Sectoral marine plan for offshore wind energy: social and economic impact assessment scoping report

B.2. GVA and Employment Effects

B.2.1 Types of Impacts

Impacts on sectors are based on one of:

• The material reduction in level of outputs from an activity, measured as reduction in GVA;
• Increase in operating costs of an activity but which do not result in a reduction in output; or
• An increase in uncertainty. Such impacts are identified and noted but are not quantified.

Appendix B.2 therefore, focuses on the first two bullets, providing descriptions of the detailed approaches to enable significant impacts on GVA or operating costs to be monetised.

B.2.2 Assessing Impacts Based on Reduction in Outputs from an Activity

Impacts on output can be assessed by taking the change in output (turnover) and converting it to GVA. This is done by taking a GVA ratio to ensure intermediate consumption is excluded. GVA ratios can be estimated based on data in the Scottish Annual Business Statistics ^[29] . This involves dividing GVA at basic prices by total turnover. For example, the total turnover associated with water transport in 2016 was £520 million and GVA at basic prices was £196.3 million. This gives a GVA ratio of around 38%. Thus the GVA impacts of a change in outputs on water transport would be estimated by multiplying the change in output by 38%. For example, if impacts on commercial shipping are estimated at £320,000, the change in GVA would be £320,000 x 38% = £121,600.

Knock-on impacts on GVA and employment can also be assessed. A threshold of 5% of turnover for a sector is used to identify the point at which it is considered meaningful to quantify the knock-on effects. Since this threshold reflects impacts at the national or UK level, consideration should also be given as to whether the impacts would be important at the local level. Where impacts are considered to be significant at the local level, they should be monetised. In this case, what is considered significant is likely to be subjective so the decision to monetise (or not monetise) the impacts should be accompanied by a brief qualitative description explaining why the impacts have (or have not) been quantified. The basis for assessing if impacts are likely to exceed the threshold is based on the classes in the UK Standard Industrial Classification of Economic Activities 2007. Where the impacts on turnover are greater than the 5% threshold, it is considered appropriate and proportionate to assess the knock-on impacts on GVA and employment. This threshold is based on the assumption that costs of less than 5% of turnover could be absorbed without causing knock-on effects on GVA or employment.

The Type I and Type II GVA multipliers ^[30] are used to assess the knock-on effects for GVA. The Scottish Input-Output multipliers for 1998-2014 were published in July 2017 ^[31] and are the most recent available and, therefore, are suggested as the best data available to enable knock-on effects to be captured. Use of the GVA multipliers requires information on the change in GVA for a sector. The change in GVA estimated to occur as a result of the impacts is multiplied by the Type I and Type II GVA multiplier to provide an estimate of the knock-on effects. It is important to use the GVA multiplier and not the GVA effect where the change is expressed in GVA. If the change is expressed as output (or turnover) then the GVA effect can be used to calculate the change in GVA for the economy as a whole. For example:

• If the impacts on commercial shipping have been estimated as a reduction in GVA of £121,600 then the GVA multiplier for water transport would be used. This is shown as 1.7 for Type I multiplier and 2.0 for the Type II multiplier. The overall impacts would then be £121,600 x 1.7 = £206,720 (Type I) and £121,600 x 2.0 = £243,200 (Type 2)
• If the impacts on commercial shipping have been estimated as a reduction in output (but have not been converted to GVA), then the GVA effect for water transport can be used. In most cases, it is expected that changes in output will have been estimated in terms of GVA, by adjusting for intermediate consumption as described above so the GVA effect should not need to be used.

Knock-on employment impacts are assessed using the Type I and Type II employment effects. These require information on the direct change in output for a sector. The Type I and Type II employment effects are used where the impact is measured as a change in direct output in £millions. There is also an employment multiplier but this can only be used where the number of jobs affected by the change is known (or has been estimated). It is important to remember that the employment effects are applied to the change in output (not change in GVA); hence, the change in turnover is needed before it is adjusted for intermediate consumption:

• The change in turnover for commercial shipping is estimated as £320,000 (£0.32 million). The Type I employment effect for water transport is 8.4 and the Type II employment effect is 10.2. The change is turnover is £320,000 so the number of full-time equivalent jobs supported directly and indirectly (Type I multiplier) by the Scottish economy is £0.32 million x 8.4 = 2.7 and the direct, indirect and induced employment change is £0.32 million x 10.2 = 3.3 jobs.

Impacts on commercial fisheries focus on the direct reduction in GVA linked to the potential reduction in the value of landings. The Seafish Fleet Economic Performance Dataset (2006-2016) is the basis for the calculations ^[32] . This provides data for 30 fleet segments from which GVA as a percentage of fishing income can be calculated. For each UK vessel size category and gear type assessed in each MPA, an average GVA ratio will be calculated from relevant fleet segments, and applied to the value of landings affected to obtain the direct GVA impact. GVA impact will not be calculated for non- UK vessels. The GVA multiplier is then used to assess the knock-on impacts across the economy. Knock-on employment impacts are based on the value of landings and use the Type I and Type II employment effects. The multipliers can be taken from the Scottish Input-Output multipliers for 1998-2014 for fishing:

• GVA multiplier:
  • Type I GVA effect for fishing: 1.4
  • Type II GVA effect for fishing: 1.6
• Employment effect:
  • Type I GVA effect for fishing: 15.2
  • Type II GVA effect for fishing: 16.4

Where quantified estimates of changes in GVA and knock-on impacts are made they should be converted to Present Value ( PV) estimates using a discount rate in line with the HM Treasury Green Book. The discount rate to be applied depends on the year in which the impacts are expected to occur, as shown in Table B.2.1. The total impacts are estimated by summing all of the annual impacts across the whole assessment period.

Table B.2.1 Long-term discount rates (Green Book)

Source: HM Treasury (2008): Intergenerational wealth: transfer and social discounting, Supplementary Green Book Guidance, July 2008, available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/193938/Green_Book_supplementary_guidance_intergenerational_wealth_transfers_and_social_discounting.pdf

B.2.3 Assessing Impacts Based on Increase in Operating Costs

These impacts are based on the operating costs themselves, converted to PV estimates in the same way that GVA estimates are converted to PV estimates, i.e. identify the year(s) in which the costs would be incurred and apply the discount rates set out in Table B.2.1 to future costs. The total costs are then the sum of costs across the full assessment period.