Destination unknown: tourism, coronavirus (COVID-19), and getting to reboot

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This is a rapidly moving situation and information should be read as correct at the time of publication, 21 April 2020. [The Business Support section was updated on 22 Apil to reflect further Scottish Government annoucements relevant to tourism]

With the launch of a new strategy, 2020 was supposed to be a new dawn for Scotland’s tourism sector. Hopes were high with a shift in strategic focus recognising that tourism is no longer just about tourist numbers (the focus of the previous strategy). Instead the focus was on people, looking at the enrichment and prosperity of both residents and visitors.

The new strategy, Scotland Outlook 2030, was launched in early March 2020. At that stage, it still wasn’t clear the extent to which COVID-19 would shut down all facets of the industry at a scale never witnessed before. The new strategy has an ambition to move Scotland on a path to be the world leader in 21st century tourism. The vision is bold with four priorities – passionate people, thriving places, diverse businesses, and memorable experiences. But where to now for this vision and the sector?

With social distancing and maybe even restrictions on movement likely to last for the “foreseeable future” until a vaccine can be found, the peak summer season has effectively been cancelled.  And we already know that a range of big-ticket events, such as the Edinburgh Festivals and the Scottish Open golf, have been cancelled or postponed. This means for many in the industry – such as annual events, business events and adventure tourism – given lead in cycles, it could be two years away before they have their next full season. This is devastating for many of Scotland’s towns and villages that rely on revenues from the peak tourism season.

The remainder of this blog explores the likely impact on the sector, government support to the sector, and what can be done to reboot it. For ease of navigation, the information is broken down into the following sections:

Economic footprint – reaching every nook and cranny of the country

Tourism’s broad geographic spread makes it a vital source of jobs and income, particularly in rural Scotland, reaching into every nook and cranny of the country.

Scotland attracts around 16 million overnight visitors annually, generating £5 billion in visitor expenditure. Further to this 153 million day trips are taken with spend of £5.5 billion. Tourism cuts across every sector and touches every part of Scotland’s economy. Think of the locally produced food consumed by visitors, the transport they use, the additional retail consumption they drive, and all the services that support the industry – cleaners, accountants, IT workers, legal, domestic engineers – the list goes on.

The sector is a major economic enabler contributing to the business base and employment levels, across a wide range of geographies and demographics. Using the Scottish Government’s definition of tourism, there are 14,970 registered tourism related businesses (8.4% of all Scottish businesses) supporting around 218,000 jobs (8.3% of all Scottish employment) in Scotland. The most recent data (2017) shows tourism has contributed £7.4 billion in turnover and £4.1 billion in GVA to Scotland’s economy. The sector contributes around 5% of Scotland’s total GDP. Each £100 spent by tourists in the economy supports around £65 of GDP in the wider economy. As is often said ‘tourism is everyone’s business’ and the importance of its economic footprint in Scotland cannot be denied.

Scale of COVID-19 impact

The international body for tourism, the World Tourism Organisation (UNWTO) has estimated that at a minimum about a third of the world value of tourism could be lost. UNWTO noted that the unparalleled and fast-evolving nature of crisis, makes it extremely challenging to estimate the impact of COVID-19 on international tourism.

The World Travel and Tourism Council (WTTC) estimated that 75 million tourism and travel jobs are at risk globally due to the COVID-19 pandemic, with at least 6.4 million losses across the EU, and one million of these in the UK.

The OECD has estimated declines of 45% to 70% in the international tourism economy in 2020, depending on the crisis’ duration and the speed with which tourism rebounds.

The Institute of Fiscal Studies (IFS) looked at how the impact varied across industries using data on share prices of firms listed on the London Stock Exchange. They noted that tourism and leisure (excluding air travel) stands out as being one of the hardest hit industries.

A blog by the Fraser of Allander Institute, trying to quantify the economic impact of COVID-19, highlighted that tourism/leisure type businesses are not just seeing a reduction in demand, but zero demand. They estimated that if the restrictions were to continue over a 3-month period, with the majority of the sector mothballed, that there could be a “very significant contraction” in “accommodation and food services”. Overall, they estimated around a 20-25% contraction in total Scottish economy GDP.

VisitScotland has been proactively tracking the effects of Coronavirus via industry surveys. Key findings include (correct as of 30 March):

  • 99% of businesses responding have experienced cancellations/decline in bookings/fewer visitors
  • 58% of respondents (with employees) stated they have had to reduce staff numbers to date (30 March) with a likelihood of further losses in the future
  • the majority of respondents claim to have lost up to £50,000, with some claiming losses of substantially more than this. In total, the survey results suggest £164 million in revenue has been lost to date by industry
  • average length for survival of business without support is 3 months.

How exposed is Scotland and where will be impacted?

How does the structure of Scotland’s tourism business base fair relative to the rest of the UK?

Using the international definition of tourism, as used by the Office for National Statistics’ Tourism Intelligence Unit, Scotland has 25,045 individual tourism workplace sites (local units).

  • This is 8.2% of the UK tourism workplaces. Scotland has less micro tourism workplaces but a higher share of small and medium workplaces relative to the other UK nations.
  • Scotland has 46 tourism workplaces per 10,000 population, which is in line with the UK average.
  • Scottish tourism workplaces are 11.2% of all workplaces in the Scottish economy. This represents a higher total share than the other nations of the UK, for example the comparable English rate is 9.5%.

SPICe_Blog_2020_Tourism and the economy-01 (1)

There are parts of Scotland that are much more dependent on tourism employment than others. Using the Scottish Government’s definition of tourism, 13 local authority areas (out of 32) have an equal or greater concentration of tourism jobs than the Scottish national average. Argyll and Bute and Highland in particular have a high dependence on the sector. Other areas of high dependence include South Ayrshire, Stirling, Perth and Kinross, and West Dunbartonshire, as illustrated in the chart below. Also more generally, the chart shows the base level of tourism employment is relatively high across Scotland, even in some areas where you might not expect to have a tourism economy.

SPICe_Blog_2020_Tourism and the economy-02

A recent blog by the Fraser of Allander Institute (FAI) highlighted that businesses in rural areas tend to be smaller companies (small guest houses, cafes, tour operators etc), and therefore may be less resilient to a disruption in their activity. The more rural an area, the more dominant smaller operators are. They noted the disproportionate impact upon Scotland’s rural communities – including their ability to bounce-back in the future – suggesting that further targeted geographical measures may be needed in the future. Furthermore, they highlighted that the sharp loss of jobs in these communities may force people to move away to seek new opportunities elsewhere, making it harder for them to get back on their feet.

Support available to tourism businesses

In response to COVID-19, a range of business support interventions have been announced by both the Scottish and UK governments.

Here we briefly summarise some of the key support measures that are relevant to the tourism industry. However, it is important to note that full details of all COVID-19 business support measures are available from findbusinesssupport.gov.scot – this website is part of a joint response by Scotland’s Enterprise and Skills system (Agencies, Local Authorities, Scottish Government and business/industry organisations). The Scottish Government has also opened a support helpline. This helpline is to handle urgent issues and more detailed questions that can’t be answered on the above FBS site.

The Scottish Government has introduced Non-Domestic Rates Relief and a package of grants. These reliefs and grants are based on the relevant sector or industry and/or on the rateable value of the property. In terms of relevance to the tourism sector:

  • Retail, hospitality and leisure businesses will get 100% rates relief. To get this relief, a property has to be occupied. Properties that have closed temporarily due to the government’s coronavirus advice will be treated as occupied.
  • Scottish airports are included in the 100% rates relief as are organisations providing handling services (e.g. baggage handlers) for flights at Scottish airports. The operator Loganair, which provides flights to the Highlands and Islands, will also receive the 100% relief.
  • Retail, hospitality and leisure businesses with a rateable value between £18,001 and up to and including £51,000 will be able to apply for a one-off grant of £25,000. A one-off grant of £10,000 will also be available to small businesses who get Small Business Bonus Scheme relief or Rural Relief. Businesses will also get this grant if they applied for Nursery Relief, Business Growth Accelerator Relief, Disabled Reliefor Fresh Start but are eligible for the Small Business Bonus Scheme.
  • Self-catering accommodation and caravans are eligible for a grant if they: are a primary source of income for the ratepayer (one third or more) and were let out for 140 days or more in financial year 2019-20. Local Authorities may specify any additional evidence they require (e.g. records of bookings, a copy of public liability insurance cover or a website) in order to confirm eligibility.

Further details and analysis on the Non-Domestic Rates related support can be found in our recent SPICe blog exploring this topic. The Non-Domestic Rates related measures have the most specific references to sectors that make up part of the tourism industry.

The Scottish Government announced (15 April) a £100 million fund that is being made available to protect self-employed people and viable micro and SME businesses in distress due to COVID-19. This fund will be channelled through local authorities and enterprise agencies to target newly self-employed people and businesses who are ineligible for other Scottish Government or UK Government schemes. [UPDATED 22 APRIL] On the 21 April, more detail was provided on the structure of this £100 million of funding. It will be broken into three separate funds.

  • £34 million Newly Self-Employed Hardship Fund, managed by Local Authorities, will be allocated to the newly self-employed facing hardship through £2,000 grants. Those facing hardship and excluded from UK Government schemes can apply.
  • £20 million Creative, Tourism & Hospitality Enterprises Hardship Fund, managed by the Enterprise Agencies in partnership with Creative Scotland and VisitScotland for creative, tourism and hospitality companies not in receipt of business rates relief. Companies of up to 50 employees will have rapid access to £3,000 hardship grants. Larger grants up to £25,000 are available to those who can demonstrate that level of support is required.
  • £45 million Pivotal Enterprise Resilience Fund, managed by the Enterprise Agencies for vulnerable SME firms who are vital to the local or national economic foundations of Scotland.

This funding will be open for applications by the end of April, and recipients will receive funds in early May.

UK Government schemes and support measures that can be accessed by the sector include:

The Scottish Government has announced specific support schemes for coastal businesses, third sector organisations, and creative industries, which may be relevant for some tourism type enterprises.

Museums and Galleries Scotland has opened two new funds to support museums and galleries.

The national tourism agency, VisitScotland, has an extensive web portal providing industry data and feedback, advice and support. And both the Scottish Tourism Alliance and the Association of Scottish Self Caterers have regular updates and a range of resources on their websites.

Furthermore, the Scottish Tourism Emergency Response Group (STERG) has been re-established to help support industry. The STERG is chaired by VisitScotland and includes representatives of the industry, the Scottish Government Tourism Team, Scottish Tourism Alliance (STA), Scottish Enterprise (SE), Highlands and Islands Enterprise (HIE), South of Scotland Enterprise (SoSE), transport sector and tourism organisations.

Business support gaps and issues

While the industry has welcomed the support offered to date, the existing packages don’t reach everyone in tourism that needs support, so gaps and areas of clarification remain. These concerns also ring true for many other sectors across the economy. Amongst the gaps and concerns in tourism are:

  • specific types of businesses who have fallen through the cracks and are not able to access support, for example:
    • some bed and breakfasts who pay council tax instead of business rates which much of the support is linked to
    • those without an office or premises on which business rates would be paid, such as those who run outdoor activities e.g. marine day trips, coach operators, annual events like festivals, etc.
  • worry about the time it will take before people will receive payments
  • furnished holiday lets (FHLs) which have a complicated tax status and where the impact of the different measures varies significantly from one business to another.

Here we discuss in more detail some of the support issues highlighted by the tourism sector.

Grants, cut-off threshold, and reluctance to look to loans

The Scottish Government’s grant schemes don’t extend to those with a rateable value of more than £51,000, so many tourism businesses have been excluded. For example a small to medium size hotel in Fort William has a rateable value of £65,000. There’s an appeal from industry to be more flexible on this, rather than depend on bank loans. The Coronavirus Business Interruption Loan Scheme (CBILS) is not attractive to many businesses, debt is still debt whether coronavirus connected or not. Many businesses are of the view that it is always better to cut costs than debt finance them. In addition, if a business doesn’t bank with one of the main UK banks then accessing the CBILS may be difficult to achieve.

On the issue of the rateable vale threshold, Tourism Cabinet Secretary Fergus Ewing MSP has indicated (8 April 2020) that he feels there is a case for a sliding scale – this would perhaps enable the Scottish Government to deal with the businesses who are falling between the gaps here in terms of rateable value and the number of properties.

Other issues around grants include inconsistencies in the interpretation of the grant criteria  between local authorities and in the flow of grants to businesses.  There is need for greater clarity around eligibility and a direct communication from COSLA/Scottish Government around the release of the grants. There is also a need to clarify the grant appeals process.

At present there are no data available on grant distribution across Scotland. The publication of such data would be a welcome addition to the understanding of COVID-19 business support in Scotland.

Furloughing in the tourism sector

With many workers in the tourism industry working on a seasonal basis, concerns have been raised over the support available for these workers. Employees furloughed through the UK Government’s Coronavirus Job Retention Scheme must have been on an employer’s PAYE payroll “on or before 19 March 2020”.  The cut-off date was previously 28 February, but was extended from following calls by many industries. However, despite this change, some seasonal workers who had their contracts delayed or cancelled because of the pandemic (and so would not have been on the payroll on 19 March) will still not be able to be furloughed.

Many in the sector would like to see greater flexibility in the furlough scheme, such as some ability for furloughed workers to help their organisation prepare for re-opening. To be eligible for the grant, when on furlough, an employee cannot undertake work for, or on behalf, of the organisation or any linked or associated organisation. This includes providing services or generating revenue. Employers are free to consider allocating any critical business tasks to staff that are not furloughed.

A furloughed employee can take part in volunteer work, if it does not provide services to or generate revenue for, or on behalf of their work organisation or a linked or associated organisation.

Many in the tourism sector would like to see the Job Retention Scheme tapered out, particularly for specific sectors, as not all businesses will be able to go back to full trading capability immediately nor will there be likely demand. Conversations about reopening the economy, would suggest that tourism is likely to be one of the last sectors to return to normality.

Other support issues

  • The Scottish Government grants apply to caravans and self-catering accommodation that are the primary income for the ratepayer and are let out for 140 days or more in 2019-20. There is a call for greater flexibility on the 140 day threshold for self-catering businesses, particularly as this may be impossible to meet in some rural / island locations that rely on a short season.
  • National Outdoor Events Association (NOEA), an events industry association, highlight that outdoor events and suppliers have been acknowledged by the UK Government as a sector group but this has not happened in Scotland.
  • Confusion around lockdown dates – a plea for greater clarity as potential customers and visitors are asking about bookings in the future. Is there a date that people can work to?
  • Sector organisations state there is a need for longer term support to be outlined for the industry.

The Scottish Tourism Alliance held a meeting with the Cabinet Secretary for Rural Economy and Tourism in early April. Here the Scottish Government reiterated they are fully engaged in supporting the industry. At this meeting, it was noted that:

“the change in tone in communications from tourism businesses.  The mood has changed and conversations with many members across different sectors indicate despondency, anger and frustration as they realise that the support packages are not going to save their businesses”.

Rebooting the industry

Rebooting the industry once restrictions begin to be lifted will be extremely challenging. Social distancing will continue to be a feature of life until a vaccine has been developed (if at all), we simply don’t know when air travel will resume, and people around the world will naturally be slow to travel abroad again for fear of putting themselves in the way of danger.

Industry believe that they’re looking at an 18-month recovery gap for many sectors within the industry such as events, marine, adventure tourism and visitor attractions. Scottish Tourism Alliance Chief Executive, Marc Crothall, believes it could be around three years before the tourism industry returns to 2019 trading conditions.

As the Fraser of Allander point out, whilst it might be relatively straightforward to force businesses to close and to lock-down workplaces, getting them back up and running is much more difficult. There will be a large dislocation of supply chains across the economy, from transport logistics through to day-to-day services.

The full scale of the fallout from COVID-19 for the tourism sector still lies ahead – it’s something of a destination unknown. However, we know there will be some harsh realities, as it’s likely some businesses will not reopen. The nature of support and leadership from the Government and relevant public bodies will be a key determinant in the recovery of the sector, along with a resilient and proactive attitude from businesses.

It’s likely a series of initiatives will be needed to help kick-start the industry again. In Ireland, Fáilte Ireland is scoping out the possibility of another version of the Gathering, similar to Scotland’s Homecoming. Both initiatives are to encourage the diaspora to return home to visit family or attend an event. Another option could be a reduced tourism and hospitality VAT rate, as used by some countries to kick-start their tourism sectors. The Scottish Government don’t have devolved powers over VAT, thus this would need to be a UK Government initiative.

No matter what shape Scotland’s tourism recovery plan takes, the initial emphasis will be on domestic recovery first, as international markets returning will likely to be at the end of the recovery chain.

The Scottish Tourism Emergency Response Group (STERG) is preparing a national action plan. At the time of writing this plan has yet to be publicly shared, but it would seem it will have four phases – RESPOND, RESET, RESTART, RECOVER – in line with the Scottish Government’s economic recovery plans.

VisitScotland has highlighted its role developing these plans to help with the recovery of Scottish tourism. They hope that the sector will be able to go from lockdown to the return of international travel over an estimated six to nine month period. Working with partners, they will focus on the domestic market first – getting people to rediscover their own country through day trips and holidays.

VisitScotland is continuing to gather market intelligence and learn more about what audiences will travel and what they are looking for in a post-COVID market.  They continue to firm up their thinking and intend to share a plan with industry soon to get input.

Malcolm Roughead, CEO of VisitScotland, states that central to the recovery will be communities – this is very much a nod to the vision that was expressed as part of the new sector strategy that we touched on in the opening of this blog.

Central to that will be communities – they are the people that are both affected and benefit from tourism. It’s this balance we have to get right to ensure the experience is positive for everyone, but still bring jobs, enhance well-being and develop economic growth.

Alison O’Connor, Senior Analyst, Financial Scrutiny Unit