Continued pandemic-levels of home working could see £15.3bn hit to UK GDP every year
Of this £12.1bn would come from lower consumer spending
The resulting reduction in the clustering of economic activity (less networking and interactions) could decrease GDP across England and Wales by a further £3.2bn
While smaller cities like Bradford, Wigan and Blackpool could benefit from increased home working, it is unlikely to outweigh the negative effects on larger cities like London, Manchester and Liverpool
Lower consumer spending and a decrease in economic clustering if pandemic levels of home working persist would reduce UK GDP by £15.3bn every year, according to new research published today by PwC.
The hit to consumption is a result of office workers spending fewer days in city offices, meaning less money is spent on surrounding shops, cafes and cultural amenities. This decrease in spending has a snowballing effect whereby ancillary workers, such as canteen workers, security guards and waiters, whose jobs rely on workers being present in offices, reduce their own spending in response.
Jonathan Gillham, PwC’s chief economist, said:
“We've seen office and home working pitted against each other in recent months but it’s not as simple as one being more effective than the other. Our research highlights some of the broader economic implications and unintended consequences. While continued working from home could help level up smaller cities and rural areas, it would have a disproportionate impact on lower paid workers in bigger cities.
“A blend of office and home working is the best way to help cushion our economy as the furlough scheme draws to a close - getting more people back to offices safely is critical. The UK is a services-based economy that’s powered on people coming together face-to-face.”
The lower spending that is associated with a persistent shift to working from home could have a negative impact on UK GDP of around £12bn and on hours worked that is equivalent to 250,000 jobs per year
As well as a hit to consumption, continued working from home could also shave £3.2bn off UK GDP as a result of a decrease in the clustering of economic activity (agglomeration), making it 4.3% lower than if workers were back in offices. This can be a loss from networking and interactions between people, as well people taking less well-paid jobs outside of major cities, all of which result in overall lower connectivity between people and firms. In particular, a decrease in economic clustering may cause productivity of the financial and business services sector to fall by 0.36%.
Working from home does have the potential to level up certain areas of the country. Areas that could benefit from a shift to working from home include outer London and smaller cities like Wigan, Bradford and Blackpool. However, these benefits are unlikely to be outweighed by the negative impact that decreased spending in larger cities would have, with places like Liverpool, Manchester, Sheffield, Leeds, York, Birmingham and London set to suffer the most from continued home working.
The average weekly spend by an office worker is expected to fall from £416 in February to £404 in August and September, with the largest reductions in spending coming from higher income groups. The biggest cut in spending is to be on entertainment and on eating and drinking out, and is an equivalent of £5 less per week for those earning £40,000 or more. Given these sectors are large employers, there will likely be a sizable knock-on effect on employment if spending in these areas below pre-lockdown levels persists.
Notes to editors
To measure the effect of working from home (WFH) on consumption, PwC conducted an online survey of ~500 UK office-based and ancillary workers at the end of July 2020 to understand their spending patterns and intentions before, during, and after lockdown. Using this data, we used an input-output model to estimate the size of the work in office (WIO) value chain, the number of jobs supported within this chain and the GVA impact.
To estimate the agglomeration effects in England in Wales from a shift from WIO to WFH, we use our bespoke agglomeration model based on ONS data on employment by dwelling place and commute times, and applied agglomeration parameters from Graham et al (2009).
The study does not take into account the benefits of flexible working, workers’ personal preferences to WFH, or their home working environment. The analysis also does not consider the full knock-on effects to the UK supply-chain and has not been weighed against the potential health implications of WFH vs WIO, such as a change in Covid’s transmission rate or a “second wave” of cases.
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