The Lockdown- Digital Transformation Book

By Dr. Gordon Fletcher

As England hazily emerged from its 4th of July ‘Super Saturday’ some reflection is in order. The primary focus for the media was rowdy behaviour and a general lack of social distancing. However, another underlying news thread was emerging that has far more long term consequences. Reports came in that the high profile pub chain Wetherspoons had increased its prices. During ‘Super Saturday’ it also emerged that other chains were following suit with their pricing policies post-lockdown. The reasonable rationale that came from these outlets – and other less high profile chains – was that there are many increased costs associated with cleaning and maintaining venues such as pubs and restaurants.

According to most reports none of the happy drinkers were too bothered by a 10p rise in the cost of their pints. Their enthusiasm to enjoy some face-to-face time outside the home is understandable. The human need to be social can only partly satisfied by yet another Friday evening Zoom quiz. We all share a need to regularly get out and physically experience the world. Paying a few more pence for a pint or a meal to ensure public health safety is a small levy that most would be happy to pay. The importance of having a safe experience is the pivotal consideration with equal emphasis on both remaining safe and having a positive experience. It is the fine balancing act between trying to improve the overall mental health and wellbeing across England against the need to guard against a second wave of the COVID-19 virus.

As we reflect on ‘Super Saturday’ some thought can be given to the value of the specific experiences that we enjoyed. Theme parks, museums and model villages have a monopoly on the experiences that they can offer. While any one of these experiences are not necessarily to everyone’s taste there is no real domestic alternatives to riding a rollercoaster, seeing Egyptian artefacts or walking carefully among tiny houses. A lockdown levy being applied to the admission fee for these venues would as a result be presumably accepted by customers. However, a quick scan of Alton Towers and Blackpool Pleasure Beach entry prices suggests that the venues are keen to attract customers with consistent pricing now that the front half of the Summer season has already been lost to history.

The costs associated with cleaning can be significant in large private spaces into which the public is invited. Beyond museums and theme parks another set of spaces of this type have been operating continuously during lockdown. The supermarkets have had the advantage of remaining open and trading during the lockdown and have become increasingly skilled at the necessary task of cleaning and enforcing social distancing. And in the physical supermarkets there has been some evidence of a form of lockdown levy although it remains less obvious than the accusations of online price gouging. In many cases the fluctuations in pricing are reflecting the fragility of supply chains and the mechanics of panic buying rather than a conscious effort by supermarkets to cover the costs that the COVID-19 lockdown has added to their operations.

Supermarkets along with pubs – where there is evidence of a private lockdown levy being applied – restaurants, bingo halls and cinemas all have the challenge that competing experiences exist as a viable option for their paying customers. Doing online bingo was even one of the many suggestions for lockdown entertainment. The experience does fall short of the experience of being in a hall but for many players in higher risk categories learning to play bingo through Zoom provides a safer option. Technology has also invented new ways to create a shared film experience that avoids the traditional high costs of visiting the cinema. Visiting the cinema has arguably always been an expensive entertainment in contrast to deferring the experience until the film is available through a streaming service. With shorter gaps between cinematic and streaming releases, improved home screen and sound technology and infinite snack choices the difference in prices will be increasingly hard to justify to any but the most enthusiastic.

Sit-down restaurant and pub attendance have equally been challenged by the lockdown as there is evidence of increased adoption of food delivery services across older age groups. Couple this shift with record increases in home alcohol sales as well as the direct counter-trend of decreasing consumption across the population. A like-for-like return to pub culture is now less likely with new habits and behaviours already formed over the last three months.

These changes create a changing picture for the UK economy and one that needs to be viewed through a different lens of classification. There are the unique face-to-face experiences (including model villages) that provide something not easily simulated in online environments until at least the next new generation of virtual reality arrives. Then there are the essential life experiences with digital twins – as well as multiple forms of face-to-face competitors. The prime example being supermarkets with competitors online as well as smaller specialist retailers and corner stores. Finally there are those entertainment experiences that compete with alternative business models online or physically. A further distinction overlaid across all of the categories are those experiences that either paused or were allowed to continue through the lockdown period. Indoor cinemas were closed but alternative technology-based solutions continued throughout the lockdown as did drive-ins and these different forms of consuming new films have all attracted new audiences as a result.

So while there is evidence for changes in some retail prices as a result of the lockdown there is clearly no consistency in this practices. This is partly a result of these business facing different post-lockdown challenges. The variety of these challenges is revealed by examining them through this new lens of economic activity based on their uniqueness of experience and its relationship to a competing digital twin.

The bind of the lockdown levy being applied by the Wetherspoons chain and others is that the increase in prices to cover unexpected new costs in a low margin business model may provide sufficient disincentive for some customers to return. These customers have now formed new habits including potentially becoming teetotal. Equally concerning is that this type of levy may not be addressing the crisis further up the supply chain. For example, the hop crop for the 2020 season has not been fully sold and this is directly as a result of brewers making less beer during lockdown. So while taking a few extra pence at the tap at Wetherspoons may cover their cleaning and some income lost during the lockdown it will not go around far enough to support the damage that has been caused across the entire supply chain.

A new lens on the challenges facing business (and the entire economy) raises a question about whether a national transactional lockdown levy should be developed. As government borrowing has exceeded GDP for the first time in two generations and the economy is increasingly state-controlled the proposal for a state-controlled levy does not sound at odds with the current rhetoric (of a ‘New Deal’) or policies. A flat fee paid on each transaction whether this is online or offline would bring many benefits. It would spread the cost of national recovery across all transactions (and not solely the cleaning of tables at Wetherspoons). A levy on transactions would have the potential added benefit of reducing casual spending on snack foods. Given the linkage between obesity and higher risks of complications from coronavirus reducing snacking and fast food consumption would help to build a healthier and more resilient community to any future pandemic.

But the numbers are not for the faint hearted. Government debt in total is £1.95 trillion and a levy of 10p per retail transaction would produce approximately £2bn p.a. based on 2019 calculations. This means it would take 1,000 years to repay all of the government’s debt if only this levy was used directly to service the borrowing (and not considering any interest rates). However, the borrowing for May 2020 was a more reasonable(!) £55bn which would still take at least 100 years to repay at the rate of 10p per transaction. It may take still longer bearing in mind that the presence of the levy itself would encourage a small reduction in transactions overall.

But a levy is not the only mechanism for repaying government debt and the purpose for a levy would be better directed at making improvements to the UK economy overall and not simply attempting to return to the economic patterns of pre-COVID. A stronger economy is a more resilient economy that maximises its use of technology through automated processes with a flourishing diversity of sectors and high levels of productivity. In this ways an additional £2bn p.a. of funding to improve UK business – and learn from the lessons of lockdown – could multiply and bloom the economy in new and innovative ways.

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