06What needs to change

The lockdowns that were instigated as a result of the Covid-19 pandemic triggered a mass experiment in the way in which large parts of the economy functioned, with many workers switching from working in their office to working at home. This led to many predictions in 2020 that office working had been consigned to the past but the gradual return of workers to the office since lockdowns have been lifted have shown these predictions to be wide of the mark.

The analysis in this report shows why this should be no surprise. The forces of agglomeration shaped the geography of the UK economy, and London in particular, not just on the eve of the pandemic but for at least 100 years previous to it. Projecting from a point of crisis is always unreliable, but even more dubious when these predictions go against trends that are at least a century old. There are no free lunches; unless something fundamental has changed in how people generate and share ideas, the future should be at most a moderated version of the past.

While the mass change that was predicted has not come to pass, the world of work at the time of publication is still considerably different from January 2020. In central London, workers went into the office in April 2023 at around 60 per cent of what they did in January 2020. And older workers, and those who live outside of London have lagged this average.

This is a concern for the UK economy, if there is a productivity hit to having workers meet less frequently face-to-face. There is no strong evidence either way to provide any insight on what has happened to productivity since 2020 – this is an experiment being run for the first time. But there is a strong literature on the benefits that agglomeration creates that would suggest that there will be a long-term productivity hit.

Clearly, greater flexibility brings very visible short-term benefits to individual workers. But if there is an ‘externality’ generated by bringing them together, then there is a risk that in a currently tight labour market this unprecedented flexibility takes priority over the longer-term benefits that face-to-face interaction brings to both the company and the wider economy, most notably through creativity, innovation and on the job learning and career development.

The reticence of businesses to require employees to be back in the office more frequently is understandable given how tight the jobs market continues to be and the apparent mismatch in employee and employer preferences. There have been few employers who have been willing to publicly state they want staff back full time.

This means that a coordinated move between business and government is likely to be required to create a further shift in working patterns. Both the national government and the Mayor of London should now work with businesses to encourage an increase of the minimum number of days expected in the office, with the Mayor launching an equivalent to his ‘Let’s Do London’ post-lockdown campaign to encourage workers back to the office more frequently.

Policy should also aim to minimise the costs of office working for workers. It can do this in two main ways. First, it can at the very least maintain existing service levels on public transport so as not to increase the time taken to commute. Second, it can reduce fares. The scope to do this is likely to be limited given the impact of the pandemic on transport revenues. But an option would be to temporarily remove peak morning fares on a Friday, the quietest day of the working week. Where technically possible, this should be linked to travel earlier in the week, so that if someone had used the network at peak time three times already that week then their Friday travel would be discounted. If this caused a substantial increase in ridership it would boost revenues.

Policymakers should also be very cautious of policy being overly influenced by the immediate benefits of home working to the individual at the cost of longer-term prosperity by such policies inadvertently undermining agglomeration.  As well as maintaining frequency of public transport services and traffic management in London, policy will need to continue to:

• Manage the balance between residential and commercial space in central London so that the former does not cannibalise the latter. Switching commercial property to residential use is not easily undone. A shift towards residential would limit the ability of the central London economy to grow in the future.
• Improve public transport infrastructure. Delaying long term decisions on further investment (in projects like Crossrail II and the Bakerloo line extension) today in the belief, based on short term evidence, that demand will be permanently lower stores up problems for tomorrow.

Finally, the Government should be more proactive in attempting to measure the impact of hybrid working on productivity. If this lies at the heart of future decisions about land use and transport investment, then it should conduct research on what this impact is to better inform future policy decisions. The Mayor of London should contribute to this through setting up a Productivity Advisory Council (akin to the Chancellor’s Economic Advisory Council) made up of businesses to feed in the impact of hybrid working and other issues on the productivity of the Capital.