Over the last three years SPICe has estimated the additional cost to Scotland of parcel delivery surcharges relative to the rest of the UK. Last year we estimated a cost of £38 million, as detailed in our December 2018 blog setting out a summary of the data sources and assumptions used to create the costing.
Growth in online shopping means more Scots disadvantaged by surcharge
SPICe recently updated this calculation for 2019, and our new estimate found that the additional cost to Scotland of parcel delivery surcharges was now £40 million. This is an increase of 11% since our original costing of £36.3 million in 2017.
The main factors driving the increase are the ubiquitous growth in online shopping and the uprating of prices for inflation. The ONS internet access survey 2019 shows that in 2019, among all adults, 82% bought goods or services online in the last 12 months, an increase of five percentage points since 2018. This increase was seen mainly in adults aged 35 years and over, with a six percentage point increase since 2018.
The growth in online retail has been significant over the last decade. In 2008 just 53% of adults bought goods or services online. This substantial shift in behaviour has a range of policy implications, as touched on below, including Scottish consumers who are often disadvantaged by parcel surcharges, late delivery or are refused delivery altogether when they try to buy goods online.
Twenty Scottish Parliament constituencies are impacted by delivery surcharges
This year using QGIS software, matching postcodes and constituencies, SPICe has been able to provide a constituency breakdown of the £40 million additional cost to Scotland of parcel delivery surcharges relative to the rest of the UK.
The chart below shows 20 Scottish Parliament constituencies that are impacted by delivery surcharges. All of the constituencies in the Highlands and Islands parliamentary region are impacted by delivery surcharges, totalling £28 million (70%) of the total cost to Scotland. The constituencies of Inverness and Nairn (£7.2 million, 18% of total cost to Scotland), Skye, Lochaber and Badenoch (£6.3 million, 16% of total cost to Scotland), and Caithness, Sutherland and Ross (£4.8 million, 12% of total cost to Scotland) account for the highest proportion of delivery surcharges. A table of all constituency costs can be downloaded.
Festive online splurge
The UK has one of the largest e-commerce markets in the world. Analysts predict that by 2021, roughly 93% of UK internet users are expected to do online shopping, the highest online shopping penetration rate in Europe. The internet currently accounts for almost a fifth of UK retail sales, up from just a tenth in 2013, as illustrated in the below chart. It is expected to account for 53% of retail sales in 10 years’ time, as younger people who have grown up with the internet become more than half the UK’s adult population.
This constant growth in online shopping, particularly in the lead up to the festive period, is likely to further exacerbate the parcel delivery disadvantage faced by many Scottish consumers. Research from retail job board RetailChoice found that more than half (55%) of UK consumers will buy the majority of their Christmas gifts this year online, with this significantly higher amongst younger age groups, peaking at 71% of those aged 25-34.
In its annual Christmas Survey, Deloitte found that online shopping is expected to rise an additional 4% this year, representing 44% of UK total spend this holiday season. UK consumers will spend £567 average this year (+1.3% compared with 2018). UK consumers will spend an average of £250 online this Christmas, representing ~44% of their total spend (compared to 32.7% on average in Europe).
Using data from the OFCOM annual monitoring update on the postal market provides information on the volume of parcels delivered by financial year quarter. This shows Q3 (Oct-Dec) accounts for 30% of all parcels delivered. With this information we can calculate that the delivery surcharge cost over the Christmas period to the Scottish adult population is £12 million.
Policy implications
Over the last decade the momentous shift to online retail has created a range of issues that Scottish policy makers will need to grapple with – the decline and reinvention of the high street, ensuring digital connectivity particularly in rural areas, ensuring our businesses are ecommerce ready via enterprise agency support, and ensuring Scottish consumers aren’t at an unfair disadvantage with delivery surcharges – to name but a few.
As with any costing of this nature, SPICe emphasise that the estimated figures are based on a variety of information sources from a range of different studies. As such, it should be used to give a broad indication of the possible cost to Scotland, rather than a precise estimation of cost.
Alison O’Connor, Senior Analyst Financial Scrutiny Unit, and Andrew Aiton, Data Visualisation Manager