Eight years ago we published some estimates on ‘the cost of a bank holiday’ which have been repeatedly quoted ever since. Even at the time we pointed out that Britain’s number of bank holidays, at eight, was low by international standards and that there was little case for reducing the total number though we could see a case for spacing out the UK holidays more evenly throughout the year.
Obviously, this year is not a normal year. But there are plans for an additional Bank Holiday in October partly to make up for the holidays that have been affected during the lockdown. The case in favour of the holiday is that it should boost the retail, tourism and hospitality industries. The case against is that many companies, having already lost substantial revenues during the lockdown, are badly placed to absorb yet another day when they have to pay people for not working.
Traditionally, retail sales are boosted by 15% per day for a bank holiday, though the mix changes with a bias towards furniture, gardening and DIY. Hospitality and catering are typically boosted by 20% on a bank holiday compared with a weekend. At 2019 spending levels that would imply additional expenditure of £180 million on retail and an additional £40 million on hospitality and catering.
This year it would be quite likely that the boosts to spending in both these categories from an extra bank holiday after a period of enforced abstinence might well be double the usual boost, adding up to as much as £440 million. There could well be a further stimulus from tourism boosting the UK economy by an additional £50 million. So a rough £500 million a day boost from more spending.
On the other hand there is the potential loss of productivity from those people who get the day off. This loss is probably rather less than it might have been a few years ago as working from home and working flexibly have become a reality. Even in 2019, 54% of the labour force had the option to work flexibly, up from 10% at the turn of the century and the number has almost certainly increased since.
The other factor determining the total loss of productivity from an extra bank holiday is the extent to which the economy is working at full capacity. If capacity utilisation is low, production lost on one day can be made up subsequently. There are few areas of the UK economy working at full capacity at the moment, although the proportion might have increased by October. Our very rough and ready calculation is that daily GDP might initially be reduced by £1.8 billion by loss of activity from an additional bank holiday but most of that would have been recovered within a month.
So if the bulk of any loss of productivity can be recovered and a bank holiday will boost retail, hospitality and catering, is there any reason not to announce one?
The only reason we can think why an additional October bank holiday might cause problems is if the additional costs to employers damage financial positions that have in many cases already been devastated by the lockdown. We think these effects can be minimised as long as employees negotiate flexibly over pay and shift premia. It is in few employees’ interest to bankrupt their employer.
So if one additional day off is a good thing, what about making it permanent and moving to a 4 day week as is being suggested for New Zealand? Last May Cebr examined the economics of the Dutch working week of 29 hours after I visited Amsterdam and found the streets virtually empty on a Friday. Our assessment was cautiously positive, though making it work would require decisions to constrain public spending and to ensure that business costs did not rise. If both could be achieved, we argued that there is a case for a 4 day week. But it should be costed carefully. If it is announced as a temporary measure it will be hard to stop it becoming permanent.
Douglas McWilliams: email@example.com +44 7710 083 652