{"id":8096,"date":"2020-10-29T00:01:00","date_gmt":"2020-10-29T00:01:00","guid":{"rendered":"http:\/\/www.economicsobservatory.com\/question\/how-scotlands-economy-faring-pandemic"},"modified":"2022-01-25T10:54:45","modified_gmt":"2022-01-25T10:54:45","slug":"how-scotlands-economy-faring-pandemic","status":"publish","type":"question","link":"https:\/\/www.economicsobservatory.com\/test\/how-scotlands-economy-faring-pandemic","title":{"rendered":"How is Scotland\u2019s economy faring in the pandemic?"},"content":{"rendered":"

As in other parts of the UK, cases of Covid-19 have been on the increase in Scotland in recent weeks. In response, on Friday 23 October, Scotland\u2019s First Minister announced a new five tier framework for managing restrictions at a local level to tackle the virus. Different parts of the country will be placed into different tiers, with the new system coming into effect from Monday 2 November.<\/p>\n

Figure 1: Confirmed new Covid-19 cases<\/h4>\n

\"Figure<\/p>\n

Source: https:\/\/coronavirus.data.gov.uk\/cases\u00a0<\/a><\/h5>\n

One of the interesting public policy features of this crisis in the UK has been that policy responsibilities for managing the public health and economic response have been split across devolved and national government \u2013 see: What are the implications of coronavirus for fiscal devolution in the UK?<\/a><\/p>\n

Just how well has the Scottish economy been coping with the effects of Covid-19 and is there any evidence \u2013 so far- of any apparent divergence in economic outcomes with the rest of the UK?<\/p>\n

Economic performance since March<\/h3>\n

Scotland entered lockdown like the rest of the UK on 23 March \u2013 for a timeline of the various policy announcements in Scotland, see this information sheet on the Scottish Parliament\u2019s website<\/a>.<\/p>\n

With public health devolved, it has been up to the Scottish government to set out any phasing in the lifting of restrictions. In May, the Scottish government published a route-map<\/a> setting out their approach, with the new tiered<\/a> system announced in October the replacement for the next few months.<\/p>\n

On the whole, perceptions<\/a> are that the easing of restrictions in Scotland \u2013 at least at the margin \u2013 have proceeded slightly more cautiously than in the UK as a whole. There is some evidence for this, for example construction firms were able to return to sites 2-3 weeks later than in England. But in the main, on the major policy choices such as the closure and re-opening of schools, there has been relative alignment.<\/p>\n

We have the advantage in Scotland of having a broader suite of economic statistics to look at than other devolved nations and regions of the UK.<\/p>\n

For example, at the onset of the crisis, the Scottish government started to publish a monthly GVA (gross value added) series<\/a> and a monthly turnover index<\/a> to provide more real-time information on how the economy was tracking.<\/p>\n

What do they show?<\/h3>\n

Scottish economic activity fell 21.7% between February and April, which compare to a fall of 23.3% in the UK as a whole (see Figure 2).<\/p>\n

The latest data suggest that by August, economic activity had grown by 16% since May, but remained over 9% below its pre-lockdown level in February.<\/p>\n

Figure 2: Monthly GDP<\/h4>\n

\"Figure<\/p>\n

Source: ONS and Scottish Government<\/h5>\n

Of course, these aggregate numbers disguise the significant variations in economic experience people are having at this time.<\/p>\n

Even on a sector level, we see huge variations in levels of economic activity.<\/p>\n

In accommodation and food services (see Figure 3), in the services sector as a whole (see Figure 4) and in the construction sector (see Figure 5), activity remains well below its level earlier in 2020.<\/p>\n

Activity in the services sector in the UK as a whole is now where it was in 2014. In Scotland, it\u2019s below where it was a decade ago.<\/p>\n

Figure 3: Scottish monthly GDP in the accommodation and food services sector<\/h4>\n

\"Figure<\/p>\n

Source: Scottish Government<\/h5>\n

Figure 4: Monthly GDP in the services sector<\/h4>\n

\"Figure<\/p>\n

Source: ONS and Scottish Government<\/h5>\n

Figure 5: UK and Scottish monthly GDP in the construction sector<\/h4>\n

\"Figure<\/p>\n

Source: ONS and Scottish Government<\/h5>\n

On the labour market, like the rest of the UK, the furlough scheme has helped to cushion any immediate increase in unemployment in Scotland. But new experimental data from HMRC suggest that Scotland might have seen the biggest fall in PAYE workers outside of London (see Figure 6).<\/p>\n

Figure 6: PAYE employment<\/h4>\n

\"Figure<\/p>\n

Source: HMRC<\/h5>\n

At its peak around 780,000 jobs in Scotland were furloughed under the UK government\u2019s Coronavirus Job Retention Scheme \u00a0(CJRS) \u2013 32%\u00a0of the workforce.<\/p>\n

This number has now fallen back and as Figure 7 illustrates, since the beginning of July, the share of jobs furloughed in Scotland has fallen faster than in the other nations of the UK.<\/p>\n

Figure 7: Jobs furloughed under the Coronavirus Job Retention Scheme<\/h4>\n

\"Figure<\/p>\n

Source: UK Government<\/h5>\n

But many jobs remain furloughed. Even by August, around 240,000 jobs in Scotland were still on furlough.
\nLike the rest of the UK, the big change has been in working hours, which have fallen sharply (see Figure 8).<\/p>\n

Figure 8: Hours worked<\/h4>\n

\"Figure<\/p>\n

Source: ONS, Labour Force Survey and Annual Population Survey<\/h5>\n

The Scottish data are not available on a quarterly basis to the second quarter of 2020 like the UK data. Instead, they cover the year up until the end of June 2020. That is why this measure is not dropping by as much as the measure for the UK as a whole (one way to see what this means is to recognise that that the Scottish measure is essentially \u2018averaging\u2019 over three good quarters (the last two quarters of 2019 and the first quarter of 2020) and one bad quarter (the second quarter of 2020).<\/p>\n

The policy response<\/h3>\n

While most of the public health policy levers \u2013 including indirect levers such as the opening and closing of schools \u2013 are controlled by the Scottish government, most of the key economic policy support levers are held by the UK government.<\/p>\n

The Scottish government has implemented a range of support packages, such as business rates holidays and business support grants. These have largely been consistent with the same measures announced for the UK as a whole, but repackaged for a Scottish business base and funded by \u2018Barnett consequentials\u2019 from equivalent programmes in England.<\/p>\n

The Scottish government\u2019s primary economic policy focus has therefore been on the recovery and rebuilding the economy over time. In June, the Scottish government published the recommendations of an Economic Recovery Advisory Board<\/a>. Reaction was mixed, with the report full of big ideas but more limited practical options for immediate impact.<\/p>\n

Like the rest of the UK, relations between the business community and the Scottish government have been increasingly strained in recent times.<\/p>\n

More broadly, there have been controversies between the Scottish and UK governments over the allocation of funding and the ability of the Scottish government (and the other devolved governments) to have greater flexibility over the overall spending envelope that they have.<\/p>\n

What next?<\/h3>\n

With the virus entering a dangerous next phase, the outlook for the Scottish economy looks challenging.<\/p>\n

With the Scottish winter just weeks away, sectors such as hospitality and tourism face a bleak and worrisome few months. With many of these sectors employing those on lower earnings, there is a risk of a rise in inequalities. The most recent Fraser of Allander Economic Commentary suggests that there has never been a more uncertain outlook for Scotland in living memory<\/a>.<\/p>\n

On the whole, the experience of Scotland during the Covid-19 economic crisis has broadly mirrored that of the UK as a whole. Time will tell how our economies cope with the next phase of this pandemic.<\/p>\n

Where can I find out more?<\/h3>\n