THE IMPACT OF COVID-19 ON THE HIGHLANDS AND ISLANDS September 2020 INTRODUCTION This analysis draws on available COVID-19 datasets and analysis along with existing socio-economic datasets to present an overview of the impacts of COVID-19 on the Highlands and Islands and estimates of GDP and output impact. A number of assumptions are made regarding the potential scale of impact at the Highlands and Islands level; this is due to: ■ The experimental nature of many COVID-related datasets published by Scottish Government, UK Government and ONS ■ The lack of availability of data below the Scottish, or sometimes even UK level It should also be noted that the published COVID-19 datasets are subject to frequent revision and change, in part due to their experimental nature but also a result of more information becoming available as time progresses. There is also additional uncertainty around how long social distancing and other measures will be in place, and whether there will be a resurgence of the virus in future. Given these points, the analysis should be read with a degree of caution. 2 UNEMPLOYMENT 8 Highlands and Islands Scotland 6 UK 4 16,175 2 PEOPLE UNEMPLOYED HIGHLANDS AND ISLANDS JULY 2020 rate of 5.7% up from 2.4% in July 2019 0 June 2006 June 2020 Rate still below the Scottish level (6.4%) but numbers unemployed have increased at a faster rate in the Highlands and Islands (118%) than Scotland (95%) compared to 8.0% 7.3% March 2020. The sectoral makeup of the 7.2% region makes it more susceptible to the 7.0% July 2019 July 2020 6.2% impacts of the pandemic 6.0% 5.6% 5.5% 5.1% Between June and July 2020, the overall 5.0% unemployment rate increased from 5.4% to 5.7%. 4.0% 3.7% 3.3% 2.9% 3.1% YOUTH Youth unemployment also continued to rise 3.0% 2.3% 2.5% (9.3% to 9.9%) pointing towards significant 2.1% UNEMPLOYMENT 2.0% 1.6% barriers for young people wishing to enter 1.4% 1.3% ROSE the labour market from 3.8% to 9.9% 1.0% (between July 2019 and July 2020) Unemployment rates are highest in Lochaber, Skye and Wester Ross and Argyll 0.0% and the Islands, with the former Lochaber, Argyll and Caithness Outer Inner Moray Shetland Orkney Skye and the Islands and Hebrides Moray experiencing the greatest increase of all area Wester Sutherland Firth offices over the past year. Ross NOTES: Unemployment based on claimant count. Note that enhancements to Universal Credit as part of the UK government’s response to the coronavirus mean that an increasing number of people became eligible for unemployment- related benefit support, although still employed. Consequently, changes in the Claimant Count may not be due wholly to changes in the number of people who are unemployed. 3 Youth unemployment refers to people unemployed aged 18-24. GOVERNMENT SUPPORT UPTAKE IN THE LABOUR MARKET IF WORKERS ON FURLOUGH Analysis based on furloughed workers 72,300 WERE INCLUDED showed that Argyll and Bute, Highland and EMPLOYMENTS FURLOUGHED in the unemployment rate, the rate would be Orkney (along with Perth and Kinross) had in the period March to end June 2020 the highest proportions of their workforces 33% of eligible employments, slightly higher 31% in at risk jobs. than the Scottish rate (32%) (29% IN SCOTLAND) LOCAL JOBS AT SCOTLAND AUTHORITY RISK (%) RANK This suggests a greater potential for redundancies in the region as the furlough Argyll and Bute 32% 1 support ends. Highland 29% 3 18,300 Orkney Islands 28% 4 % Eligible employments furloughed (March to end June 2020) Workers have claimed 40% Moray 27% 10 35% 34% SELF-EMPLOYMENT INCOME SUPPORT. 35% 32% 33% 31% Shetland Islands 27% 13 30% 27% Take-up of SEISS was lower in the Highlands Outer Hebrides 26% 18 25% 24% 25% and Islands (74%) than Scotland (76%) 20% despite a higher proportion of self-employed 15% workers. 10% The average value of claims was higher 5% across the region (£3,033) than 0% nationally (£2,900). Scotland Highlands Highland Moray Argyll and Orkney Shetland Outer and Bute Hebrides Islands (LA based) Highland had the highest furlough rate in Scotland, the Outer Hebrides had the lowest. NOTES: UK Government Coronavirus Job Retention Scheme and Self-employment Income Support Scheme statistics August 2020 (as at 31 June) - https://www.gov.uk/government/collections/hmrc-coronavirus-covid-19-statistics#coronavirus-job- retention-scheme Eligibility is calculated through analysing PAYE RTI data to estimate the eligible population of both employers and employments. Figures on furloughed employments are cumulative and therefore include all employments furloughed for at least part of the period between March to end June 2020. Analysis on jobs at risk – Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) analysis of the Business Impact of Coronavirus Survey, 27th April 2020 - https://www.thersa.org/discover/publications-and- articles/reports/local-areas-coronavirus- employment Calculation is based on identifying the number of jobs in each industry in that area multiplied by the estimated percentage of those that have been furloughed on the government’s Coronavirus Job Retention Scheme (CJRS). 4 BUSINESS SIZE SMEs are at a greater financial risk than larger private organisations or public bodies from COVID-19. Risk is dependent on factors such as organisation type and sector with localised service-based, start-ups and micro firms most at risk. 86.4% of private sector SME’s account for registered businesses in 66.9% of private sector the region are micro in employment in the size (0-9 employees) Highlands and Islands compared to 87.1% compared to 50.6% nationally nationally The dominance of micro businesses and higher share of employment in SMEs indicates a greater impact of COVID-19 on the region than elsewhere in Scotland This is compounded by the rurality and With less capacity to access financial Therefore, existing challenges of an remoteness of areas in the Highlands and resources and increased risk to SMEs, job ageing population and outmigration are Islands, where bank finance is less accessible opportunities are likely to be significantly exacerbated, leading to an increase in than urban areas. reduced. This increases the likelihood that the dependency ratio, which is already young people will leave the Highlands and higher than the Scottish average. Islands in search of job opportunities in urban areas. NOTES: The Impact of Covid-19 on Scottish Small and Medium-Sized Enterprises, 25 June 2020 - https://fraserofallander.org/fai-publications/the- impact- of-covid-19-on-scottish-small-and-medium-sized-enterprises-smes-prognosis-and-policy-prescription/ Scottish Government, Businesses in Scotland and IDBR data, 2019. Analysis based on private sector (VAT and/or PAYE registered enterprises only. Note: Data on employment in SME’s is based on local authority data 5 SELF-EMPLOYMENT The self-employed have been more negatively impacted by COVID-19 due to factors including: All employed and self-employed in Highlands and Islands as proportion of national workforce, 2019 ■ A higher proportion working in at risk sectors. 11% ■ Home working including ‘bricks and mortar’ activities such as accommodation services All sectors 9% or childminding which are more greatly impacted by restriction of movement and social 27% distancing requirements. Agriculture and fishing 25% 17% ■ It taking longer to frame a workable response to the likely earnings crisis Manufacturing 9% for the self-employed. 13% Construction 11% ■ Many not being eligible for government support due to reasons such as lack 12% of self-assessed tax return information and second job self-employment. Distribution hotels and restaurants 9% 9% Banking finance and insurance,etc 7% , 8% Self-employed females are at higher risk than males Public admin education and health 8% reflecting the segregation of women into particular at-risk 7% Other Services 8% sectors such as childcare 7% Transport and communication 8% Self-employed sample size disclosive Energy and water 9% 0% 5% 10% 15% 20% 25% 30% Self-employed All employees 11% of Scotland’s self-employed people are in the Highlands and Islands, compared to 9% of all of Scotland’s employees There is significant difference in some sectors, including some of those more adversely impacted by COVID-19 i.e. construction (13% versus 11%) and distribution, hotels and restaurants (12% versus 9%). NOTES: Enterprise Research Centre report on COVID-19 and self-employment in the UK - https://www. enterpriseresearch.ac.uk/wp-content/uploads/2020/04/ERC-Insight-Covid- 19-and-self-employment-in- the-UK.pdf Source: Annual Population Survey 2019 6 UK AND SCOTTISH GDP AND OUTPUT IMPACT UK GDP Unprecedented decline in GDP at all geographies DOWN 19.1% between March and May, with modest increase in June. BETWEEN MARCH AND MAY Percentage output change, latest three months compared to previous three months (rolling 3-month average), May 2020, Scotland Accommodation and food service activities Arts, entertainment and recreation SERVICES THE LARGEST Education Construction COMPONENT OF CONTRACTION Transportation and storage Other services ACCOMMODATION AND FOOD SERVICES Wholesale, Retail and Motor Repairs Administrative and support service activities Households as employers of domestic personnel -70% Health and socialwork Mining and quarrying industries ARTS, CULTURE AND RECREATION Manufacturing Water Supply and Waste Management Electricity and Gas supply -37% Scotland’s GDP down 17.3% to May 2020 (rolling Professional, scientific and technical activities Agriculture, forestry and fishing WORST