Doctors' and dentists' remuneration (DDRB) review body - 2022-2023 pay round: evidence

C. Economic and Labour Market Conditions in Scotland

Overview

27. The Coronavirus pandemic has had an unprecedented impact on our economy. Although the rollout of vaccines and booster doses has meant that restrictions on economic activity have largely been lifted, we are still learning to live with the virus. COVID-19 continues to disrupt the global economy, and has contributed to intensifying global supply chain and inflationary pressures.

28. Significant imbalances in various sectors of the economy such as in energy, food, metals, semiconductors and the labour market are putting upward pressure on prices and slowing the momentum of the recovery. The emergence of the new Omicron variant, which has led to the reintroduction of some additional restrictions, may further jeopardise the recovery.

29. The Scottish Fiscal Commission (SFC) estimate Scottish GDP to grow 10.4% in 2021, and 2.2% in 2022, returning to pre-pandemic levels in 2022 Q2, while unemployment is projected to peak at 4.9% in 2021 Q4. The SFC forecast assumes that from April 2022 and into the longer term COVID-19 will become endemic and begin to be managed through guidance and voluntary measures (however the forecasts were finalised prior to the emergence of Omicron).

Scottish Output

30. Scotland's GDP grew by 0.24% in October 2021 to be 0.4% below its pre-pandemic level in February in 2020, having fallen 22.3% below at the start of the pandemic. The growth in October follows an underlying slowdown in the rate of recovery over the third quarter after the boost from the easing of restrictions in earlier months. Scotland's recovery from the pandemic is broadly in line with the UK, with recent differences largely explained by sectors such as electricity supply which are prone to large monthly variations in output.

31. Some sectors that have been able to adapt to restrictions or have been less directly impacted are back above pre-pandemic levels. Consumer facing services grew strongly over the second quarter as restrictions eased with further growth in October, however they remain amongst the furthest below pre-pandemic levels. Although output is returning back to pre-pandemic levels, output remains below the pre-pandemic trend. The SFC now estimate that the damage from the pandemic has reduced the size of the economy by 2%, smaller than initial estimates, although evidence of the longer term impacts continue to emerge.

Labour Market

Jobs

32. Scotland's headline labour market statistics compare well against historical trends. The latest labour market statistics for August to October show Scotland's employment rate was 74.6% (down 0.2 percentage points over the year), the 9 unemployment rate was 4.1% (down 0.2 percentage points) and the inactivity rate was 22.1% (up 0.3 percentage points).

33. Up to the end of September, the Coronavirus Job Retention Scheme was providing significant support to the labour market and the retention of jobs and earnings. At the end of September the scheme was supporting 80,800 jobs (3% of eligible jobs) in Scotland, with 51% of those flexibly furloughed and 49% fully furloughed. The ending of the scheme did not see an immediate increase in unemployment, with the number of payrolled employees in Scotland rising by 25,000over October and November to be 0.7% above its pre-pandemic level. Similarly, Claimant Count data also signalled further improvement with the number of claimants of Job Seekers Allowance and Universal Credit (claiming principally for the reason of being unemployed) falling by 6% over October and November, however remains 36,000 (31.7%) higher than its pre-pandemic level

34. However, the SFC forecast unemployment will rise slightly following the ending of the furlough scheme peaking at 4.9% in 2021 Q4, (significantly down from the 7.6% and 5.4% forecast in January and August 2020 respectively). The outlook remains uncertain and will become clearer as more data following the end of the furlough scheme is released.

Earnings

35. Despite the protection offered to the labour market, mean PAYE monthly pay fell sharply at the beginning of the pandemic, although it strengthened over the course of 2020 and rebounded back above its pre-pandemic level in July 2020. Relatively robust earnings growth over this period in part reflects the lower inflows of new employees, for whom mean pay tends to be around 40% lower than for those continuously employed bringing down the average pay and average pay growth. Data for October shows mean monthly pay in Scotland grew 0.6% to £2,514 – up 3.5% over the year. In general, the rate of earnings growth over this period needs to be interpreted with caution as base effects, compositional factors which reflect a fall in the number and proportion of lower-paid employee jobs, and the furlough scheme have all influenced the data.

36. The SFC forecast average earnings to grow 3.8% in 2021-2022, moderating to 2.6% 2022-2023. Higher inflation and recent tax rises will erode real disposable incomes with inflation expected to be higher than nominal earnings growth in 2022-23 and therefore the SFC expect real earnings to fall by 0.8% next year.

37. The latest public sector pay proposals from the Scottish Government commits to address low pay by introducing a Scottish public sector wage floor of £10.50 per hour delivering more than a 3 percent uplift to the lowest earners.^[5] The policy delivers a pay increase of £700 for those earning over £25,000 and up to £40,000, with a £500 pay uplift to those earning over £40,000.