COVID-19 impact on Scotland’s businesses, workers and the economy – views from the frontline

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The remainder of this blog provides an overview of the following.

• Week commencing 30 March – views from Women’s Enterprise Scotland and National Farmers Union Scotland
• Week commencing 6 April – views from agri-tourism, Scottish Council for Development and Industry, screen sector, coach operator, rural home-worker, copyright production, Allied Surveyors Scotland, stone industry, Scotland’s Federation of Small Businesses, and a dental practice
• Week commencing 13 April – views from wholesale, food and drink sector, hospitality, tourism, renewables sector, and Competition and Markets Authority
• Week commencing 20 April – views from renewable energy, Scottish Retail Consortium, and academia
• Week commencing 27 April – views from Social Enterprise Scotland, infrastructure project management firm, legal firm, and the Scotch Whisky Association.

Week commencing 30 March – views from Women’s Enterprise Scotland and National Farmers Union Scotland

[Please take note of submission dates, as highlighted in the section headers throughout this blog. This blog reflects the views of businesses at the time of their submissions. However, given the rapidly moving situation, there have already been policy responses by both the Scottish and UK Governments to some of the issues highlighted.]

Women’s Enterprise Scotland (WES) highlighted that the economic and health impacts of COVID-19 will be gendered.

• Women are more likely to be working in sectors hit by social distancing such as services, including hospitality and non-food retail.
• Social isolation policies will increase women and girls’ vulnerability to domestic abuse.
• Women are more likely to take on a ‘second shift’ of care at home, particularly if someone in their family is sick or has to be isolated (either young or elderly) and are more likely to be affected by school and nursery closures.

WES noted some women’s lifetime earnings may not recover from COVID-19. Previous research by WES showed that 53% of women-owned businesses were paying themselves a salary of £15,000 or less and 60% were not paying into a pension. Amongst the actions called for by WES was the need to promote the gathering of gender disaggregated data and to recognise gender differences in the effects of the COVID-19 virus both physically (e.g. pregnancy) and economically.

The National Farmers Unions (NFU) Scotland had concerns about the guidance on the continued operation of businesses in agriculture and the food supply chain. They sought further clarification from the Scottish Government on the guidance on which businesses could continue to operate in compliance with social distancing.

NFU noted that the minimum rate of sick pay an agricultural worker can receive in Scotland is set by the Agricultural Wages (Scotland) Order. For eligible workers working a 39-hour week, the rate of Agricultural Sick Pay is £320.19, with an increase in the hourly rate for workers of 50p coming into force from 1 April 2020. This minimum rate significantly exceeds the rate of Statutory Sick Pay (SSP), which is presently £94.25 a week. NFU Scotland believed that this discrepancy was putting agricultural businesses at a disadvantage to other sectors and were calling for a support package to refund the difference between SSP and Agricultural Sick Pay for workers absent due to COVID-19.

NFU Scotland wanted to see a rescue package for horticultural growers that have incurred significant losses in ornamentals (plants) due to halting production. Other issues highlighted by NFU Scotland include: labour shortages, agricultural commodity price impact, responsible countryside access, and the interlinked supply chain for brewing/distilling and animal feed.

Week commencing 6 April – views from agri-tourism, Scottish Council for Development and Industry, screen sector, coach operator, rural home-worker, copyright production, Allied Surveyors Scotland, stone industry, Scotland’s Federation of Small Businesses, and a dental practice

[Please take note of submission dates, as highlighted in the section headers throughout this blog. This blog reflects the views of businesses at the time of their submissions. However, given the rapidly moving situation, there have already been policy responses by both the Scottish and UK Governments to some of the issues highlighted.]

An agri-tourism business owner from near Ullapool wrote in her submission that in a two-week period she had to make £20,000 of refunds and lost about the same value in cancelled bookings. The business had four workers employed, of which two have been furloughed and two made redundant. This agri-tourism business has had to seek a small business loan from their local bank to stay afloat.

Scottish Council for Development and Industry (SCDI) in their submission emphasise that the impact on businesses and organisations in all sectors and all geographies of the Scottish economy has been unprecedented. SCDI members have three key priorities: business survival, workforce health and wellbeing, and the future. SCDI highlighted varying challenges by sector.

• The Services sector, particularly those in professional services, were continuing to operate with the majority of staff working from home. But while this has meant business as usual for some, it has also meant substantially reduced revenue for others and mass cancellations of contracts or total collapse of new orders for the worst affected, depending on the sub-sector or market.
• Tourism and Hospitality, and many in Retail, have stopped operations entirely in line with official advice. The ‘lockdown’ has resulted in a dramatic fall in consumer spending and confidence. Almost all such businesses are utilising the UK Government’s Coronavirus Job Retention Scheme to furlough workers.
• The Food and Drink sector has experienced a substantial fall in export demand and faces longer-term questions about the potential damage to global supply chains, trade relationships and infrastructure.
• Many in Manufacturing have stopped operations entirely due to official advice on key workers and social distancing. However, they are not eligible for rates relief packages.

At the time of submission, SCDI expressed concerns around the processes for accessing business support. SCDI members believe that processes are too slow, too complex and too bureaucratic given the urgency of the situation in terms of business survival. Many are unable to determine whether they are eligible. Many are frustrated by the complexity or lack of flexibility in eligibility criteria.

SCDI recognised that most support announced to date has been targeted at SMEs for the right reasons. Nonetheless, they are concerned that some larger employers will also need greater support given scale of financial disruption. Some other specific sectors (e.g. higher and further education) are also faced with a lack of specific support.

A submission from an individual operating in the screen sector (film and tv location) highlighted the “plight of one-person Ltd companies during this crisis” and the lack of support available.

“Although I regard myself as Self-employed / Freelance I run through a Ltd Company which I normally pay myself about £35,000 per year of which I take about £8,000 in PAYE and the rest in dividends that are taxed again at 7.5% In discussion with my accountant she has advised me that currently I am entitled to no benefit as I don’t have any property and am not eligible for any Self-employed scheme.”

It was felt that the screen sector was the first to shut down and would likely be the last to start up, as there would be no meaningful production until next year.

A family run coach operator which due to school closures “has 20 of their vehicles parked up and staff not able to work” got in touch with the Committee. This coach operator was concerned about the lack of consistency from local authorities, in continuing to ensure payments for school contracts were paid at 100% of the daily rate. It was felt this variation in approach from local authorities would impact long-term business sustainability.

An insurance industry home-worker in Nairn made contact with the Committee to express a need for different COVID-19 policy responses between urban and rural areas. It was thought that the guidance on social distancing and business operation could apply differently in urban and rural areas.

“I see the economy in this area being affected badly because the rules on self-isolation refer to both urban and rural communities. I see massive differences in working practices in different areas and if people can work on their own I think they should be allowed to do so”.

A South Lanarkshire copywriting and content production firm got in touch with the Committee to highlight policy views around easing lockdown linked to rurality. This business believed that:

“…it is imperative that the lockdown is lifted at the earliest possible opportunity, particularly in Scotland where our population is more rurally dispersed than in Coronavirus hotspots like London”.

Allied Surveyors Scotland submitted evidence welcoming the Scottish Government support offered to date but at the time of submission were of the view that it did not go far enough. In particular, the non-domestic rates related support was highlighted, where residential estate and letting agents were included but other parts of the residential property market were not protected (such as Residential Chartered Surveyors, Legal Conveyancers and Mortgage Brokers).

The Scottish Stone Group’s submission provided insight into the challenges faced by Scotland’s stone industry as a result of the COVID-19 pandemic.

The Group expressed concerns around the mixed messaging from both the UK and Scottish Governments regarding the status and operation of the construction sector and, as companies who supply UK-wide and are Scottish based, they feel caught in the middle.

The nature of the stone industry means that many businesses don’t qualify for Small Business Relief or Rural Relief, thus many are excluded from the grant support linked to non-domestic rates. It was thought that more specific support measures were needed for Scotland’s rural economies, otherwise rural “businesses will disproportionately be impacted by the pandemic”.

It was felt that banks needed to improve their support to SMEs.

“…the banks are not coming to the table and the risk is, as always, all placed on the business. The banks are applying an absolute risk averse criteria to a situation of extreme and special circumstance”.

Scotland’s Federation of Small Businesses (FSB) stated that things had been moving so quickly that it was resulting in fast-moving changes in their priorities for government. Their first priority was getting support announced, then up and running and at the time of writing to the Committee they’d moved to start thinking about some of the gaps in support. Their submission was a copy of a letter that had been sent to the Cabinet Secretary for Economy, Fair Work and Culture. Key points from this letter included:

• gaps in financial support for a variety of different businesses, e.g.: small businesses which are not linked to the rates system, such as home-based or vehicle-based businesses or recently self-employed
• call to establish a new business hardship fund which would be open to any business or self-employed person in Scotland, particularly those ineligible for existing support
• a repurpose of existing public funding (e.g. Scottish National Investment Bank, the Building Scotland Fund, or the Scottish Growth Scheme) that has been allocated for business growth loans to provide rapid-access, bridging finance.

A general dental practice in Edinburgh noted that they are a small privately-owned business, not a limited company nor part of a larger corporate body. In written evidence, the dental practice highlighted they have been greatly affected by COVID-19 to the extent that its existence is in jeopardy. Funding options are limited, as the partners previously earned in excess of £50,000 and subsequently don’t qualify for Self Employment Income Support Scheme. Also, NHS dental income only makes up around 4% of total practice income, meaning they do not benefit from the NHS Dental COVID Revised Financial Support Measures, announced on 30th March 2020.

The limited financial support available to this practice is leaving it with a monthly deficit that will become a compounding issue the longer dental practices remain shut. The dental practice is calling for

“…further consideration to the funding packages available to dentistry as a profession alongside funding for businesses and self employed individuals and assist the efforts of ourselves and many colleagues in lobbying and working to protect our small but important businesses.”

Week commencing 13 April – views from wholesale, food and drink sector, hospitality, tourism, renewables sector, and Competition and Markets Authority

[Please take note of submission dates, as highlighted in the section headers throughout this blog. This blog reflects the views of businesses at the time of their submissions. However, given the rapidly moving situation, there have already been policy responses by both the Scottish and UK Governments to some of the issues highlighted.]

A wholesale supplier of books to the retail visitor market in Scotland and the wider UK, based in Edinburgh submitted evidence to the Committee. While this wholesaler was grateful for the support made available to date, such as the Job Retention Scheme for furlough, it was thought that there was an inconsistency of approach in considering the effects on the whole supply chain of the hotel, leisure and retail sector, with regard to rates relief and grant and loan availability.

This wholesaler wanted to make a request to the Committee that the whole supply chain to the Scottish visitor market should be supported through this period by rates relief and grants, not just retail traders. They would like to see wholesale included in the rates moratorium for 2020/21 and to receive the £25,000 grant to help protect jobs and preserve their position to support and supply retail customers once restrictions are lifted.

This book wholesaler also highlighted a lack of flexibility around the furlough scheme – where criteria make it clear that staff must not be working whilst on furlough. It was thought a more flexible furlough scheme where some employees were able to work reduced hours could help employers manage uncertainty and prepare for reopening.

East Lothian Food and Drink Ltd got in touch with the Committee to share the concerns of their members, providing insight into the position of food and drink producers in East Lothian. Key points raised in the submission included:

• concern that loans, deferrals (such as VAT) and payment holidays were not adequately supporting businesses as they created short- and medium-term debt that businesses were unwilling to take on with such future uncertainty
• businesses outwith the scope of the Non-Domestic Rates (NDRs) grants and relief support, as a result of having larger production facilities or those that operate from home those don’t pay NDRs
• self-employed business owners were having to wait until late May and June to access the Self Employment Income Support Scheme
• increased levels of bad debt from the closure of hospitality and leisure business that these producers supply to
• mixed demand where some businesses have struggled to keep up with the increased demand, whereas others have seen sales disappear overnight and are having to find new routes to market. This has included the introduction of online sales, at a cost, to sell to consumers directly.

A small hotel from Pitlochry sent evidence detailing a number of concerns caused by COVID-19 and the resulting business support. Firstly, the hotel detailed issues caused by the slow speed at which financial support was processed by local authorities and questioned the level of local authority resources. Secondly, accessing bank finance was proving problematic due to use of existing lending criteria, minimum lending amounts, and prioritising existing customers. Thirdly, this hotel wanted the Scottish Government to act as a catalyst to ensure a common approach for hygiene standards and practice for the hospitality industry to give people confidence to travel again in Scotland. Also, the availability of PPE for hospitality workers will need to be considered.

Other issues raised by this Pitlochry based hotel included: cut off threshold rates for Non-Domestic Rate grants, lack of flexibility around the furlough scheme, mental health concerns linked to live-in staff, covering live-in staff costs, and fears there might be a risk of a legionella outbreak was getting overlooked.

The Committee heard from an Aviemore based tour operator specialising in active and nature-based travel throughout Scotland, with a focus on the Highlands and Islands. This company is one of the main employers in Aviemore, employing 62 FTE staff. Prior to the COVID-19 crisis, the business was predicting sales of £7.5 million sales in 2020. However, already for 2020 they have received nearly £3 million in cancellations and were now modelling a scenario where they will operate no tours in 2020.

In written evidence, this company welcomed the interventions of the UK and Scottish Governments in providing short-term financial support to businesses and individuals. However, this tour operator felt that further support was necessary:

“Without such support, it is our fear that the Scottish tourism industry will be decimated with multiple business failures and tens of thousands of jobs lost. Based upon our experience of operating throughout the country, the impacts in rural areas are likely to be the most acute. In such places, tourism businesses provide not only a service to visitors but also form an integral part of the local community. Without an appropriate level of support, the economic and social fabric of these communities may take many years to recover.”

The types of further support called for by the tour operator included a varied and continued package of financial support (payroll, tax relief, rates relief and grant finance for innovation and marketing), industry-specific approach to the furlough scheme providing the most support to those sectors which will take the longest to recover, and a more flexible furlough scheme to allow employees to work where there is a clear business requirement.

Scottish Renewables in their submission to the Committee highlighted the immediate impact of the COVID-19 on the renewable energy industry and future support for the renewable energy industry which may be required due to COVID-19. Points raised included:

• welcomed the designation of energy as part of Scotland’s critical national infrastructure in the update to the Scottish Government’s Coronavirus business and social distancing guidance on 4 April 2020
• government assistance was required to help the public and emergency services understand that the operation and maintenance of renewable technology was essential to national infrastructure, especially in remote and rural communities where most of Scotland’s renewable energy has been deployed
• future development of renewable energy projects can only take place once the necessary environmental monitoring and impact assessment work has been undertaken. At present such monitoring activities have been suspended due to social distancing requirements. This will limit Scotland’s ability to move forward with renewables deployment and reduce capacity to reach the levels of deployment needed to meet net-zero. Scottish Renewables were calling for support from Government to advance the importance of this type of activity.

The Competition and Markets Authority (CMA) submitted evidence to the Committee. The CMA has created a taskforce to tackle, within its remit, negative economic and consumer impacts of the COVID-19 pandemic. The taskforce was looking at how to use their powers in consumer protection and competition law to stop firms exploiting the COVID-19 situation. As well as monitoring and responding to excessive pricing and other harmful practices, the taskforce was working to ensure that competition law would not stand in the way of businesses trying to do the right thing to protect consumers.

The CMA has reached out to MSPs, MPs, business organisations, trade associations and consumer groups in Scotland, asking them to encourage others to contact the CMA to report any unfair business practices.

A publican in the east end of Glasgow wrote to the Committee calling for further “fine-tuning” of the business support grants linked to Non-Domestic Rates. Key concerns around the current grant support included:

• the exclusion of businesses with a rateable value of over £51,000 to grant support – “This makes no sense and seems to penalise them for building up a healthy turnover”
• reduced grant value (75%) for additional properties – “seems to penalise success”
• time taken for grant applications to be processed and payed out.

Week commencing 20 April – views from renewable energy, Scottish Retail Consortium, and academia

[Please take note of submission dates, as highlighted in the section headers throughout this blog. This blog reflects the views of businesses at the time of their submissions. However, given the rapidly moving situation, there have already been policy responses by both the Scottish and UK Governments to some of the issues highlighted.]

A Perth and Inverness based renewables energy company which plans, builds and operates plants to generate power and extract energy from renewable sources sent a written submission. They provided a summary of some of the issues facing their sector, some of which are summarised here.

• Problems sourcing some construction and maintenance materials from tier 2 suppliers. Whilst several suppliers have closed, others are “only carrying out works for essential projects and would need an official letter before restarting supply‟.
• Guidance from both the Scottish and the UK Government needs to be consistent around the construction of renewable generation plant and infrastructure.
• The industry needs access to critical personnel and spares within the supply chain to keep renewable generators operational. While they do carry spares, once utilised these need to be replaced to maintain the ability to swiftly repair issues. Qualified personnel with relevant skills are also critical to the process.
• Many hydro schemes under construction in Scotland are at risk of serious financial problems from missing feed-in-tariff (FiT) deadlines due to the virus shutdown.

The challenges faced by Scotland’s retail industry were documented in a submission from the Scottish Retail Consortium (SRC). The submission noted that Scottish retail directly employs over 240,000 people.

SRC stated that while food retail grew, the fortunes of other retail sectors were not as positive. Fashion retail has been badly hit. Even where online orders have surged, these were far from compensating lost store sales, as online orders were traditionally a minority of overall retail sales.

At the time of submission in April, in terms of government support, SRC stated:

• the decision to leave the designation of key workers, so employees can receive childcare, to local authorities was described as “been very burdensome on national businesses having to engage with a plurality of local authorities”
• it will be some time before businesses are able to trade anywhere near normally – supply chains will take time to gear up, and consumer demand is likely to return slowly and unpredictably. For these reasons they would like to see ‘tapering’ of financial support measures so that costs can continue to be partially covered while businesses ramp up to full capacity. And ensure sufficient notice is given of the intention to ease restrictions so that retailers can start to place orders with their suppliers.

SRC noted that a phased approach to ending lockdown restrictions in Scotland may not be identical to elsewhere in the UK. If this were the case, they would appreciate clarity on whether a longer Scottish lockdown would still see the same level of business support.

Other issues raised by SRC included: costs associated with social distancing requirements (flexi-plastic at tills, additional signage, additional cleaning, PPE, extra security for marshalling); reducing regulatory barriers to operating; a willingness to be flexible, for example stagger, reduce or increase opening hours to support wider needs.

University of Edinburgh Business School shared some findings from research they have conducted on the early impact of COVID-19 on UK entrepreneurial firms. The written evidence highlighted that:

“The economic effects of COVID-19 will only become more fully apparent once the lockdown is over. Many firms will have little or no revenues. The government should identify ways it can support firms as they attempt to build up their sales. Otherwise, there will be a dramatic increase in business closures and job losses.“

The University’s research found that more than half of the firms surveyed anticipated that their business would shrink. However, despite the dramatic decline in financial performance, many entrepreneurs were upbeat about their survival prospects. Less than one-in-ten (6 per cent) of them thought that they will have to close their business. Fifteen per cent expect they will continue to grow while a quarter will stay the same. The research caveated this with:

“However, this optimism needs to come with an understanding of the financial and emotional costs for the entrepreneur struggling to survive the economic tsunami caused by the pandemic. Around 40 per cent of entrepreneurs have used personal savings or retained earnings to keep their business afloat during the financial crisis.“

Week commencing 27 April – views from Social Enterprise Scotland, infrastructure project management firm, legal firm, and the Scotch Whisky Association

[Please take note of submission dates, as highlighted in the section headers throughout this blog. This blog reflects the views of businesses at the time of their submissions. However, given the rapidly moving situation, there have already been policy responses by both the Scottish and UK Governments to some of the issues highlighted.]

Social Enterprise Scotland (SES) provided the Committee with a detailed overview of how COVID-19 has impacted social enterprises across Scotland. The SES submission provides some insight as to how different size social enterprises were impact. For example, those social enterprises in the early stages of their venture were “really struggling” and many have reported having to look to Universal Credit as an only option.

SES provided a geographical overview suggesting differentiated impacts between urban and rural social enterprises. Those in a rural settings seemed to have quickly been able to pivot activity – factors in this included fewer specialist organisations, travel restrictions leading to a greater need for local responses and staff based more locally. Whereas in urban environments overhead costs are more frequently cited as an issue.

The submission includes specific feedback on the response to the Third Sector Resilience Fund and the usefulness of other support schemes. Issues raised included how the social enterprise sector is often able to get an exemption from rates meaning that applicability of other schemes is not clear.

SES were keen to consider recovery paths and the likely various forms these would take for social enterprises, including:

• financial recovery and relaunching businesses that have been put on hold
• responding to the changes that COVID-19 may have philosophically on thinking
• likely be a more negative impact in terms of mental health, poverty, unemployment and the built environment. Understanding this ‘new normal’ and how the sector continues to thrive and develop.

A global consultancy business – with offices in Edinburgh, Glasgow, Aberdeen – supporting capital projects and programmes in the real estate, infrastructure and natural resources sectors contacted the Committee. The submission highlighted two issues:

• the first in regard to restarting those paused capital construction projects designated within the Critical National Infrastructure (CNI) sectors but deemed non-essential to the national COVID-19 effort
• the second in regard to the likely impact of paused and delayed flood defence infrastructure projects, which were not currently explicitly included in any of the designated CNI sectors.

The submission noted that government guidance for the construction sector (issued 6 April 2020) designated 13 Critical National Infrastructure (CNI) sectors as necessary for the functioning of the country and the delivery of the essential services upon which daily life in Scotland depends. However, the current guidance permits businesses in the CNI category to keep open only those premises or parts of premises that are operationally critical or essential to the national COVID-19 effort. This firm would like to see the Government consider extending current exemptions, as early as possible, to permit businesses in the designated CNI categories to re-start capital expenditure projects, in a manner which is safe for both employees and the public.

This firm believe that such a change would enable otherwise highly disruptive infrastructure works to be undertaken during lockdown measures, minimising adverse impacts to businesses and the public and avoiding the need for further disruption associated with carrying out capital projects once lockdown measures are lifted. Two examples provided of projects that could benefit were the trams to Newhaven extension in Edinburgh and A9 dualling from Perth to Inverness.

This firm would also like to see flood defences added to the list of Critical National Infrastructure projects. They suggest by not allowing these schemes to progress there could potentially be an increased risk of flooding to the businesses and residents intended to be protected by the schemes. The Stonehaven Flood Protection Scheme was provided as an example of a project that could benefit from the  suggested policy change.

The Committee received evidence from a small Dundee based solicitor’s office. This legal business suggested modifications to the UK Government’s Job Retention Scheme. In late April this submission suggested that a 50/50 Furlough situation be introduced .This would involve employee(s) returning to work remotely for 50% of normal working hours with the employer paying 50% of salary and the Retention Scheme paying 40%.

The Scotch Whisky Association (SWA) wrote to the Committee. SWA’s submission highlighted that they expect demand to start to increase in the coming weeks and months. However, they noted it will not be a “V” shape recovery as some predict. SWA stated that it was too early to quantify the impact of COVID-19 and felt it would be some time before routes to market return to pre-crisis levels.

The submission stated that due to social distancing guidance that nearly two thirds of employees normally required to work at company premises were now not required to do so. Where companies continue to operate in a limited capacity, all were compliant with social distancing guidance.

SWA highlighted how industry had quickly pivoted to produce significant quantities of ethanol and hand sanitiser to support the fight against COVID-19.  To date, SWA members have committed 13.5 million litres of ethanol, equivalent to more than 54 million bottles of hand sanitiser.

The SWA welcomecd the range of business and export support offered so far by the UK and Scottish Governments. However, they

“…urge the UK, Scottish, Welsh, and Northern Irish governments to co-ordinate their approaches as far as possible, and where they cannot to ensure that knock-on impacts are fully understood. Our companies and our UK supply chain operate in a single, UK market and differing guidance causes confusion.”

SWA expressed concern that the business rates support has not covered distillery visitor centres, which do not neatly fit within the business rates definition of “leisure, retail and hospitality. Other issues covered included: regulatory environment, tourism, investment levels, export market, e-commerce, US tariffs, and recovery.

Additional submissions sent (after week commencing 27 April) to the EEFW Committee in relation to the above call for views can be viewed on the Committee’s webpage.  On 3 July 2020 the EEFW Committee’s launched a further call for evidence on the impact of COVID-19 on Scotland’s economy, including businesses and workers. To find out how to submit evidence and get in touch with the EEFW Committee, please visit the call for views webpage.

As well as appearing in this blog, the information received will help inform the Parliament’s work in scrutinising the support that has been made available to businesses and workers and other measures aimed at mitigating the impact of COVID-19. These submissions will also help inform the EEFW Committee’s scrutiny of the Scottish Government’s budget.

Alison O’Connor, Senior Analyst, Financial Scrutiny Unit