Coronavirus (COVID-19): Cross Party Covid Recovery Steering Group - update on the economy - 23 September 2021

Scotland’s GDP is recovering back to pre-pandemic levels and remains broadly in line with the UK as a whole, though the pace of recovery continues to vary across sectors

• Scotland’s GDP fell 0.2% in July, following five consecutive months of growth and grew 3.4% over the three months to July
• services grew 0.4% in July (its sixth consecutive month of growth), while production output fell 3.0% and construction output fell 0.4%
• consumer facing services such as accommodation and food (2.5%) and arts culture and recreation (2.8%) continued to grow in July though at a much more moderate pace than over April to June when restrictions were eased and businesses reopened
• the fall in production sector output in July was partly driven by a sharp fall in electricity output after unusually low levels of generation from wind and hydroelectric sources during the summer, while manufacturing output fell 2.4%
• Scotland’s GDP is 2.4% below its pre-pandemic level in February 2020 (UK, -2.1%), having fallen 22.8% below in April 2020, output from some sectors across services and production are back above pre-pandemic levels
• consumer facing services sectors which have been most impacted by recent restrictions (such as households as employers of domestic personnel, arts, culture and recreation and accommodation and food services) remain amongst sectors furthest below pre-pandemic levels

There has been a sharp increase in firms trading and a corresponding fall in the share of workforce on furlough as restrictions eased over the second quarter, particularly in consumer facing sectors, however, turnover challenges across sectors continue

• in August, an estimated 98% of businesses were trading, which on aggregate has remained broadly stable since the start of June reflecting the easing of restrictions and the reopening of businesses, during lockdown restrictions in January 2021, an estimated 82% of businesses were trading
• at the end of July, HMRC data show 116,500 jobs (5% of those eligible) in Scotland were furloughed, down from 393,400 during January, BICS data indicates that the proportion of staff on furlough continued to fall into the start of September to 3.3%, with the arts, entertainment and recreation sector having the highest share on furlough (19.8%)
• the arts, entertainment and recreation and accommodation and food services sectors have seen the biggest improvements in the share of business trading and shares of workforce on furlough as restrictions have eased in recent months
• however a higher share of businesses in these sectors continue to report lower than normal turnover, reflecting that trading conditions for businesses remain challenging

The labour market is continuing to recover as the economy reopens with workers returning from furlough and payrolled employees increasing, however unemployment is forecast to rise slightly later in the year

• Scotland’s unemployment rate remained low at 4.3% in May to July 2021 (UK, 4.6%), down 0.6 p.p over the year with 118,000 people unemployed, the young person’s (16 to 24 years) unemployment rate remains notably higher at 12.5% (April 2020 to March 2021) (up 3.6 p.p over the year)

• Scotland’s claimant count unemployment rate in August was 5.2%, with 167,300 claimants of unemployment related benefits, this is down 3.5% over the month and down 24.3% over the year, though remains 53,600 (47%) higher than its pre-pandemic level in February 2020
• payrolled employees in Scotland (2.4 million) increased by 9,200 (0.4%) in August and were up 56,930 (2.5%) over the year, however, payrolled employees remain 24,553 (1.0%) lower than in February 2020
• the SFC forecast Scotland’s unemployment rate to peak at 5.4% in Q4 2021, reflecting that some people still on furlough when the scheme ends in September may be made redundant and people who had stopped looking for work may re-join the labour market and move from inactivity to unemployment

Drivers of labour market shortages in Scotland and Scottish Government response

Strong demand for staff as economy re-opens

• job vacancies have grown strongly in Scotland over a short period of time (Source: ONS, Adzuna Online Job Adverts, Sept 2021)
• Skills Development Scotland (SDS) estimate in June 2021 there were 40,281 new job postings (25,501 permanent) in Scotland, the highest monthly figure since the start of 2019
• growth in vacancies appears to be broad based across the economy

There is a shortfall of labour supply

• however, the supply of candidates available to fill permanent job roles in Scotland reached an all-time low in August 2021 (Source, RBS and Market Jobs Report for Scotland, Sept 2021)
• this is partly driven by reduced migration to Scotland, National Insurance Number Registrations (NINOs) for foreign nationals in Scotland fell by around 75% between 2019 to 2020 and 2020 to 2021 (Source, DWP)

Unemployment has risen since coronavirus (COVID-19) but remains low

• partly supported by furlough, unemployment has risen modestly since the beginning of the pandemic but remains low compared to historical trends, at 118,000 and 4.3%. (Source, ONS Labour Force Survey, May to July 2021)
• most recent furlough statistics show 116,500 jobs on furlough at the end of July 2021, around 5% of eligible jobs (Source, HMRC statistics)
• there are also 770,000 inactive people aged 16 to 64 in the labour market, typically around one in five would want to work (Source, ONS, LFS)

Haulage industry, HGV and LGV driver case study

One of the earliest reports of labour shortages was for HGV/LGV drivers, an occupation with specific skills needs.

These shortages have been caused by:

• COVID-19 impacts on ability to train and recruit drivers causing a backlog, the number of UK LGV tests carried out between 2019 to 2020 and 2020 to 2021 has fallen by around 60%, from 70,288 in 2019 to 2020 to 27,569 in 2020 to 2021
• Brexit and COVID-19 impacts through reduced supply of drivers due to increased out-flows of migrants and reduced in-flows
• long-standing recruitment challenges in the haulage industry, for example, negative perceptions of industry career prospects and conditions leading to difficulties attracting staff, particularly young people

LGV drivers in employment, UK, ‘000s, by nationality

(Source ONS, APS)

Year

• april 2015 to march 2016

LGV drivers in employment from UK

• 258,000

LGV drivers in employment from EU

• 30,000

Year

• april 2016 to march 2017

LGV drivers in employment from UK

• 282,000

LGV drivers in employment from EU

• 37,000

Year

• april 2017 to march 2018

LGV drivers in employment from UK

• 271,000

LGV drivers in employment from EU

• 37,000

Year

• april 2018 to march 2019

LGV drivers in employment from UK

• 260,000

LGV drivers in employment from EU

• 39,000

Year

• april 2019 to march 2020

LGV drivers in employment from UK

• 257,000

LGV drivers in employment from EU

• 44,000

Year

• april 2020 to march 2021

LGV drivers in employment from UK

• 229,000

LGV drivers in employment from EU

• 25,000

SG response to labour shortages

The responses below are a combination of short and long term responses, aimed at people in work and also out of work, and include actions targeted at specific regions and sectors of the economy.

Labour market shortage issue: short term employment

Responses

• linking employability services clients and FE and HE students with vacancies, innovative recruitment campaigns, skills investment plan refresh

Labour market shortage issue: reduced supply of labour

Responses

• attract skilled workers, UK migration policy, skills recognition, targeting our Young Workforce

Labour market shortage issue: supporting individuals overcome barriers

Responses

• upskilling and re-training, attract diverse workforce through employability services

Labour market shortage issue: overcome negative industry perceptions 

Responses

• enhance and communicate fair work practice