One way in which the pandemic has impacted our lives is that we have had to live with more uncertainty. Making decisions and planning for the long or medium term has become more challenging.
Building on a career which has involved research and consultancy for a wide range of organisations including the North East and North West Development agencies, the Department for Education, the Department for Environment, Food and Rural Affairs, the Tyne and Wear City Region and various local government organisations, Mr Hunt explains how the development of bespoke economic modelling tools can help leaders and organisations predict the future economic impact of policy and strategic business decisions.
Modelling the future
My work involves creating economic models to understand the potential cost and impact of different predicted scenarios. I have worked in a consultancy capacity with organisations in the private, public and not-for-profit sectors, crunching numbers and interrogating data to help predict the impact of potential scenarios. Having these insights to hand supports strategic planning and policy development as it helps clients make more informed decisions.
There are off-the-shelf software packages with algorithms that can assist organisations with this kind of modelling. At the University we have explored a more bespoke approach; we have sought to build strong relationships with our ‘clients’ to gain an in depth understanding of their operational context. Whilst we do have some pre-existing models that we can tweak or re-engineer to reflect the client’s needs and context, more often than not we create a new model to reflect the specific set of circumstances.
We have worked with a number of private-sector utilities. When they re-negotiate their pricing with the industry regulator, they demonstrate the value of their contribution to the wider regional and national economy through data. Working with a water company for example, we explore this contribution first by understanding the context and impact of their operations to supply clean water to homes and businesses and remove wastewater. They also undertake activities benefitting the natural environment such as maintaining reservoirs, rivers and other natural habitats. We can create economic models that cover these varied activities, assigning a numerical value to each one. We can also explore how their workforce contributes to the economy; we know how many employees they have, what the wage bill is and can estimate how much of that wage money gets pumped back into the local and regional economy through the purchase of goods and services.
We have recently undertaken work to quantify how job losses brought about by the pandemic would hit different sectors of the economy. Not surprisingly, there were not any off the shelf economic models to use here! We were able to work with the number of predicted redundancies as well as existing social security data to forecast what percentage of the population might be affected or get into debt and struggle to pay their bills. Late and non-payment of thousands of bills can severely impact an organisation’s cash flow; this kind of modelling can help with cash flow management. A lot of economic modelling is currently going on in response to the crisis in the UK energy industry which has seen many existing suppliers cease trading in the latter half of 2021.
Not all doom and gloom
We also model positive scenarios!
When thousands of jobs are created in a specific region we explore how many more people will need to live and work there. What investment in infrastructure and services is required to accommodate them? This modelling helps organisations like local and central government with their planning. We can also model the predicted environmental impact of economic initiatives and grants. If ten thousand new, energy-saving boilers are installed into thousands of houses how will this affect the economy, the level of emissions and how will it help the country on its journey to becoming carbon neutral?
Not at face value
Social enterprises, community interest companies and other community businesses are rarely investigated in economic terms. They should be. Modelling the impact these organisations have on their communities can help inform policy decisions. Their activities can be accorded numerical values. These can be very powerful; when a cost (or a benefit) is quantified it is easier to comprehend and, therefore, easier to communicate. These kinds of calculations can be used for advocacy, policy development and even internal decision making.
Working with the Power to Change we explored the contribution of some community businesses to employment and skills development in their communities. The research highlighted the importance of such businesses investing in the training and development of their paid and unpaid workforce. Both formal role-specific training and informal training such as shadowing, coaching, mentoring and reflective practice benefit the local economy by increasing people’s employability through confidence building and developing interpersonal skills. Despite there being broader acceptance of the way skills and employment activity (of any description) can support the local economy, the contribution of community businesses continues to be underestimated.
Quantitative economic impact analysis measures some of the benefits people get through their engagement with community businesses. Social isolation is reduced. The wellbeing of individuals who were previously unemployed improves. A community business that has a significant number of engaged volunteers and service users will generally tend to generate social welfare that far outweighs the social value afforded by its core staff, simply by weight of numbers. Traditional metrics tend not to value these benefits.
Community businesses ‘do what they say on the tin’; their economic value is often felt deeply within the community they serve. They are more likely to recruit both paid staff and volunteers who are disadvantaged from the labour market in some way: those with a physical or mental disability or long-term health condition, or for whom English is not their first language. This benefits the community by breaking cycles of long-term unemployment, building individuals’ self-esteem and improving mental and physical wellbeing. Recruiting from the local community often ensures a business can better serve the needs and wants of the local population. This in turn was felt to contribute to the economic growth of the local area, reducing unemployment levels and reliance on welfare support, as well as helping to ensure that money is spent in the local economy.
Taking the plunge
We have also modelled the impact of emerging technologies and industries. There is a lot of futures modelling on offshore wind, an industry that could benefit Plymouth hugely. In many cases it is not economically viable as an energy generation option right now but models can help us identify a point at which it will become viable. Assuming investment in offshore wind took off, we look at how this might support regeneration in and around Plymouth: skills, jobs and training opportunities would be created but additional services and infrastructure would also be needed as a result.
Exit from Brexit
Economic modelling can also help assess the impact of significant structural changes like Brexit. People, goods and services have moved freely across the European Union’s internal borders for decades. Since January 2021 the United Kingdom has essentially imposed additional bureaucracy on its largest trading partner. Trade has become more difficult; some small businesses saw their markets dry up overnight. Brexit will have a far-reaching impact on the UK economy. Undertaking modelling of this now helps us build a deeper understanding of this impact and it means we can work on plans and mitigation measures in response.
We are already noticing the effect of both Brexit and the pandemic on supply chains. The pandemic’s impact will lessen over time but the Brexit effect dominates. Brexit makes it harder for us to export our goods and services, and also to import the goods and services where we are not competitive. In future the UK will also have to focus on industries where we have limited expertise, or skills and competence or where that has been lost over time. Some people and businesses will do well but many will not. It will bring about long-term structural change to the economy. The sooner we understand the implications of this and plan our response, the better.