5% over the course of this year.

KPMG has said that like many parts of the UK, our region’s economy will be “severely hampered” by the uncertainty of having no clear end to the crisis despite a gradual easing of restrictions. However, on the upside, the dominance of the health sector in our regional economy offers some “insulation” from the downturn while the region is not overly reliant on the hardest hit sectors such as travel and hospitality.

UK councils fear bankruptcy amid COVID19 costs

Some of the largest UK councils have said they may have to declare themselves effectively bankrupt unless the Government agrees to further support. The authorities have said that emergency spending controls (section 114 notices) could be needed due to the impact of COVID-19. These include some of the UK’s largest unitary authorities – Leeds, Wiltshire, Trafford, Tameside and Barnet. Liverpool previously warned of a section 114 notice being used, but it is now planning to set a revised budget in September 2020. Nearly 150 authorities have forecast a combined budget shortfall of at least £3.2bn and at least 20 plan to hold an emergency or in-year budget.

Institute for Public Policy Research (IPPR) North – 10 years of austerity: eroding resilience in the North

Research undertaken by IPPR North has found that austerity has had a disproportionately damaging impact upon the North of England’s resilience and its capacity to deal with the social and economic impacts of the COVID-19 pandemic.

Some headlines from the report include:

 Public sector employment has fallen in the North whilst being centralised in Westminster. This loss of capacity in the North and concentration in central Government has undermined resilience and the ability of the Public sector to respond to events like a pandemic or recession.

 Centralisation of spending on economic affairs also undermines regional resilience.

 Local Government spending on services is significantly reduced due to continuous Government grant cuts, which has inevitably had a major impact, whilst COVID-19 has created enormous demand for services and significantly harmed councils’ incomes. This has placed unsustainable pressure on local authorities.

 Social care is under increasing pressure and health inequalities are growing (including inequality in life expectancy). This has made areas particularly vulnerable to the impacts of COVID-19, with the most deprived areas disproportionately affected by the pandemic.

 Pay and quality of working life has stagnated.

 Local authorities are having to respond to the COVID-19 crisis at pace and at scale, with no guarantee from central Government that the full cost will ever be met. Austerity has made this situation worse because successive cuts have reduced the capacity of places to absorb the economic and social impacts of COVID-19.

 The Government needs to learn the lessons of austerity. Levelling-up, or any policy aimed at improving England’s regions, can only be achieved if the Government reverses austerity; oversees a Devolution Parliament; and invests in the North – an investment programme and action, rather than “empty rhetoric on ‘levelling up’”.

Centre for Progressive Policy (CPP) – Government needs to fully compensate local authorities

The CPP has published a report stating that the Government needs to fully compensate local authorities for lost income and additional costs as a result of the COVID-19 crisis before it can turn back to the levelling-up agenda.

The CPP say that the crisis has exposed the existing financial problems faced by Local Government and deepened them. As a result, local authorities are starting to make very difficult decisions about reductions to services that are already at a limit after a decade of austerity. Deprived authorities in particular will be hit hardest as they will be faced with higher expenditure and lower income.

The CPP calls on the Government to lend its full support during this crisis, before decisions can be made about the longer-term funding of Local Government how it will level-up. The report sets out how Government efforts to respond to the financial pressures caused by COVID-19 could undermine the levelling-up agenda, as well as how Government could address this.

Some of the headlines from the report are:

 10.8% – projected increase of expenditure for upper tier councils 2019/2020 due to COVID-19.

 More than eight out of 10 (131 of 151) upper tier councils in England do not have sufficient funds to make up for projected increased costs and reduced income due to COVID-19.

 This includes 18 of the 19 upper tier authorities which significantly feature former Red Wall constituencies (in the Midlands and the North of England – constituencies which the Conservatives won from Labour in the 2019 General Election).

 The Government needs to recommit to giving its full financial support to councils for COVID-19 losses before it can return to the levelling-up agenda. Following a decade of hollowed budgets, historic inequalities in funding and lack of financial flexibility, councils are currently financially unable to respond adequately to the current crisis.

 Without full financial support to councils deprived local authorities will be hit hardest. This will compound the effects of a decade of austerity.

 The Government should ensure deprivation and need are the default criteria for the distribution of any further funds to protect the most deprived communities.

 Local Government needs to be recognised as central to the levelling-up agenda. Looking ahead, once COVID-19 costs have been met, central Government should use the HM Treasury Green Book review, Shared Prosperity Fund distribution, Stronger Towns Fund and Fair Funding Review to mainstream levelling-up into Government decision-making and give local areas the opportunity to drive inclusive recoveries in their areas.

Institute for Fiscal Studies (IFS) – Councils face serious financial risks from the COVID-19 crisis

A new report from the IFS has examined how financial risks and resilience vary across councils and which types of councils and regions are most exposed. The main findings of the report are:

 In the short term, councils’ locally-generated incomes are likely to be more affected than their spending. Income from local taxes and especially sales, fees, charges and commercial activities will all be hit by the lockdown and social distancing.

 Councils in more affluent areas tend to be more dependent on these income streams and could therefore be hit hardest. However, there are big differences between even neighbouring councils, which will make it hard for central Government to target help.

 On the other hand, councils serving more deprived communities are more likely to see increases in demand for their services over the next few years if those who are already disadvantaged are hit harder by the health and social impacts of the crisis.

UK debt now larger than the whole economy

The UK’s debt is now worth more than its economy after the Government borrowed a record amount in May 2020. The Office for National Statistics (ONS) has said that £55.2bn was borrowed in May 2020, a figure nine times higher than in May 2019 and the highest since records began in 1993 (£48.5bn was borrowed in April 2020). This sent the total Government debt to a total £1.95 trillion. This is the first time debt has been larger than the economy since 1963, but it is not as high as the post-war peak of 258% in 1946-47.

The deficit (the difference between spending and tax income) for the first two months of the financial year (April 2020 and May 2020) is therefore now estimated to have been £103.7bn, £87bn more than in the same period last year. However, the ONS estimated that borrowing for the 2020-21 financial year will dwarf that, at £298bn. That would be the largest deficit since World War Two.

Reuters poll – Worst may be over for battered British economy

A Reuters poll, taken between 19th and 24th June 2020, has found that although Britain’s economy is shrinking at its fastest pace in centuries, it is likely to bounce back to growth next quarter as more businesses reopen.

With the easing of lockdown restrictions, the economy is expected to bounce back and grow 10.5% next quarter as a result, due to a broader range of businesses expecting to reopen. However, the economy will remain well below its pre-coronavirus size and some do not think it will be until late 2022 or 2023 that it returns to those levels (the global financial institution ING was reported as having said this).

International Monetary Fund (IMF) – Britain will borrow £400bn to tackle recession

The IMF has said that it believes Britain will borrow more than £400bn in two years as the coronavirus recession decimates the public finances. The forecast came as the IMF abandoned hopes for a V-shaped recovery in its latest economic update and instead warned of a slow bounce-back this year from the deepest global recession in nearly a century. By the end of 2021, world GDP will be 6.5% smaller than had been predicted in its January forecast, before the pandemic struck.

Britain will suffer the fifth worst downturn of advanced G7 nations, behind Japan, Germany, the United States and Canada, but ahead of France and Italy.

Employment and Skills Support

The LCC Employment and Skills service is working with a number of businesses in the Care sector to support access to opportunities for customers on our employability programmes. To date, five businesses have committed to offer a bespoke recruitment process in support of Employment Hub customers. Going forward, a talent match model has been developed for businesses who have five or more vacancies or where they have already advertised a vacancy and been unable to recruit to it.

The service is continuing to support businesses, including with COVID-19 recruitment and redundancy support and in relation to how businesses can access partner support and grants.

Apprenticeships

Leeds College of Building has been chosen as one of the 88 new providers to deliver T-Levels from September 2022. The College has been approved to offer a T-Level in Design, Surveying and Planning and students will spend time at both its North Street and South Bank Campuses as part of the qualification.

Universal Credit claimants

In Leeds, the wards with the highest Universal Credit claimant count for May 2020 were Gipton and Harehills; Burmantofts and Richmond Hill; Armley; Middleton Park; and Killingbeck and Seacroft. This is a continuation of previous trends, with the most disadvantaged being hardest hit.

Business Support Measures – delivered locally

Grants

Small Business Grant Fund and Retail, Hospitality and Leisure Grant Fund

The Council continues to pay out grants to those who qualify either through the Small Business Grant Fund or the Retail, Hospitality and Leisure Grant Fund immediately. Figures from Wednesday 24th June 2020 indicate a total of 11,830 grants valued at £145,645,000 had been paid. The Council is continuing to work through the more complex cases ensuring monies are paid as quickly as possible.

Discretionary Grant Fund

There have been 870 applications received by the Discretionary Grant Fund to date, 134 have been approved and processed for payment amounting to £879,535 in total. The team is currently reviewing rejected applications (for all reasons), live and still unallocated applications. Further information will be available next week when the scheme has closed to new applications.

The approved grants have been across a range of sectors including suppliers to the Retail, Hospitality and Leisure sector, manufacturing, business services, medical services, creative and digital, and charities.

The fund is capped at £10,000 per grant to allow the Council to support a larger number of businesses across the city and will see £7.795m made available, which equates to 5% of the original amount the Council was given for the initial business grant scheme. 10% of the funds available will be ringfenced for applications from local charities who occupy one property with a rateable value up to £15,000. The scheme is open until 28th June 2020.

There is an eligibility criteria to be met by applicants and a business or charity can apply for a grant if:

 It has not received any other coronavirus funding

 It was trading on 11th March 2020

 It has less than 50 employees

 It occupies all or part of a non-domestic property

 The property has a rateable value of less than £51,000, or annual rent or mortgage payments are less than £51,000

 It has yearly fixed property costs of £8,000 or more

 It is expecting to lose 25% or revenue between March 2020 and September 2020 due to coronavirus

Businesses and charities will be able to apply for up to 50% of their fixed property costs, from £2,000 up to a maximum of £10,000, over a six-month period starting from 11th March 2020.

All businesses and charities wanting to make an application to the scheme should do so via the following link: https://www.leeds.gov.uk/coronavirus/apply-for-a-discretionary-grant.

Business Support Measures – delivered nationally

Government business loan scheme statistics

On 23rd June 2020 the Treasury published the latest figures in relation to the business loan schemes, up to 21st June 2020:

 Coronavirus Business Interruption Loan Scheme – 50,482 approvals, valuing £10.53bn.

 Coronavirus Large Business Interruption Loan Scheme – 315 approvals, valuing £2.10bn.

 Bounce Back Loan Scheme – 921,229 approvals, valuing £28.09bn.

 Future Fund – 252 approvals, valuing £236.2m.

Government support scheme statistics

HMRC have confirmed that by midnight on 21st June 2020:

 9.2m jobs had been furloughed; 1.1m employers were furloughing; with the total amount claimed being £22.9bn.

 2.6m claims had been made to the Self-Employment Income Support Scheme, with the total amount claimed being £7.6bn.

Government extended measures to halt business evictions and provide support to high street businesses

The Government has confirmed they will extend measures to prevent high street businesses facing eviction over the summer. A new code will also provide support to shops and local firms planning their future recovery with their landlord. Industry leaders have backed the code and welcomes measures to support affected businesses.

The extension, until September 2020, means struggling companies will not be able to be evicted over the Summer. The new code of practice provides clarity for businesses when discussing rental payments and encourages best practice so that all parties are supported. The code is voluntary for businesses and is relevant to all commercial leases held by businesses in any sector which have been impacted by the coronavirus pandemic.