Areas in the north of England and Midlands that backed Boris Johnson’s Conservatives at last year’s election are among areas of Britain with the highest share of jobs in sectors most at risk from the combined impact of a no-deal Brexit and the Covid-19 pandemic.
According to a Financial Times analysis of data from the Office for National Statistics, 17 so-called “red wall” constituencies — traditional Labour voting seats such as Scunthorpe won by the Tories in the 2019 election — are in the top 20 per cent of areas with job markets most reliant on sectors severely at risk over the next two years.
Although the figures vary greatly across different neighbourhoods, the data underline how a no-deal Brexit could make it harder for Mr Johnson to deliver on his pledge to level up more deprived parts of the UK.
The prospects of the UK leaving the EU’s single market without a deal on January 1 have grown this week with talks still deadlocked and both sides warning a no deal is more likely.
The FT’s analysis found there were 6.86m jobs in sectors most exposed to the double blow of a no-deal Brexit and Covid-19 — representing just under a quarter of Britain’s overall workforce — producing more than 40 per cent of Britain’s economic output in 2018.
Yet, in some parliamentary constituencies — such as Kingston upon Hull East and Washington and Sunderland West in the north of England — the share of jobs in high-risk sectors is as much as 47 per cent. Both constituencies voted to leave the EU in the 2016 Brexit referendum.
“Not enough attention is paid to the different local-level impacts [of Brexit and Covid-19],” said Amy Norman, researcher at the Social Market Foundation (SMF), a UK think-tank. “A local area’s ability to weather the storm of Covid-19 and thrive post-Brexit is dictated by its sectoral make-up. Drilling down below national and even regional statistics is vital to understanding how Britain can get stronger, more balanced growth.”
The SMF is one of the few organisations to have analysed the potential impact of the combined effects of Brexit and Covid-19 on local areas, over the course of the next few years.
The FT has drawn on some of the work done by SMF to assess which constituencies have the highest share of jobs in sectors expected to be most severely affected in the two years following the end of the Brexit transition period, including any lasting effects of the pandemic.
This was then compared with the job market disruptions caused by Covid-19 in different constituencies in the year-to-date. The analysis assumes that the two shocks caused by Covid-19 and a no-deal Brexit are of a similar size.
The sectors most at risk
Results for this type of analysis are hugely dependent on sector forecasts. In line with IMF calculations, for this analysis, one of the sectors assumed to be most severely affected by a no-deal Brexit is financial services. Due to anticipated disruptions to supply chains during the course of the next few years, manufacturing is also expected to be hit hard.
The dent in output for either industry in the year-to-date, as a result of Covid-19, has been relatively small in comparison to other sectors, as highlighted by the Office of Budget Responsibility and the National Institute Economic Review. This lack of sectoral overlap introduces the possibility of a secondary hit to local economies by a no-deal Brexit, just as they are recovering from the initial impact of Covid-19.
Meanwhile, SMF anticipates the shift towards working from home, due to Covid-19, will cause significant disruptions to both real estate and construction in the coming two years. SMF also believes transport and arts, entertainment and recreation industries will be severely hit by a continued reluctance to travel because of the virus and reduced spending capacity caused by the drop in overall economic output.
Local impact on jobs
Many of the areas with a particularly high share of jobs in sectors severely at risk sectors from the Covid-19 and no-deal Brexit shocks are in the north of England and the Midlands.
There is added concern that the areas expected to be most affected were already burdened with relatively high unemployment even before the Covid-19 crisis. “Adding the impact of an undesirable Brexit outcome to the economic disruption of the pandemic will make it all the harder to level up the UK economy,” Ms Norman explained.
Yet, the majority of these areas have a large number of people employed in manufacturing and construction, which have not, so far, been hit as hard by Covid-19 as, for example, the hospitality sector — which had more than a fifth of staff on furlough by the end of September this year and the highest rate of sector-wide unemployment of 9.3 per cent.
In contrast constituencies such as Tottenham, in north London, have experienced much greater shocks than these areas in the north and the Midlands.
This is partly because nearly half of registered jobs in Tottenham are from businesses in hospitality, retail, health, education and transport — all of which have been severely affected by the pandemic and subsequent government lockdowns. By the end of September, almost 11 per cent of working age people were on furlough in this constituency and the equivalent of 8.3 per cent were newly claiming unemployment benefits in October, compared with the period before the pandemic struck.
A potential ‘double hit’
Poplar and Limehouse is among the constituencies that have already experienced a big hit from Covid-19 and could now be impacted again by a no-deal Brexit. The area has 58,000 jobs serving one of the capital’s major financial hubs, Canary Wharf. A further 31,000 registered jobs are in business support services — a sector that has suffered amid the coronavirus pandemic already this year.
Others at risk of a double hit include Leicester East and Northampton North in the East Midlands. Each constituency has well over a third of their workforce in severely-at-risk sectors and, although there may be some overlap with these figures, more than 6 per cent of working age persons furloughed and 4 per cent newly claiming benefits, according to the latest data.
Local impact on GDP
If local impact is analysed according to the potential blow to gross domestic product rather than employment, we get a slightly different picture of which areas could be most severely affected. Real estate and finance play a larger role here since the value created per worker for each of these sectors is relatively high.
As a result, more of the areas expected to be struck hardest, when considered in GDP terms, are in south-east and east England. For instance, in Broadland, Norfolk, and Brentwood, Essex, a little under two-thirds of economic output is produced by the most-at-risk sectors of the local economy, with real estate and finance activities accounting for 38.5 and 23.6 per cent of economic output, respectively.
In parts of London, such as Haringey and Bexley, real estate activities alone account for about a third of gross domestic product. While in the City of London, financial services account for an enormous 47 per cent of overall economic output.