Coronavirus Scotland: Further heavy job cuts forecast as pandemic hammers Scottish tourism

Scotland’s tourism and hospitality industries have been hit hardest amid the coronavirus pandemic, with nearly 70% of firms in these sectors expecting to cut jobs by the year-end before the UK Government furlough scheme extension was announced.

These are among the findings of a survey of more than 500 firms in Scotland, conducted by the University of Strathclyde’s Fraser of Allander Institute and published today in partnership with law firm Addleshaw Goddard.

Declines in activity across the various sectors of the Scottish economy remained sharp in the third quarter, albeit less steep than in the prior three months. And Scottish companies, the vast bulk of which were gloomy about the economic outlook over the next year, forecast sharp overall falls in business volumes and employment over the next six months.

Subtracting the proportion reporting an increase in business volumes for the third quarter from that experiencing a fall, a balance of 67% of accommodation and food services businesses surveyed posted a drop. This was not quite as bad as the net 78% of businesses in this sector experiencing a drop in business volumes in the second quarter but was far worse than the balance of 20% reporting a decline for the opening three months of this year.

Fraser of Allander says in the report: “Tourism-facing industries remain the hardest hit in the Scottish economy and are the most exposed to tightening Covid-19 measures. Businesses in these industries are expected to make job cuts before the new year.

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“With the tightening of restrictions across different regions of the UK, it remains to be seen how businesses will manage under the new tiered system and how employment will fare even with the extension to the Government furlough scheme.”

It adds: “Almost 70% of businesses in [accommodation and food services] expect to cut jobs by the end of the year.”

Overall, the survey found more than 40% of Scottish companies expected a drop in business volumes over the next six months, with 20% forecasting a decrease in employment.

Asked if the survey results were better or worse than he had expected, or the same, Fraser of Allander Institute director Professor Graeme Roy replied: “To be honest, they were probably as expected in terms of showing the ongoing challenges that businesses face.”

Chancellor Rishi Sunak last week unveiled a further major U-turn on job support. The coronavirus job retention or “furlough” scheme, which he had previously pledged repeatedly would end on October 31 in spite of pleas for continued support, has now been extended until March. From November 1, this sees the taxpayer support 80% of the wages and salaries of furloughed workers up to £2,500 a month. With the Government contribution having been tapered between August and October, the state support from the start of November is significantly greater than last month and the required employer contribution is far less.

READ MORE: Ian McConnell: The awful high cost of Tories’ belligerence on furlough aid: Opinion

Mr Roy noted the “lateness of the announcement won’t have helped many employees who will have been made redundant”.

Asked to what degree he believed the furlough scheme extension would alleviate job losses generally and those that tourism and hospitality companies have signalled they expect, he replied: “The extension of the furlough scheme will certainly help, although a key challenge for many businesses is the lateness [with] which the announcements were made. Planning from week to week has been a key challenge for many businesses through this crisis, not just in terms of what might be happening to consumers or suppliers but policy changes and lockdown restrictions too.”

Referring to Monday’s news that the Covid-19 coronavirus vaccine being developed by US group Pfizer and German company BioNTech had so far proved more than 90% effective in phase three trials, Mr Roy said: “On the one hand, there are reasons to be optimistic – [the] announcement on the success of the vaccine trials offers the economy a way out of the crisis. On the other hand, the next few months look very challenging for many businesses. And simply surviving will be key.”

A net 47% of Scottish manufacturing businesses reported a fall in business volumes for the third quarter, an improvement on the balance of 58% experiencing a decline in the preceding three months.

The balance of construction businesses reporting a decline in business volumes in the third quarter was 32%, having been 93% in the preceding three months during which sites were closed amid the lockdown.

A net 37% of Scottish retail and wholesale companies experienced a decline in business volumes in the third quarter. In the previous three months, a balance of 62% of firms in this sector had reported a fall.

In the transport, information and communications sector, a balance of 41% of businesses saw a drop in volumes in the third quarter. A net 56% of firms in finance, business administration and other services reported a fall in volumes over the period.

Economic and policy uncertainties remain the biggest concerns for businesses.

A majority of firms reported “secure” or “very secure” cashflow positions for the next six months, with less than 40% flagging “insecure” or “very insecure” situations. Around 56% of firms were concerned about credit availability.

More than one in four businesses expect to be operating at below 50% capacity over the next six months.

The survey shows firms continue to rate the Scottish Government’s response to the public health crisis ahead of that of the Boris Johnson administration. They put the UK Government ahead of Holyrood in “understanding the challenges that businesses face” and “supporting businesses through the pandemic”. Both the Scottish and UK governments have seen falls in their ratings by businesses on all three aspects.