The Chancellor has just announced changes to the furlough scheme.
As expected, in June and July the government will continue paying 80% of furloughed people’s wages, up to £2,500. From July, earlier than planned, employers will have the flexibility to bring back employees for a set number of days per week.
But furlough is being unwound. From August employers will be asked to pay national insurance and employer pension contributions, and from September taxpayer contributions will drop from 80% to 70%, with employers paying 10%. In October this will be 60% and 20%, after which the scheme will shut.
Rishi also announced a final lifeline for the self-employed, following intense lobbying, including from 113 cross-party MPs. Those eligible under the Self-Employment Income Support Scheme (SEISS) will be able to claim a second and final grant in August. The grant will be worth 70% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £6,570 in total.
How to spend it
It can’t have escaped anyone’s attention that prior to coronavirus this Government’s main platform was ‘levelling up’ – that is, rebalancing the economy between London (and the South East more broadly) and the rest of the UK. There are plenty of policy levers that could be pulled to try to bring this about, but there are no quick fixes.
One lever that could be particularly powerful in the medium to long term is increasing R&D funding. The government has a target of increasing total R&D spending to 2.4% of GDP. This is expected to mean an increase of public sector funding from 0.55 per cent of GDP today to at least 0.75 per cent of GDP.
But how should public R&D be spent? There are a few key choices the government must make. Should the government spend equally everywhere? Should it spend where research is already excellent (i.e. Oxford, Cambridge and London)? Should it spend where businesses already spend on R&D? Should it spend where the economy is weakest? Should it spend where manufacturing is strongest? These are the questions explored in a new paper from Nesta (they have produced a nifty interactive tool that lets you see how these decisions would impact different regions).
The report calls for substantial devolution of innovation funding to remedy the regional imbalance in government R&D spending; the creation of new science and technology institutions outside London, the South East and East of England to create a more balanced distribution of research infrastructure across the nation; and UK Research and Innovation (UKRI) to take a lead in driving regional R&D rebalancing, addressing the systematic factors that have led to the current geographical concentration of R&D spending.
On Tuesday, Nesta is hosting a webinar on the report, and Tom Forth, co-author of the report, has a useful Twitter thread that will save you reading the whole report. One chart that really stands out shows that UK regions like The West Midlands and North West England are almost unique in Europe, having high business spending on R&D, but very little public spending. Similar regions in France and Germany enjoy two to three times the state investment.
Silicon what?
Coronavirus might also drive levelling up as companies change the way they work. Early survey data suggests that a majority of US hiring managers think workers are more productive working from home: 32.2% thinking it has increased versus 22.5% who think it’s decreased, and the likes of Facebook and Twitter announcing that they’ll offer a permanent option to work from home to most employees.
Matt Clifford has written for Wired on how coronavirus might spell the end of tech hubs – and why that’s a good thing. While there are fears that not being present will lead to less innovation (due to less knowledge spillover and serendipitous meetings), Clifford is more optimistic: “far from breaking innovation clusters, remote work, if executed well, can create a new model for collaborative innovation – one that overcomes the limits of existing clusters and unleashes human potential around the world.”
Specifically, Clifford argues that remote working will overcome the diseconomies of scale of tech clusters, that new tools and practices will make collaboration at a distance more effective, and that opening up companies to more talent from around the world will outweigh any friction. This could be transformative for overall economic wealth, levelling up regions and giving individuals around the world greater equality of opportunity and freedom to live where they want.
Level Best