Falkirk Economic Partnership has commenced work to mitigate the effects of COVID-19 for the Falkirk economy, including its most vulnerable businesses, sectors and communities. This work looks to create capacity for renewal and growth, building on the plans for the Investment Zone and a Growth Deal bid which has secured £90 million of UK and Scottish Government funding for the area.
On 01 March 2020, the first person in Scotland tested positive for COVID-19. On 17 March NHS Scotland was placed on an emergency footing by the Scottish Government. Schools closed on 20 March and the country was placed in lockdown on 23 March. As at 2 August, there had been a total of 4,208 deaths registered in Scotland where coronavirus (COVID-19) was mentioned on the death certificate.
The necessary measures of lockdown have affected the whole of society with unprecedented disruption to education, business and communities. Scotland entered phase one of easing out of lockdown on Friday 29 May, phase two on Friday 19 June and phase three on Friday 10 July.
As lockdown is being eased a cautious approach is still required as the presence of the virus will remain for the foreseeable future. Measures are also taking place to prevent a second wave of the pandemic.
While the health implications are immense, the economic impacts have also been significant and will continue their effects for several years. The key to a full economic recovery is an effective vaccine to enable an opening of businesses and society.
This report examines the impacts of COVID-19 on the Falkirk economy, how the area has been impacted, the responded during lockdown and captures the views of consultees towards planning for economic recovery.
This Economic Impact Report (EIR) uses data from published sources, the Falkirk Business Survey (appendix 1) and business leaders focus groups to address the impacts of COVID-19 on the Falkirk Economy and set the context for economic recovery.
The Scottish economy has now stopped shrinking but remains much smaller than a few short months ago. The national economy is now 22.1% smaller than it was in February.
Falkirk businesses have been heavily impacted by COVID-19. Of those surveyed, 80.7% have lower business optimism than last year and 72.3% have lost income this year. As lockdown eases 44.7% of businesses said they will be reopening with reduced hours and 36.9% said they will reopen with normal hours.
The effects have been mitigated by financial support in the form of UK and Scottish Government grants and loans and by staff furlough. In the event of a second or localised lockdown, with no furlough or business grants, many businesses would not survive.
The Chemicals Sector (apart from aviation and motor fuels) main markets have only been moderately impacted, and their main challenges have been in keeping the plants running and staff safe from COVID-19.
Directors of small companies have been under immense pressure of work, as they cannot be furloughed and were often the only person left working.
Businesses that were in total lockdown have been most affected financially. There have been some positives, it has been a busy time for property developers with sales being completed and new acquisitions made. Development projects in both Falkirk and Grangemouth Town Centres are being brought forward.
Supply chains have been an issue, lack of (and cost of) PPE has affected some firms, there has been very little feedstock for recycling and construction and other materials have been difficult to source.
Social distancing requirements have affected all businesses with reduced sales where customers are present and increased staffing costs due to the number of staff required to manage customers, cleaning and queues.
Managing space with social distancing and working from home will be the new norm for many businesses as will being more flexible with working arrangements.
Key construction projects stopped on key sites but are now coming back on-line.
The area has seen Universal Credit claimants, rise to more than 11,000 with a rise of 66.6% in unemployment claimants between March and April 2020. Most forecasts see the underlying unemployment rate peaking at between 10% and 15% of the labour force at the end of 2020 and perhaps halving by the middle of 2021. Low earners, low income families, young people and women are the groups who will be most impacted.
The next stages are crucial and as we move forward towards recovery. Investments secured through the Falkirk and Grangemouth Growth Deal and Falkirk TiF will play a crucial part.
This report relies on published data in setting the context for the Falkirk Economy within the Global, UK and Scottish economy. This is supplemented by data gathered locally through a business survey and focus groups with business leaders from key sectors.
The business survey was conducted in July 2020 and returned around 444 responses from Falkirk Businesses. This was supplemented by a series of focus groups which took place into August. A total of 36 business leaders contributed to the focus groups. The participants cover a range of roles from small business owners to Managing Directors of large companies and include senior managers of national and multinational companies. The sectors include: Chemical Industries, Tourism, Retail, Logistics, Construction and Development. All business consulted contribute to the Falkirk area economy.
The Scottish economy has now stopped shrinking but remains much smaller than a few short months ago. Our economy is now 22.1% smaller than it was in February prior to the COVID-19 crisis. The downturn in the Scottish private sector eased noticeably in July, with clear signs that the economy is approaching stabilisation. The seasonally adjusted headline Royal Bank of Scotland Business Activity Index – a measure of combined manufacturing and service sector output – registered 49.3 in July, rising noticeably from 37.1 in June, and signalled the softest fall in private sector output since the current downturn began in March.
Similarly, new business declined only fractionally, while the 12-month outlook for activity strengthened to a five-month high.
Gross Domestic Product (GDP) and Gross Value Added
In the UK, GDP fell by 20.4% in the month of April 2020, the largest fall since monthly records began in 1997. This was three times greater than the fall experienced during the 2008 to 2009 economic downturn.
Scotland's GDP increased by 1.5% in May after falling 18.9% in April and 5.5% in March. GDP remains 22.1% below its level in February, prior to lockdown measures. After output fell in nearly every industry during April, the results for May are more mixed with some parts of the economy seeing a pickup in activity as firms adapted to physical distancing and some returned to work. However, other industries experienced further falls in output due to the ongoing lockdown and wider impacts on activity.
These monthly swings demonstrate the dynamism in the Economy, and it will be by the end of the year before we have the data available to show the overall impact.
KPMG published a scenario which assumes a vaccine being available from July 2021, all social distancing measures removed and pandemic-related uncertainty to dissipate by August 2021. This scenario predicts that overall GDP in Scotland will drop by 7.2% in 2020 and will recover by 2.8% in 2021.
|Base interest rate
KPMG also modelled Scotland GVA per local authority and table 2 is an extract of the table showing neighbouring and central belt authorities. This shows that within the KPMG scenario Falkirk fares slightly better than our neighbours in 2020 (apart from West Lothian).
||2018 GVA, £ million (nominal)
|City of Edinburgh
Scottish retail sales continued to fall in June, although at a slower pace than in previous months, as the difficulties facing large parts of the sector were prolonged. Food sales registered a second month of growth. Non-food sales improved significantly due to rising online sales.
Across the UK, retailers continued to cut prices in an attempt to stimulate consumer spending, which had fallen through the floor. Shop prices fell by 2.4% in May and 1.6% in June. Non-food prices fell by 4.6% in May and then by 3.4% in June.
During the second week of reopening, retail footfall fell by 53.4% year-on-year. Different retail environments fared differently as the public heeded public health advice. The footfall decline at retail parks was 28.4%, compared to 55.4% in May. Shopping centre footfall decreased by 60.7%.
Falkirk businesses were asked how they felt their current business optimism compares with last quarter and last year. 63.2% replied it will be lower than last quarter. 80.7% of businesses said they would have lower optimism compared to last year.
72.3% of businesses said they would have loss of income this financial year, with 34.8% saying it will be between £1,000 to £9,999 and 39.4% said it would be between £10,000 to £49,999.
62% of business believe they will be to cover the costs of your monthly fixed overheads and be able to reopen for trade without borrowing money.
Before the pandemic and since the UK voted to leave the EU on 23 June 2016, the UK economy grew at a substantially lower rate than prior to the referendum. The UK fell from the top to the bottom of G7 countries in terms of macroeconomic performance. New 'counterfactual' analysis illustrates the impact of the decision on prosperity in the different nations, regions and communities of the UK.
In Scotland, projected lost growth due to the Brexit vote amounts to 2.8% of Scottish GDP – or £736 per person. Only Edinburgh was identified as a potential 'Brexit vote winner' in Scotland. Aberdeen fared worst, with an estimated cost for each resident £9,060. Falkirk business would welcome more clarity around Brexit particularly around regulations and tariffs.
Employment and unemployment
The Coronavirus Job Retention scheme (furlough) has been very welcome and useful in mitigating against unemployment in the COVID-19 emergency but this will finish at the end of October 2020.
Since the start of COVID-19, the area has seen an increase in Universal Credit claimants rise to more than 11,000 with a rise of 66.6% in unemployment claimants between March and April 2020.
Young people aged 17 are the group with the highest rates of furloughed employees. (61% of female employees aged 17 and 58% male) High rates were also seen among workers in the 20-29 age bracket, with men rather than women having the higher rate in this age group because more women work in the public health and education sectors, where furlough rates are lower. Men in their forties were the least likely age group to be furloughed.
Youth unemployment figures increased in the Falkirk area from 655(5.35%) in March 2020 to 1,250 in June 2020 (10.1%). and has increased to 10.1% in 3 months to June
The sector with the highest rate of furloughed employees is Accommodation and Food Services at 73% followed by Arts and Entertainment at 73%, Construction 59% and Manufacturing at 40%, 29.5% of total employees in Falkirk have been furloughed. In March 2020 prior to lockdown the unemployment figure for Falkirk was 3.6% which is marginally higher than the Scottish Average of 3.3% but lower than the UK average of 3.9%
Workers aged under 25 are two and half times more likely to work in a sector that is now shut down. These sectors employ nearly a third (30%) of all employees under 25 compared to just one in eight (13%) of those aged 25 and over .
Prior to COVID-19 there were 77,000 employees in the Falkirk Area with an additional 5,900 self- employed. This represents a furlough total of around 22750 for Falkirk. Whilst it is too early to make predictions on unemployment in Falkirk after October 2020, Falkirk Council's own research indicates redundancies are to be expected particularly in the retail, hospitality, tourism and leisure sectors, with particular issues for young people and apprentices. Less likely are redundancies in the Chemicals, Logistics, Property and Construction sectors, although there may be a potential risk to apprentices due to social distancing and supervision requirements. Very few employers have indicated that they will be recruiting additional staff this year.
The COVID-19 shock to the labour market is around five times the magnitude of the financial shock a decade ago. Projections of the underlying unemployment rate in the near future depend on when and how job furlough schemes end and the possibility of a second wave of the virus.
Most forecasts see the underlying unemployment rate peaking at between 10% and 15% of the labour force at the end of 2020 and perhaps halving by the middle of 2021.
The impact is potentially greater for young women (36%) than young men (25%) with those in the younger age bracket (16-19 years) at greatest risk (40% of jobs) compared to 20-to-24 year olds (30%) with those leaving education and entering the labour market for the first time particularly at risk.
Research by the Resolution Foundation show that workers in the UK that have been furloughed come disproportionately from the lower end of the earnings distribution. Nearly one-third of workers in the lowest quintile of the earnings distribution had been furloughed or lost their jobs completely, compared with 10% in the highest quintile.
Many furloughed workers had zero or variable hours contracts; whilst those on temporary contracts often lost their jobs completely.
In contrast, workers at the higher end of the earnings distribution have often been working from home and many will continue to do so saving commuting and other work related costs.
Standards of Living
The Living Standards Audit 2020 puts the current crisis in the context of over a decade of poor income growth with zero growth in the typical working-age household income in 2017-18 and 2018-19, with a slight improvement in 2019-20.
The Audit shows that the last few years have been particularly weak for low-income households, whose typical income actually fell in 2016-17 to 2018-19, and was no higher in 2018-19 than in 2001-02. This weakness, driven by a combination of high inflation post-referendum and the roll-out of cuts to working-age welfare, is an important backdrop to the current crisis.
The UK experienced record employment levels and real pay growth in early 2020. But, the coronavirus lockdown has hit living standards hard. The Resolution Foundation estimate that typical non-pensioner household incomes were 4.5 per cent lower in May 2020 than in 2019-20, this is on a par with the fall in household incomes recorded during the rampant inflation associated with the mid-1970s oil crisis.
The labour market impact of this crisis has fallen most heavily on low earners, but there was a £9 billion boost to welfare announced in March 2020 that maintained income levels however without this incomes for the lowest earners might have been at least 8 per cent lower in May 2020.
For many low-income families, the crisis has been accompanied by falling savings rates and a growing use of high-cost consumer debt, with one-in-four adults in the second poorest fifth of the income distribution reporting increased use of consumer debt.
For some people, temporary earnings reductions during lockdown will be followed by a return to full-paid work. But unemployment is rising, Universal Credit is less generous than furlough, and there will be further hits to household incomes for many.
In April 2021 there is a planned return to pre-crisis levels of support which will reduce disposable incomes by over £1,000 a year for over 6 million households, containing 18 million people; reducing the average income of the poorer half of the population by an estimated 4 per cent in 2021-22.
Key Sectors in Scotland
Impact varies widely across the diverse sectors of the Scottish economy. Working from home has been possible for some sectors. Scottish Government stats show that the most damage has been sustained by those which have been required to close or where working at home is not possible, including Accommodation & Food Services (-89.8%) and Arts, Culture & Recreation Services (-54.3%). The Agriculture, Forestry and Fishing sector has shrunk by 7.7%, The production sector has shrunk by 18.7% , Manufacturing picked back up by 7.1% in May, the Construction sector has shrunk by 39% and the Services sector has shrunk by 21.9%. Chemical, pharmaceutical and petroleum output declined the least, at just 3.5%. Falkirk and Grangemouth businesses operating in this sector have indicated that most of the impact has been in road and aviation fuels where approximately 50% of production has been lost.
Businesses across Falkirk have been heavily impacted by COVID-19. This effects have been mitigated by financial support in the form of grants and loans and by staff on furlough. However even with mitigation we have lost 3.5% of the businesses who responded to the Falkirk business survey. Finances, consumer confidence and issues of social distancing remain key issues for the majority of businesses.
84.8% of businesses who replied to the business survey applied for financial support during the coronavirus situation. 57.4% of businesses applied to Falkirk Council for support and advice, followed by Business Gateway (25.9%).
In the event of a second or localised lockdown and with no furlough or business grants, many businesses say they would not survive. COVID-19 lockdown has affected different sectors in different ways. Furlough has been a lifeline for many businesses, with one logistics and construction firm reporting that they furloughed 200 staff. This is true of all sectors except for those on the front-line of the COVID-19 response and those providing essential services, the chemicals sector, and some e-commerce. The Chemicals Sector (apart from aviation and motor fuels) main markets have only been moderately impacted, however their main challenges have been in keeping the plants running and staff safe from COVID-19.
Furlough presented opportunities for some firms, e.g. a local haulier picked up business as other firms furloughed the majority of their staff and they maintained 60% of pre-Covid capacity. Directors of small companies have been under immense pressure of work, as they cannot be furloughed and were often the only person left working.
Businesses that were in total lockdown have been most affected financially with retailers, leisure, hospitality and construction having lost most of their income for a period of 3 months and more. Even businesses that open including supermarkets have seen a loss of trade, with one supermarket reporting 40% down. Grangemouth Port has seen a drop in business of around 30–40% since the end of March with construction materials, aviation and road fuels at minimal levels.
There have been some positives and it has been a busy time for developers with some sales being completed and acquisitions made. Several development projects in both Falkirk and Grangemouth are being brought forward and some businesses have been spending the down time on improvements and maintenance.
Supply chains have been an issue, lack of PPE has affected some firms, there has been very little feedstocks for recycling and construction and other materials have been difficult to source.
Social distancing requirements have affected all businesses with reduced sales where customers are present and increased costs of number of staff required to manage customers, cleaning and queues.
The logistics, chemicals, construction and property businesses that contributed to the focus groups are confident that they have the resources to see their way through.
29.4% of business surveyed said finances was the key issue in planning for recover, this was followed by 27.1% saying maintaining business/customers and this included customer confidence. Safety included PPE, screens and social distancing followed with 18.1%.
23.6% of businesses surveyed said that relaxation of certain regulations to allow businesses to adapt quickly to the new challenges being faced would be required over the next 6 months to allow business to survive after the coronavirus situation, this was followed by 19.5% needing information on where to source finance and funding.
Key construction projects stopped on key sites but are now coming back on line, but this represents a delay of 6 months. Businesses are looking now at how the current business model can be more efficient and cost control more significant. Businesses that rely on events are looking at significantly different business models. Construction firms are reporting full order books, longer working weeks and hours, and different ways of working. Flexibilities have been negotiated with their workforces as they try to catch up on projects. This is also a feature for retailers and service businesses as they experience a post lockdown surge and an increase in hours worked.
Managing space with social distancing and working from home will be the new norm for many businesses as will being more flexible with working arrangements. Some activities do not lend themselves to remote working e.g. site safety, service industries.
Social distancing has been implemented within all workplaces, as has track and trace.
There is a real need to see more confidence in markets. Where flexible working has reduced numbers on site and resultant energy saving and environmental concerns there may be opportunities to save on office accommodation. However it is difficult to see if this will persist over the long term as WFH for long periods is proving to be challenging, not least in terms of staff mental health. Property developers are not concerned about future office demand, believing that working habits will adapt and they are positioning themselves to respond to this.
Businesses feel that the longer term commercial picture and the shape of economic recovery post COVID-19 is just too hard to judge at the moment in terms of its impact on the business.
The Chemical businesses in the main have not taken a big hit and have in some cases managed to switch production to support the COVID-19 efforts. There are however still some uncertainties over future plans. Larger firms are concerned for their contractors who have not been able to come on site.
Business who have the advantage of having a decent cash reserve and being balanced financially will do better however even for them there are concerns over risks of markets lacking confidence.
Business that have invested in additional IT spend for flexible working are finding that this has been beneficial, however for smaller firms the entry cost into online selling has been prohibitive.
Tourism visitor attractions are having to balance between visitors who are not adhering to social distancing measures and those who are extremely cautious. There has been a big move towards cashless payments in Tourism and Retail with 60% of customers looking to pay by card and pre-booking is a necessity for many. Accommodation providers will struggle until they can start to host larger events.
For staff, working with PPE especially with extended hours of work is one of the biggest challenges.
Retail is suffering and this is not helped by high fixed costs such as rent and rates. Landlords are having to deal with numerous requests for rent reduction. Many retailers are worried about the longer term with a very real threat around financial viability of individual shops and shopping centres.
Customer experiences are also very different with no makeovers, no music etc.
The cost of PPE is significant to all business with one of the larger businesses having spent £200k on PPE this year.
It has been an interesting time for logistics with the Port seeing the last three months as a case study of what the world could look like ten years' time – less demand for hydrocarbon and the importance of the green agenda. The port is looking at development of rail infrastructure and will be investing in improvement works from this September.
Before Lockdown, the largest haulage firm ran four Anglo-Scottish trains per day whereas with passenger numbers down, they have gone from 4 standard to running 2 mega-length trains. There are 24 containers per standard train compared to 36/38 on one mega-length train.
The New Normal – Wellbeing, Equality, Environment, Working from Home
Working from home has been a feature for Falkirk Businesses with almost all staff who can work from home doing so, this has been seen as mostly positive and even businesses that were not fans of flexible working are now exploring these options for the future. However working from home is not for everyone and in manufacturing and chemicals, core staff are required to be on site.
The OECD reports that widespread telework (homeworking) may remain a permanent feature of the future working environment. While more widespread telework in the longer-run has the potential to improve productivity and a range of other economic and social indicators (worker well-being, gender equality, regional inequalities, housing, emissions), its overall impact is ambiguous and carries risks especially for innovation and worker satisfaction. They recommend that to minimise the risks of more widespread teleworking harming long-term innovation and decreasing worker well-being, policy makers should assure that teleworking remains a choice and is not 'overdone' and that co-operation among social partners may be key to addressing concerns e.g. of ‘hidden overtime’.
A report from the Carnegie Trust presents six propositions for building back better in the recovery. The report, and accompanying blog post, argues that Government needs to put wellbeing at the heart of the recovery - from the outset.
A post on the IMF blog site argues that we have a once-in-a-century shot at building forward better: a world that is fairer and more equitable; greener and more sustainable; smarter and, above all, more resilient. To achieve this, action is needed to:
- invest in people—in education, health, social protection, and in preventing the sharp increase in inequality this crisis could produce;
- support low-carbon and climate-resilient growth, including through smart allocation of public spending; and
- take advantage of the digital transformation, whether through greater use of e-government platforms to enhance efficiency and transparency while cutting red tape, e-learning, or remote work.
The Economic Recovery Plan
The public and private sector are working collectively to develop an Economic Recovery Plan for Falkirk and there are significant established and new foundations to build on. These include The Falkirk Economic Partnership, The Falkirk Business Improvement Districts and Investment being brought forward by The Falkirk and Grangemouth Investment Zone Growth Bid, the Falkirk TiF and the private sector. Forth Ports, Ineos O&P, Scottish Canals and Rosebank Distillers all have significant projects. In addition there is interest from property developers in our town centres.
The COVID-19 emergency has brought forward a strong business and community response to tackle the health and economic repercussions and this will be built on to ensure ongoing dialogue with businesses and communities. Falkirk businesses have shown a great deal of resilience and willingness to work together to support the local economy and have given their time to support the development of the recovery plan.
Falkirk businesses were asked what they would like to see in the recovery plan and comments and suggestions are as follows:
- Significant efforts are still needed to contain the pandemic, as any future localised or national lockdown would be economically ruinous for many Falkirk businesses.
- There has been a good deal of support expressed for the Falkirk and Grangemouth Investment Zone Plans and this should form key parts of the Economic Recovery Plan.
- The main business sectors needing support are retail, hospitality and leisure and this may be in the form of more financial help (but less debt please), marketing of the area to visitors and locals and better linkages e.g. (the pink bus) around key sites.
- There are strong views about support to our town centres, and particularly around the fixed overhead of non-domestic rates and both property owners and business operators ask that the Government look into this as a matter of urgency.
- Projects that keep consumer spending going and some collective thinking about how we make the town centre a bit more attractive and give some incentive to open up cafes, restaurants or entertainment
- Get public services back in to work places and in town, bring forward the HQ/ Arts Centre for the Town.
- The construction industry would like to see an intervention in support of apprentices and that public funded construction projects are accelerated.
- Property developers would like clearer communication and assistance to help projects get moving forward. They would like to accelerate their Falkirk Town Centre redevelopment projects for the high street creating relevant retail.
- The Chemicals industry would like government to on shore their spend, particularly in the case of PPE and other products where standards from abroad are poor.
- Generally, there is a call for more clarity around Brexit, particularly around regulations and tariffs.
COVID-19 has impacted all aspects of our lives and our Economy will take some years to recover. Falkirk business particularly those that provide face to face customer experiences have been most impacted and Chemicals Manufacturing the least impacted. Unemployment is rising and incomes for many will be lower, this will be most true of lower income families, young people and women. The economic recovery will take some time and will depend on strong economic partnerships between public and private sector, a return of business and consumer confidence. However there are some real strengths in Falkirk's Industrial Manufacturing base and business and other communities have come together and are working together collectively to provide strong leadership. The Economic Recovery Plan backed by public investment will set the conditions for Falkirk’s Economic Recovery.
Falkirk Economic Partnership would like to acknowledge the support of business leaders from the following organisations who participated in the Falkirk Talks COVID-19 Focus Groups :