The Northern Powerhouse: Will it still be a priority after lockdown?

Fieldfisher corporate, brand and employment experts Tom Ward, James Corlett, Alex Watson and Simon Lafferty discuss the challenges and opportunities for businesses in the north of England post-Covid-19.

  Preliminary research has predicted that the negative economic impacts of the UK's Covid-19 lockdown are likely to fall particularly heavily on the north of the UK.

In response, the government has been quick to reaffirm its commitment to the "Northern Powerhouse", the brainchild of former Conservative chancellor George Osborne, as part of the current administration's broader economic "levelling up" policy.

Although these are difficult circumstances for many northern businesses, there are likely to be particular opportunities for some companies arising from the economic fall-out of Covid-19.
These may include:
 

• A relocation of business and talent away from London and the southeast, as office-bound working practices cease to be practical or desirable for employers or staff;
• The reinvigoration of northern town centres and high streets with new types of business, as lockdown accelerates the shift from "bricks to clicks" in the retail and services sectors;
• Increased investment in digital connectivity, including fibre to the premises as part of the nationwide roll-out of 5G, to support further modernisation of the northern economy;
• Enhanced commercialisation prospects for northern start-ups and growth companies, benefitting from lower labour and overhead costs than elsewhere in the UK.

 
However, northern businesses need to position themselves to make the most of these opportunities, as competition from other regions is likely to be fierce.

 
How can northern businesses get ahead of the game?

The withdrawal of government support packages, such as the Coronavirus Job Retention Scheme (CJRS) and various business interruption loans may test the financial resilience of many northern businesses.

On a practical level, bringing staff back to the workplace and re-engaging cautious customers are just some of the challenges businesses face.

In general, to prepare for the end of lockdown, businesses should:

• Review existing contracts, paying particular attention to force majeure clauses;
• Be vigilant to opportunism from counterparties and be prepared to act quickly;
• Look at the diversity, geography, flexibility and replicability of supply chains;
• Speak to suppliers about the impact of Covid-19 on lead times, stock availability etc.;
• Keep up to date with government guidance on the CJRS (furlough scheme) and "Covid-secure" health and safety; and
• Don't forget about Brexit planning and the potential upstream and downstream impacts of the UK's impending exit from the EU.

 
What can businesses do to futureproof themselves?

Be prepared to adapt

Flexibility and scalability are essential for businesses of all sizes to weather difficult periods.

Companies in the north of the UK may have some advantages when it comes to amending their business arrangements to adapt to circumstances, such as more choice of premises and less competition for market share and the skills needed to refocus a business.

Know your counterparties

Many companies fail to establish clear, regular communication channels with counterparties, including suppliers, customers, investors and joint-venture partners, which can turn out to be highly problematic at times of crisis.

Once the dust begins to settle, it is advisable to commence and commit to frequent dialogue with counterparties to reduce the risk of future communication breakdowns.

Review your contracts

Identifying and seeking to mitigate any risks in existing contracts is something businesses should do now, if they haven't already.

It is sensible to think about introducing force majeure and material adverse change clauses into contracts, auditing counterparties, buying insurance and backing up supply chains, wherever possible.

Nurture your relationships

Contracts are just formalisations of relationships, which need to be preserved beyond what is set out in the contracts themselves.

Fostering the relationships that underlie these contracts can help businesses reach reasonable middle grounds with counterparties when it comes to performing contractual obligations in difficult circumstances.

 
What funding options are available for northern UK business and how can these be accessed?

If they haven't already, companies in the north of the UK should investigate what finance schemes are available to them.

In addition to the UK-wide support schemes which have been launched since the Covid-19 lockdown, northern Local Enterprise Partnerships (LEPs) are currently still able and willing to support promising businesses.
 
Options include:

• The Northern Powerhouse Investment Fund (NPIF) – a £400 million fund that works with 10 LEPs in the northwest of the UK. As of mid-May, NPIF had concluded 61 deals worth a total of £14 million since the start of 2020 and a further £106 million was recently released to NPIF fund managers to continue investing in the north.
• Coronavirus Business Interruption Loan Scheme (CBILS) – government-backed loans and other kinds of finance of up to £5 million for UK-based businesses with a turnover up to £45 million.
• Coronavirus Large Business Interruption Loan Scheme (CLBILS) – government-backed loans and other kinds of finance of up to £50 million for UK-based businesses with a turnover of more than £45 million.
• Future Fund – government-backed, investor-led scheme for UK-based growth companies seeking convertible loans ranging from £125,000 to £5 million.
• Bounce Back Loan Scheme (BBLS) – government-backed loan scheme for UK-based small and medium-sized businesses for loans of between £2,000 and up to 25% of their turnover (up to £50,000).
• COVID-19 Corporate Financing Facility (CCFF) – a scheme under which the Bank of England will buy short-term debt from large companies.

Given that the cost of Covid-19 business interruption support is likely to be counted in terms of future austerity and budget cuts, this may reduce amount of future funding available through NPIF and LEPs, so northern businesses should apply for funding quickly while it remains available.

However, it is important that businesses read the eligibility criteria for schemes carefully and consider (potentially with the help of professional advice) what type of funding is most helpful for their circumstances.

This will make the application process more efficient and should improve the chances of receiving funding.

 
How do you implement social distancing in the workplace?

As the UK emerges from lockdown, bringing staff back into the workplace is likely to be a major issue for business.

While this applies to companies in all UK regions, the higher proportion of manufacturing and industrial businesses and the considerable volume of residential, commercial and infrastructure construction underway in the north of England where working from home is not an option, may mean northern employers are more exposed to risk.

To assist companies with getting staff back to work, the government has published "Covid-secure" guidelines covering eight different areas, namely:

• Construction and other outdoor work;
• Factories, plants and warehouses;
• Labs and research facilities;
• Other people's homes;
• Restaurants offering takeaway or delivery;
• Shops and branches; and
• Vehicles.

These guidelines are non-binding and do not supersede existing health and safety legislation, but businesses should consider them carefully and implement the recommendations as far as possible to reduce the risk of enforcement action and fines by the Health and Safety Executive.

It is also possible that the guidelines will become mandatory at some stage, so planning for Covid-security in the workplace early is advisable from a regulatory perspective, as well as to reassure staff that it is safe to return to work.

Consultation with employees is essential and many businesses will need to balance the concerns of their staff with practicalities of what is required to operate workplaces safely and effectively.

Where appropriate, this may involve more flexibility around working from home and working hours.

 
What next for the Northern Powerhouse?

Economic reset

In addition to the many challenges represented by the Covid-19 lockdown, the sudden shock to UK PLC also represents an opportunity to reset some parts of the economy and channel investment into new industries and new parts of the country.

From this perspective, the north of England, with its metro mayors, LEP network and existing Northern Powerhouse blueprint for economic regeneration arguably has a head start on other parts of the UK.

Northern Powerhouse or levelling up?

While the Northern Powerhouse has been superseded by the "levelling up" policy to a certain extent, the brand remains a powerful talisman for coordinating the north's approach to lobbying for greater investment.

It is also important that the Northern Powerhouse is commercial, rather than political, in its focus and objectives.

Bricks to clicks

Many northern highstreets were already struggling before the arrival of Covid-19 and the shift away from bricks and mortar retail exacerbated by the lockdown has reinforced the need for local authorities to think about the future of northern town centres and high streets.

Similarly, the shift to remote working practices and rapid adoption of digital tools by previously low-tech businesses potentially creates a need for more flexible office spaces that provide collaborative environments for nomadic workforces.

This may lead to a reduction in high-density, city-based working and local governments will need to cooperate with investors to help retrofit cities to accommodate a shift in working patterns and commuting habits.

New kinds of job

Traditional manufacturing is facing an uncertain future, which represents a particular risk to northern workers given the high concentration of manufacturing operations in the north of the UK.

The Covid-19 crisis illustrates the need to further modernise the north's economy to reduce its vulnerability to future economic slumps.

This is likely to involve a shift to knowledge-based economy driven by data and ideas and will rely on greater investment in digital connectivity of homes and upskilling certain categories of workers to help ensure better job security and career progression prospects.

The northern ecosystem

There is no reason why the success of northern cities as incubators for start-ups and growth businesses should not continue, regardless of the anticipated economic downturn post-lockdown.

Cities such as Manchester and Leeds in particular have created well-functioning ecosystems connecting universities, small companies, large companies and investors to help commercialise ideas.
 
This note was based on a webinar entitled The Northern Powerhouse: Will it still be a priority after lockdown? hosted by Fieldfisher Manchester. For more information on the points discussed, please contact Tom Ward (corporate); James Corlett (franchising, advertising and commercial); Alex Watson (employment); or Simon Lafferty (finance).