How vital for the economy is a return to office work?
Boris Johnson’s statement yesterday laid the foundation for Britons to return to their offices. The prime minister said that from 1 August the official advice – which is for people to work at home if they can – will change.
“We are going to give employers more discretion and ask them to make decisions about how their staff can work safely,” he said. “As we reopen our society and economy, it’s right that we give employers more discretion while continuing to ensure employees are kept safe.”
This followed an address to Tory MPs by the Bank of England governor, Andrew Bailey, in which Mr Bailey reportedly voiced concerns about the damaging wider economic impact of people no longer commuting to offices.
One unnamed MP claimed the governor urged Downing Street to encourage people back on to public transport and back into offices: “He said we’d be in a recession for a long time if we didn’t do all these things.”
This information is secondhand so we don’t know precisely what the governor said, but it’s worth considering whether or not it’s true that we need to return to the office to save the economy.
How would going back to the office help the economy?
There are several reasons that would probably strike anyone who has ever commuted to an office as intuitive. For one thing, there is the demand created for transport services. If you travel in on train or bus, you are spending money on those services.
When the lockdown began in March, the government had to bail out rail franchise operators. This was necessary to keep services running for key workers, despite a collapse in the number of passengers.
The government has approved £3.7bn of additional state expenditure for this purpose, but Professor Tony Travers of the London School of Economics has estimated that it could ultimately reach double this number, and possibly more, if passenger numbers do not return to normal. Network Rail says passenger numbers are only a fifth of pre-coronavirus levels.
Transport for London, which has seen bus and underground revenues slump during the lockdown, has also been bailed out by the government with a £1bn grant and a £600m loan.
What about beyond transport?
An ecosystem of smaller businesses exists around offices and business hubs in city and town centres, from sandwich shops, to newsagents and pubs. These establishments are now allowed to open, but if their main customers – office workers – are all working from home, many will not be viable businesses.
The Canary Wharf office district in east London has more than 300 shops, bars, cafes and restaurants, but only about 7,000 of the area’s 120,000 usual workers have so far returned.
Sales at Pret a Manger – one of the largest office lunch providers – are down by 74 per cent compared with a year ago, prompting the chain to close 30 shops and shed 1,000 jobs.
There’s also the property sector to consider. Unused or underused offices create spare capacity, which is liable to hit commercial property prices and rents, discouraging investment. This would have a knock-on
impact on construction jobs.
Then there are many workers such as office cleaners and security guards to consider. If fewer people are using offices, there will be lower demand for these kind of jobs.
How much economic difference would it really make though?
It’s hard to estimate how much the broader “office” economy might be worth. The Office for National Statistics doesn’t collect data on the number of office workers, although it reported that about 47 per cent of people in employment did some work from home in April (during lockdown), giving a rough idea of the upper limit of this population.
Rail transport contributes about £5bn a year of economic activity and around half of all trips by surface rail are either for commuting or business purposes.
Last year, about 2.5 million people were employed in hospitality jobs, and a fair share of them are likely to be based in city centres. The same is true of the similar number of people who work in retail.
So should we rush back to the office to protect those jobs and city centre businesses?
It’s certainly important to think about the knock-on effects of our economic behaviour – and that would include the spillover impact of a much larger number of people working from home permanently.
Yet at the same time we should consider the welfare gains for workers from not having to commute, and the environmental benefits of having fewer cars on the road and fewer train journeys. Nor should we underestimate the ability of economies to adapt.
If many former office workers can work just as productively from home, they will have more money in their pockets as a result of not needing to spend money on public transport or on buying lunch in city centres. That will be a loss for transport providers and food outlets, who would likely compel them to cut jobs. But if those former office workers spent their savings elsewhere, that would likely create new jobs and fresh economic opportunities.
From this perspective, the most important objective for the government is to ensure that people carry on spending, rather than attempting to manage where they spend it.