Failure to tackle digital skills divide will worsen regional inequality

Covid-19 and Brexit show that high speed internet is essential for growth

With Brexit and Covid-19 the UK is facing two large economic disruptions that are clearly affecting some places to a greater extent than others. In the absence of adequate policy interventions, they will worsen the level of spatial inequalities in the UK even further, and to a worrying degree.

First, due to Covid-19, large groups of workers are required to work from home. However, there this transition is easier for high-income workers and those with jobs in service sectors such as finance, insurance, or professional services. It is likely that these types of jobs are located in places that are already better off.

For example, London leads in the share of jobs that can be done from home (almost 60% of all jobs), followed by the South East and South West. Research shows the share is lowest for the North East (below 40%), and also low for Scotland, Wales and Northern Ireland. Overall, separate findings show it is expected that Covid-19 will hit already disadvantaged regions harder (Aitken and Overman, 2020).

There is also another dimension to this question, since even those workers that can work from home face different levels of digital infrastructure that enables them to effectively do so.  Work by NIESR in the run up to the 2019 General Election showed that the regional differences are stark, with the share of premises that have ultra-fast internet reaching 75% in London but only 31% in Wales.

The increasing digitalisation of our economies (accelerated by Covid-19) means that digital skills of the workforce are becoming more important in determining outcomes. However, when looking at the distribution of various ‘online’ activities we can see considerable differences across people living in different places (see Table 1).

As a good guide.  While around 90% of Londoners use the internet to send and receive emails, the share in the West Midlands is only 78%. Similarly, almost 60% of people in London and the South West use the internet to use information for work or study purposes, while it is less than 40% in Yorkshire & The Humber and below 50% in the North East and North West. Similar regional differences can be seen for the use of online banking or the cloud services to store and access files.

Interestingly, for the UK as a whole, rural regions have a higher share of households with access to the internet, and also higher share of people using the internet to send emails, work or study, access files via the cloud, and use online banking.  They are probably dealing with physical distance by using digital tools.

Table 1. Digital skills across regions in the UK.

Source: Ofcom Nations & Regions Technology Tracker – 2019. Percentages show share of people in the UK that are using the internet for a given category of online service.

The second major economic disruption the UK is currently facing is its departure as a member of the European Union.  The direct impact on regions is twofold.

First, due to varying degrees of economic interactions with the EU it is likely that Brexit will hit some places harder than others. Research shows that cities will switch from tradeable to non-tradable activity leading to a sustained loss of  income in the absence of appropriate policy interventions. While that those are more likely to be in the richer South of Great Britain, these places are also more likely to adapt in the long-run due to higher levels of productivity and skills, according to work published by NIESR in 2017.

Second, as direct a consequence of leaving the EU, the UK will lose access to its structural funds such as the European Regional Development Fund (ERDF). Funds from the ERDF are reserved for development projects in the poorest regions of a country (usually below 75% of average GDP). For the period 2014-2020 alone the ERDF allocated €17.2 billion to regional development projects in the UK (Aitken et al. 2020).

The adoption of digital technologies with the potential raise levels of productivity will take centre-stage in the economic recovery from the Brexit and Covid-19 shocks. As digital skills are becoming more important for professional success, policymakers need to make sure that some groups of people (e.g. older-, minority-, or low-income households) are not falling behind further. Moreover, access to the latest digital infrastructure and high-speed internet is just not something that would be ‘nice to have’, but indeed of critical importance to people’s ability to work and the success of local businesses. The risks are huge, as failure to get policy right will cause the wedge in opportunities and productivity between places in the UK to deteriorate further.

This blog is based on the introductory article for the National Institute Economic Review August 2020 issue on “Regional Disparities in the UK”, out on Wednesday 29th July.