Government fears working from home is hitting UK economy hard

Harry Yorke
·5-min read
An empty office area in London as people continue to work from home - Facundo Arrizabalaga/Shutterstock
An empty office area in London as people continue to work from home - Facundo Arrizabalaga/Shutterstock
Coronavirus Article Bar with counter
Coronavirus Article Bar with counter

Senior Government ministers are increasingly concerned that working from home is leading to less productivity in the economy, The Telegraph understands.

There is growing Government alarm over the long-term effect on the economy of the prolonged shift to home working brought about by the coronavirus pandemic. Business leaders have warned that it is harming productivity amid concerns that jobs will be relocated abroad if there is a long-term shift away from the office.

A quarter of companies have reported a downturn in productivity since the Covid restrictions began, putting the Government under pressure to find new ways of getting staff back to the workplace.

The warning comes as one million more people look set to be moved into the toughest Tier-3 coronavirus restrictions next week.

Nottinghamshire MPs suggested several districts would be placed in the "very high" Covid alert level on Wednesday, but talks will continue over the weekend after meetings between ministers and local leaders failed to come to a conclusion on Friday.

Leaders in Warrington confirmed the town will be subject to Tier 3 measures from Thursday after they agreed to a financial settlement worth £5.9 million.

Meanwhile, new data suggests the number of new daily coronavirus cases across England has risen by almost a third in the past week, but the rate of growth appears to be slowing down.

Latest surveillance figures from the Office for National Statistics (ONS) show the number of people infected with coronavirus in the community rose by 28 per cent in the past seven days. However, the Government's scientific advisers claimed the 'R' rate, which measures the growth of the virus, had fallen for the first time in a month, from between 1.3 and 1.5 to 1.2 to 1.4.

The Government confirmed there had been a further 20,530 laboratory-confirmed cases of coronavirus in the UK as of 9am on Thursday, and a further 224 people died on Friday.

As more areas look set to enter the harshest restrictions, the Treasury and Department for Business are increasingly concerned by the hit to productivity in professional and financial services, with a number of companies now privately admitting that the flight from offices is stifling creativity and "social capital".

Several large UK firms have also reported difficulties landing new clients because of the end of face-to-face meetings, as well as problems with training new employees remotely. Many have been forced to organise Covid-compliant team-building days to strengthen bonds between colleagues who have not met for months.

On Friday evening, a senior Government source also warned that the transition brought about by the pandemic had thrown the UK's position as a global business destination into question.

As workforces become increasingly detached from cities and town centres, companies are beginning to consider whether their British workforce can be replaced by cheaper labour abroad.

Their concerns are underscored by figures compiled by the ONS, which found one in four firms which had shifted to home-working had experienced a decrease in productivity.

One senior minister said: "At the start of lockdown, firms were saying they were coping well and productivity wasn't being affected.

"But there has been a notable change in the last couple of months or so. They are reporting that productivity is going down, they can't bring in new clients because it's not something you can really do over Zoom, and people aren't sparking off each other and having ideas because they're all stuck at home.

"They are also having real problems training new staff. There's only so much you can do over a video link, and new recruits aren't getting all that vital experience of working alongside experienced colleagues and picking up all the things you get from watching how someone else does the job."

Another minister said: "There is a concern that if people are doing their job from home, you might as well have someone doing the job from home in a foreign country where labour costs are much cheaper. It's not so much about the cost of office space, because a lot of firms are in long-term leases anyway – it's more about the wage bill."

Kevin Ellis, chairman and senior partner at PricewaterhouseCoopers, one of the big four accounting firms, said: "Office life is core to our business. You can do lots of things remotely, but it's not always quite the same. Ultimately people learn through observation, and learning is what powers a service-based business."

The big four – which also comprises EY, KPMG and Deloitte – hire thousands of graduates and school-leavers each year, with a large cohort arriving in the autumn months.  

Tamzen Isacsson, the chief executive of the Management Consultancies Association, said the outlook for the consulting sector is "broadly stable and positive" but pointed to some struggles faced by firms.

She said: "Building relationships with new clients on new projects is difficult when you're just on the phone... it's not as easy to maintain team morale, and dynamics."

Tej Parikh, the chief economist at the Institute of Directors, said: "Remote working has undoubtedly worked better than expected for many firms, but we can't ignore the potential downsides.

"It can present a real challenge in terms of onboarding new recruits and for staff development, much of which often depends on informal office interactions. If issues like these aren't dealt with, they could eat away at productivity."

The ONS survey of 24,500 businesses found manufacturing firms had suffered the most, with 46 per cent experiencing declines, followed by 39 per cent of property companies and 34 per cent of those based in professional, scientific and technical industries.

Just 12 per cent of firms believe productivity has increased during lockdown, while 52 per cent reported no effect.