Economy, Energy and Fair Work Committee

Meeting date: Tuesday, December 8, 2020

Official Report 650KB pdf

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Covid-19 (Impact on Business, Workers and the Economy)

Welcome back. We turn to item 4 on the agenda, which is our inquiry into the impact of Covid-19 on Scotland’s businesses, workers and the economy. Our focus today is on the north-east.

We have an hour for the session. I welcome our witnesses, who are joining us remotely. Andrew Burnett is the managing director of Elevator UK; Shane Taylor is the research and policy manager at Aberdeen and Grampian Chamber of Commerce and we might also be joined by Jennifer Craw, who is the chief executive of Opportunity North East.

There is no need for witnesses to respond to all the questions. Members should keep their questions short, sharp and focused and witnesses should give brief and succinct answers while also covering the points that they wish to make and the issues raised in the questions. It is always possible for witnesses to write to the committee after the meeting to add more information to what they have said, particularly if they feel that they have not had time to answer fully.

Please allow our broadcasting colleagues a few seconds to turn your microphones on before you begin to speak. If you would like to respond to a question, type an R in the chat box, or raise your hand if you do not get a response to that.

The Aberdeen area has faced more challenges than some other regions, due to the fall in oil prices. Can you tell us how communities and businesses have fared during the pandemic, what particular issues they have faced and how they have responded to those issues?

Thank you for inviting us to speak and for focusing on the north-east.

The region has faced real challenges throughout the pandemic. That began with the significant decline in the oil price at the start of the pandemic. It dropped to around $20, which had an immediate impact on the region.

Members might have seen that, at the height of that period, Oil and Gas UK predicted that up to 30,000 jobs could be lost from the industry in the coming 12 to 18 months if we did not take further action to support the industry. We might speak later about the broader impact on employment.

As well as that, the region has faced other clear challenges. The clearest that most members will be aware of is the local lockdown in Aberdeen city during August. That in particular involved a number of core challenges, the first being the closure of our hospitality industry.

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At that time, support schemes were not defined for local lockdowns. Although the Scottish Government, local authorities and others worked well with business to define those schemes and to get them rolled out, at the time that we entered the local lockdown we had not yet defined, either at United Kingdom or at Scottish Government level, clear grant and support schemes for local lockdown, although the furlough scheme was in place at a UK level. Obviously, that was a core challenge.

In addition, the hospitality sector went into the challenges of the lockdown at pace. For example, according to data from Aberdeen City and Shire Hotels Association, a number of hotels lost up to tens of thousands of pounds in business cancellations and faced other direct challenges from that.

Finally, we have seen in a number of other factors some clear impacts of the local lockdown in August. First, because of that hospitality drop, the broader retail sector has seen a subsequent drop in footfall. Equally, our hospitality sector missed out on the eat out to help out scheme, which was a clear driver of consumer activity during August. The Government has released some constituency-level data for that scheme, from which we can clearly see that easily hundreds of thousands of pounds of custom has been lost to hospitality businesses. Obviously, that will have a knock-on impact on retail footfall, too.

I point to those as at least some of the core challenges.

Thank you.

You mentioned the furlough scheme. I think that Aberdeen has the second-highest rate of furlough in Scotland; there has been a huge impact on workers and their jobs. Andrew Burnett, will you comment further on that, or on the points that I initially raised?

I am probably quite well placed to talk about the business start-up situation. On your first point, Elevator delivers business gateway services across the north-east region, on behalf of Aberdeen City Council and Aberdeenshire Council.

Obviously, Covid has had a huge impact on businesses throughout Scotland, but the double whammy that the north-east has experienced, which has included the fall in oil price that you and Shane Taylor referred to, has set confidence levels particularly low. The rate of start-ups absolutely plummeted in April and May, before starting to recover. Quite encouragingly, we are now looking at around 60 per cent of our typical start-up business performance, which I think probably compares quite favourably with other parts of Scotland.

However, the types of business that are starting up involve very few people anticipating taking on staff; the commitment to taking on premises or purchasing stock is also very low. It is very much lifestyle businesses that are coming forward. Of course, that is going to have a longer impact on job opportunities.

The furlough scheme has been an absolute blessing in protecting a significant part of the north-east workforce. I cannot imagine what decimation we would have experienced without it. The situation is bad, but it could have been so much worse if the furlough scheme had not been introduced. My concern is about what happens when the furlough scheme concludes. We are already seeing redundancies in the north-east, and all the data points to a wave that is just about to impact. We need to try to prepare for that.

Before I move on to my questions, I have a question for Shane Taylor. You talked about the impact of the oil price; could you expand on how that is impacting the north-east? The Oil and Gas UK report says that only 30 per cent of offshore oil workers actually live in Aberdeen and the Aberdeenshire area and that 64 per cent of oil workers are based outwith Scotland. Is the impact that you talked about in relation to the oil price common throughout the central belt, the north-east of England and Humberside?

I am not sure that I can speak to other regions with the degree of authority that you would want, but I can give a sense of the broader impact. We released our oil and gas survey at the end of November. You mentioned the Oil and Gas UK report. Our report found some pretty bleak immediate-term findings in relation to the supply chain around confidence, for example. We asked questions about confidence, activity levels, employment and so on, and, broadly, we found that optimism was at a level comparable to the 2015-16 downturn. Generally, since the 2015-16 downturn we have seen a steady increase in optimism about activity levels and so on, but those levels have clearly dropped to levels that are comparable to that downturn, which is a significant cause for concern.

There have been significant redundancies in the sector, and contractors are clearly looking to reduce their workforce not only in the immediate term but in the future. The caveat to that is that our survey was taken before any of the vaccine distribution news started to materialise, which has begun to give the sector a bit more clarity, and there has been a substantial rise in the oil price from that. The sector is a significant employer in this part of the world. Tens of thousands of jobs in the region are based in mining, quarrying or energy industries, so any impact on the industry in general clearly impacts on employment in the region.

There is no doubt that the oil industry is important, but I was trying to get at why the north-east would be impacted more than anywhere else. The OGUK report for 2019 said that 25,000 jobs would be required to be filled over the next few years because of people retiring and so on.

Yes. It is clear that there is a demographic shift in the industry, and we will maybe touch on that a bit later. That is why a lot of bodies in the region, including—[Inaudible.]—Opportunity North East, the Aberdeen and Grampian Chamber of Commerce and OGUK are focusing on engaging young people with the vision of the oil and gas industry and its ability to drive the transition forward.

I will move on to my questions, which are about the north-east’s city and town centres. A lot more people are working from home because of the pandemic, and there are reports of increased uptake in consumer use of local and neighbourhood shops. What impact has Covid had on the city and town centres of the north-east?

City centres are probably among the most challenged areas of the economy coming out of Covid. One of the core challenges that we have in relation to how work is changing is that we immediately had the majority of office-based businesses choosing to work primarily at home, which has had a clear impact on city centres and the businesses that support them—retail, hospitality and so on—which rely on that footfall.

The statistics for footfall in retail and recreation in the Aberdeen city region since the lockdown have broadly shown a consistent reduction. At their lowest, the figures were 80 per cent down on the same period in the year before. They began to head up to being about 40 to 50 per cent down, but the local lockdown meant another surge to being about 70 per cent down. The figures have begun to recover again, but they are below normal levels in all areas. In retail, recreation and workplace mobility, the numbers are down significantly, which has clear implications for retail and hospitality businesses that rely on such footfall.

There is no doubt that hospitality and some retail sectors—I am thinking of clothing, footwear, coffee shops and sandwich shops—have not performed well. Have any parts of retail performed well?

In the broader Office for National Statistics data, we see that food retail has performed relatively well. Because of the transition away from people eating in restaurants and outdoor settings, food retail has generally performed well throughout but, as you mentioned, non-food retail of clothing and so on has been more challenged.

The KPMG UK retail sector trends for 2020 and 2021, which came out in October, show that food retail has fared well, as you said, and they highlight that furniture, homeware and DIY businesses and high street businesses with an e-commerce presence, such as Argos, Next, Boots, GAME and Wickes, have all performed extremely well. Does that suggest that the trend will be towards shopping more out of town than in city centres?

That is challenging to predict. What will define that—in my view and in what our members are beginning to see—is what the future working models will look like. I presume that the businesses that you mentioned—in homeware and furniture—are driven by people spending a lot of time at home.

At the most basic level, a couple of core things will determine the position. One is what the return to offices will look like—how sticky the behaviour of hybrid working and working from home is and whether companies choose to have a hybrid working model or a more full-time working-from-home model. From the Government and policy point of view, another factor is what the route map to office return will look like. Before the second surge of the virus, the Scottish Chambers of Commerce and others were looking at what a road map to office return might look like. Sketching that out and understanding office return from a policy point of view will determine much of the position. Fundamentally, the underpinning factor is what working models will look like in the months to come and post-Covid.

Pre-Covid, there was a trend towards home working—a bit of hot desking took place and some people spent two days in the office and three days working from home. If anything, the pandemic has accelerated that trend. What opportunities does that present for city centres? Is there an opportunity to re-examine how they should operate and the businesses that we should have in them? How do we support existing city centre businesses until we get through the pandemic?

You are right about the property focus, which is core. It is clear that working from home was a trend, and I agree that many such trends will be accelerated post-Covid.

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However, it is also important to mention that we get mixed reports from members about the utility of non-office working and how that impacts on particular parts of the workforce. For example, younger people are not able to build networks as effectively as they might in an office environment, where they can pick up tacit knowledge while on the job. There are therefore core challenges in working at home primarily or full time.

In terms of the property focus, a policy panel report for Aberdeen City Council, which I will share with the committee following the meeting, was pulled together by a number of independent economists, and it is linked to the date of the bond that it took out. One of the things that it focuses on is the importance of making property—in city centres, in particular—attractive post-Covid and being flexible with property usage, whether it is empty office space, hotel property or retail property, in order to shift it.

There is more to that, though. Predominantly, my concern is business rates. Those have been a key challenge for Aberdeen and the north-east for some time, which is why transitional relief was brought in specifically for offices in Aberdeen City and Aberdeenshire following the most recent revaluation. We have just seen the Parliament choose to delay the 2022 revaluation until 2023, which presents real challenges for the north-east region, in particular. For example, the rates that came into force in 2017 were based on the tone date in 2015, so they did not reflect the impact of the oil and gas downturn on the economy. Generally, therefore, the business rates in the north-east have not reflected reality since their introduction, which is why transitional relief was brought in. However, that relief has, in effect, run out and is no longer applicable to the many businesses in the region.

In terms of the attractiveness of city centres, there is both a national and a local north-east policy focus. The key point is understanding for retail and hospitality how the business rates relief will phase out. The rates exemption is in place just now for those sectors, but many in the sectors are looking towards what will potentially be a challenging Christmas and an unclear path after that in terms of the footfall challenges and the work and habit changes that we spoke about. The key focus is on the Government setting out clearly in the next budget, on 20 January, what the path will be for rates and rates relief, particularly for the key sectors that are most impacted. Understanding those up-front costs will be key for city centres. Equally, for the north-east more broadly, our view is that there is a need to focus on a specific regional rates deal, because the delay in the revaluation means that the region will face rates that do not reflect reality for a significant additional period of time.

My final question is about the claimant count numbers that we have been given for Aberdeen and Aberdeenshire. Can you explain why, given the pressures in the north-east and the problems of hospitality, lower oil price et cetera, the figures for male and female claimant counts are below the Scottish average? The figures for Aberdeenshire are substantially below the Scottish average and the figures for female claimants in the Aberdeen area are slightly above the Scottish average by 0.1.

We have been joined by Jennifer Craw, so perhaps she and Andrew Burnett might want to comment briefly on that matter before we move to questions from the next committee member.

I am not an expert on the claimant count numbers, but I think that there is a balance from a north-east perspective in terms of our numbers of people on furlough and the particular sectors mostly affected by furlough.

We have a large proportion of people on furlough, and our claimant count started from a low base. However, we need to balance what is currently happening during the pandemic, given the support that is in place, with the huge concern about what will happen post furlough and whether businesses will still be operating—and if so, at what capacity—as the furlough scheme ends.

I was not connected to the meeting at the point when there was a discussion about why oil and gas sector furlough or partnership action for continuing employment—PACE—supported redundancies will have a disproportionate impact on north-east Scotland, but it all comes back to the percentage of jobs that are part of the workforce there. Circa 40,000 jobs in the north-east—double the number of jobs in our other sectors—are dependent on the oil and gas industry, so any job reductions, losses or redundancies in the sector will have a major and disproportionate impact on the economy. That is currently masked by the numbers of people who are on furlough. The big impact on hospitality and on the oil and gas supply chain is the real concern for the north-east.

Looking ahead, with regard to the oil and gas sector, we need investment in offshore, but equally we need investment to be ready to support the industry as it transitions to a much stronger focus on energy transition and the international aspect.

I cannot answer the question on the specific numbers for the claimant count and furlough, but we need to balance those two aspects in looking at the two industries that are most severely impacted and affected.

As I said at the outset, if you can provide the committee with any further information, please feel free to do so in writing.

I will bring in Andrew Burnett—I think that he wants to come in—before we move to questions from Colin Beattie.

I was going to interject during the discussion about how we attract businesses back into our towns and cities. In the north-east, towns and cities look empty, and—as Shane Taylor said—they are devoid of the usual volume of traffic. There is a consumer confidence aspect, which is not a consideration specifically for the north-east alone; the Scottish Government needs to be aware of that. It is about how we get people feeling confident about moving back into the cities and towns.

That provides us with an opportunity to look at the balance of how we do things. We are trying to encourage small businesses to challenge the traditional business models that have got them so far. A large number of successful e-commerce businesses have been able to adapt or embrace the ability to sell online and have managed to survive so far. Nevertheless, it is alarming to see how few businesses are not adequately set up for dealing digitally. That should be a strong focus for the next months and years to come. We need to try to get businesses in the north-east up to a digital level that is comparable with levels in other countries.

I would like to understand what projects and developments are happening in the oil and gas sector. Oil and Gas UK said that it could take up to three years to restart many of the projects that have been lost due to the pandemic and the commodity price downturn. Why will it take three years?

Is that a difficult question? Are there any volunteers to answer it?

I am happy to come in on that. It is about the cycles of investment. There is the level of confidence and there are the cycles to which oil and gas operators work in response. We need to understand that the industry has been through peaks and troughs. It is currently impacted by Covid, the oil and gas price and energy transition. Looking ahead, rebuilding confidence in oil and gas and the sector’s importance in maintaining sovereignty of supply and the industrial and engineering base are both important aspects.

Oil and Gas UK is the lead voice of the industry in terms of reflecting what its members’ investment profile looks like. We should be mindful of that in terms of the overall return in economic activity relating to oil and gas—operations, production and offshore. However, the real issue right is maintaining the workforce, the company base and support for the supply chain, which is critical in the longer term for energy transition and the supply chain. It is a stark warning about the challenges that lie ahead in the short and medium term and the need for the industry to invest in skills, capability and support for diversification and internationalisation.

I would like to come back to the point that you made about the cycle. People do not decide to invest every three years, so what do you mean by cycle? Will you elaborate on that?

A number of the companies are global ones and as they put forward their opex and capex proposals within their organisations that is what Oil and Gas UK reflects in its reporting. It reflects the fact that many of them are international businesses making investment decisions on an annual-plus basis. Unfortunately, if that is what is being reflected in its members’ feedback, we have to consider the impact of that reality on both the Scottish economy and the north-east of Scotland’s economy.

Is there any way to tease out which of the impacted projects are being delayed or shelved due to the pandemic and which are being shelved because of the commodity price downturn, or is the result the same, so there is no way to separate them?

I do not know the specific detail. It is a really good question. Shane Taylor may have picked up more from the work that the chamber of commerce has done recently. We can certainly ask the question. At the moment, the net impact becomes one and the same, but I do not know whether that will unravel as we come out of Covid and move forward. Shane mentioned the impact of the vaccine and we all hope that a successful roll-out will accelerate the economy back to a different phase of growth. Perhaps we can take the question off line and do a bit more research around it, unless Shane can add something based on the survey that the chamber has just completed.

Generally, I concur with Jennifer Craw’s answer; it is very challenging to separate the impact of Covid-19 from that of general economic conditions. Although some geopolitical considerations created a bit of a slide in the oil price at the start of the year, it has fundamentally been fuelled by Covid and the drop in demand that came from that. It is very challenging to split those aspects, but I am happy to see whether we can get more detail on that for the committee.

Moving on to another aspect of the same thing, a lot of people believe that the north-east’s oil and gas legacy paves the way for significant growth in energy transition activity. I think it was Jennifer Craw who mentioned that. A net zero carbon energy future is, of course, part of the green recovery. Do you think that policymakers and industry have moved at enough pace to ensure that Aberdeen region can take the lead in the energy transition? Is enough being done on that?

We can always accelerate those ambitions, but the region has been pretty focused on its oil and gas to energy transition ambitions. That has been a core part of the regional economic strategy and a core focus for some time. However, Covid—the impact of the pandemic and the additional downturn that the industry has seen—has definitely accelerated those ambitions.

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Even prior to that, though, we were beginning to consider such areas, and great work has been done on energy integration by the Oil and Gas Authority. I draw the committee’s attention to recent reports by the Oil and Gas Technology Centre—one entitled “Closing the Gap” and another setting out an integrated energy vision for the region, which clearly illustrates the potential in areas such as hydrogen energy and carbon capture.

On our ambitions more generally, we want to accelerate matters. Although I mentioned that, according to recent surveys, the industry’s perceptions about the immediate impact were bleak, it is worth mentioning the more positive side of that story, which is that transition ambitions in the supply chain have accelerated dramatically. We have seen high levels of respondents considering engaging in renewables, reducing the proportion of their operations in oil and gas and actively diversifying. More than half of respondents also said that the Covid pandemic had accelerated their plans on transition.

We are therefore seeing accelerated plans on the supply chain side, which have been reflected in Oil and Gas UK’s recent report. We have also seen Government support emerging on that side: for example, the Scottish Government’s £62 million energy transition fund, which is welcome, focuses primarily on the north-east of Scotland. We are also looking towards the North Sea transition deal in the months to come. Therefore, in general, there is room to accelerate, and there is clearly the appetite for doing so. However, the sector in general, and the north-east in particular, had been pretty focused on accelerating its ambitions even prior to the Covid pandemic.

May I ask one last question, convener?

I hesitate to interrupt, but time is running away with us, so I ask witnesses and committee members to be brief. I will allow Mr Beattie one final quick question, to which perhaps we could have a quick response.

My final question is about the significant investments that have been proposed. We have been discussing projects that have been shelved or delayed. What barriers are preventing projects such as the energy transition, the energy transition zone, the global underwater hub and the North Sea transition deal from being developed fully? What is slowing them down?

Your question is about pace, but the issue is the alignment of pace. We know that, in particular, sectors such as offshore renewables, offshore wind and floating offshore wind present key opportunities for both Scotland and the north-east to use all their experience, knowledge, know-how, engineering, and design capacity and capability to go into deeper offshore wind, reusing floating structures. However, a number of such technologies are pre-commercial. We have demonstrators, and we talk about many such activities as though they are here already and are commercially viable, but they are not.

Therefore a balance must be struck across supporting the industry in driving and moving forward at pace, the licensing sector moving at the pace that it can do, and ensuring that both the offshore and onshore infrastructure can be provided at market cost. We must identify where the specific market failure is across such projects. In the energy transition zone, there is market failure on the land-side capacity, linking to offshore wind and maximising the investment in Aberdeen harbour south that has been part of the Aberdeen city region deal. In the OGTC’s net zero solutions centre such failure concerns commercial solutions for both decarbonisation and new technologies such as hydrogen energy, carbon capture, utilisation and storage, and offshore floating wind that can make solutions emerge at a commercial pace and rate. In the global underwater hub, the concern is about accelerating the supply chain, and particularly the subsea part, to enable it to be at the forefront of international or global opportunity in the blue economy.

There needs to be early-stage pump priming to ensure that we will be at a point where we can be market ready at the time that such technologies and the industries need us to have the supply chain and the place-based solutions ready for them.

We will now move to questions from Maurice Golden.

I am interested in the witnesses’ views on how young people in the north-east have been impacted by the pandemic, particularly in relation to labour market access.

Across Scotland, particularly in the north-east, we see that the younger population is disproportionately impacted. A number of activities are under way across the skills groupings to consider how we can come together to resolve the issue by helping to bring young people both at-work training opportunities and new opportunities, and linking industry and the company base to young people in a new way.

The young persons guarantee and access to apprenticeships has been a key area of focus in ensuring that, at an industry level, apprenticeships are made available, and apprentices who, unfortunately, have been let go, find an alternative employer. A concerted effort will need to be made through the furlough scheme to specifically target young people in rebuilding the economy.

The issue is certainly a strong focus of the skills strategy group, and the developing the young workforce strategy has an important role to play in the north-east of Scotland, along with Skills Development Scotland. For each of our Opportunity North East sector boards, the role of the individual employers, and the different parts that they can play, are important. Are those schemes up and running yet? No, but they are in the planning, because the disproportionate impact on young people is very much understood and felt.

As Jennifer Craw mentioned—I think this point came up in previous committee sessions— there is a clear focus, driven by the young persons guarantee, on how DYW upscales its activity. Already, across the north-east, DYW drives hundreds of activities, through which it engages with tens of thousands of young people and their parents.

The committee has already touched on some of the school co-ordinator work. In my previous role at Scottish Chambers of Commerce, we submitted evidence to one of the young people’s pathways committees that one of the frequent challenges with DYW was a lack of focused school resource and contact points in schools. That was a key piece of work for which the chambers called for some time. On the basis of that work, we have seen a significant increase in the number of school co-ordinators. That is a new, focused role, based in schools, that focuses on how DYW connects employers and individuals with employment opportunities. There has been a real upscaling there. We have also seen some key initiatives, such as the kickstart scheme, beginning to come on stream.

Broadly, we have seen an impact on young people, and we know that the industries that are most likely to employ young people, certainly at the start of their careers, have been badly impacted by the pandemic. As I mentioned, there is also the tacit impact of working remotely on a young person’s career experience. It is quite challenging to get a sense of that impact, but it is something that we need a clearer view on going forward.

We are seeing lots of young people come through our doors without a clear opportunity for their next step. There is an issue with a lack of opportunity. Yes, we need to connect them with businesses, and DYW and the kickstart programme are useful mechanisms for doing so, but a lot of them are probably coming through the Business Gateway doors because they are considering a business start-up, along with employment and returning to study. There is no clear next-step destination for them. When we engage them in the start-up environment, it is important to help them to raise their ambition level about what they can actually achieve; for example, by introducing them to the idea of identifying a good product or service, and then selling it across international borders.

Many of the students who are coming out of college and university are much more tuned in to those sorts of opportunities than a conventional older person who is interested in starting a business. With the right input, we can encourage young people to think about starting up the right type of business and to explore the market opportunities, but it does take time, which is a distinct difference between the situations pre-Covid and post Covid. Traditionally, when people come through the doors looking to start a business, they have, perhaps, a three-month window in which to do that and they already have a good idea and a good understanding of the market opportunity. Now, the timescales are much more like six months or nine months, which has an impact on the business support mechanism in the north-east and, I am sure, throughout Scotland.

We now move to questions from the deputy convener, Willie Coffey.

I will pick up that thread with Andrew Burnett in particular. The committee has heard from a number of young people across Scotland about the problems that they are facing due to Covid, and Maurice Golden opened up the questions on the impact on young people, particularly in the north-east. Are you finding that young people are choosing their career direction at university or college in the hope that they might get into the oil and gas sector? If so, have they suffered more than most with regard to the opportunity and access that Maurice asked you about earlier?

I suppose that it comes down to the speed of change. Without doubt, many people have entered into further and higher education with the expectation that they will move into a sector where there will be jobs for them, and they are having to revise their expectations as to the likelihood of that happening. As well as the issue of the number of jobs available, it is a much more competitive environment for the few jobs that are available. What I am seeing and hearing is that, when young people are moving out of the educational phase, there is no clear next-step destination, so, in effect, they are trying to keep their options open and explore different avenues. From a Business Gateway perspective, if starting a business is one of those options and we can help them to focus on an idea and identify how to make some money from it, that might be a better alternative to taking a lower-paid position, the market for which is still extremely competitive. Does that answer your question?

Yes, that certainly helps. Could the other witnesses offer a comment on that? Have their youngsters been particularly affected in that their hopes of going into the oil and gas sector have been thwarted by what has happened, including what was happening in the sector pre-Covid? Covid has probably made that situation much worse. Is there a particular impact on youngsters from the north-east because of that?

Jennifer Craw wants to come in.

There are two elements to it. On the provision of training, there has been an ambition for training to become broader than oil and gas, such as through apprenticeships being competency based across a number of sectors, including renewables and oil and gas. That will come on stream, but, yes, there has definitely been a hiatus because of Covid and the drop in demand for oil and gas, so there has been a disproportionate impact on those young people. Looking at university provision, on the commercial business, legal and engineering sides, the infrastructure has moved to be broader to offer undergraduate and postgraduate qualifications that are not specific to oil and gas. That is coming through the system, but I think that we were caught out by a major seismic shift in a very short time.

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The system was moving in the right direction and definitely gaining pace and momentum with regard to energy transition as a result of the targets set last year and the Committee on Climate Change. However, Covid has created a hiatus and an acceleration that has exposed the ambitions and the pace at which we need to move and respond, which has an impact on young people. They are making choices at the ages of 16 or 17 for their future careers, but we need to ensure that the skills that they gain through training in work or through further education and higher education are applicable across a number of sectors.

Digital skills—being able to code and apply that—are important. As our industries move into high-value manufacturing, we depend on data and digital science. They are key to accelerating research and therapeutic development in life sciences, for example. As we build and grow our digital economy across Scotland and the north-east, it is increasingly important that those skill sets are embedded in the school curriculum, work training and FE and HE. That is happening, but the question is how we crystallise the acceleration of the activity that has taken place over the past seven or eight months to plan for the future in systems that can be slow to respond to forecasts and demands.

Do I have time, convener, for a final, brief question on the digital side of things?

Yes.

What has been raised a number of times with the committee is thinking in broader terms about the impact of Covid on employment and employers’ ability to think differently about where they should offer employment. A number of young people have told us that they would welcome employers thinking differently about where they provide their opportunities to work. These days, we do not all need to cram into the big cities in Scotland to work and have demonstrated that we can successfully work remotely from home. Will employers take the opportunity of what has happened because of Covid to rethink how they engage with youngsters in particular and provide them with more employment opportunities locally in the towns and villages where they live?

There is undoubtedly a huge opportunity for the north-east region in that regard, particularly as we have an attractive quality of life proposition alongside the skills in the region. A lot of that comes back to points that I made earlier around how sticky some of the behaviour is, though. Jennifer Craw touched on some of the core points there. Various organisations have produced reports over the past year or so, but OPITO clearly showed in one of its reports on the skills dynamic that the industry needed a significant injection of digital skills. We will see a real digitisation of the UK continental shelf from now up to 2025.

There is a skills demand, but a clear point from the oil and gas survey that we released at the tail end of last year is that the industry feels that it is not that great at attracting young people, which is a core challenge for us. In terms of accelerated ambitions, our region has a clear vision of how the oil and gas industry can lead the energy transition, but it has to be underpinned by our ability to attract young people.

A core part of digitisation is how successful the Government is in general at delivering improved digital connectivity across the region. For example, we have seen in Aberdeenshire that our digital connectivity underpins the economy’s resilience. We are looking at how we upscale and accelerate that and how we ensure, for example, that some of the voucher programmes relative to R100 are accessible—that is also going to be key.

I hope that employers recognise that opportunity to bring in younger people to bridge the digital skills gap. I mentioned earlier that Covid has forced lots of businesses across all sectors to reconsider their traditional business model. It is highlighting some of the cracks and deficiencies that were already in place and it is not easy for all businesses to come up with solutions for themselves—a realisation of what is missing, what they need and how to connect with it. It is probably the role of business support organisations and Government to help to make those connections.

We run a programme called grey matters with Scottish Enterprise. It takes senior oil and gas executives who are facing redundancy or have been made redundant and introduces them to a cohort-based learning environment. They bring all the skills and expertise that a lifetime in the industry has brought to them, but almost all of them are missing the level of digital engagement needed to generate polished websites and utilise e-commerce to get products to the customers. Taking programs like that and adding a young dimension to broach that skills efficiency would help to create some exciting new opportunities for both new-start businesses and existing businesses in the north-east.

That is very helpful, everybody. Thank you for that.

At the start of the discussion, there was a question about people’s future working arrangements in town and city centres. Throughout this period, I have assumed that when we get out of the pandemic there will be reduced office working and a lot more home working, so we will probably end up with fewer offices. However, I was in conversation recently with people in the property sector who were far more upbeat and considered that we will continue to need offices. There might be fewer people in them, who will be given more space to work and will not be as crammed in as they used to be, but it is not all doom and gloom and office use will continue. Certainly, I recently saw figures showing that Glasgow has hardly any office space at the moment. What are you finding in Aberdeen?

I do not know that I can comment for the wider business population. However, our organisation is a big employer in the sense that we employ more than 70 members of staff and I would say that 50 per cent of them are happy working from home or are looking for some sort of blended working arrangement in the future while the other 50 per cent are champing at the bit to get back to the office environment, because people enjoy working with other people.

We have been forced to change our delivery model over the past nine months to deliver online training courses and webinars and in general we have seen the level of engagement maintained if not increased on pre-Covid levels. However, we lose some of the magic and dynamism with that approach, particularly when it is in the field of entrepreneurship and networking. As we move towards the point at which we can get back into offices from a public health perspective, I hope that we will see a positive response and that people will want to move back into the office environment, albeit perhaps in a changed model involving split shifts, weekend work or longer working hours during the day. Some sort of hybrid model would be my expectation for what is coming.

That is interesting. My next question is for Jennifer Craw, but others can also comment. It is about the city deal in Aberdeen.

Over the past few years, a number of committees, including this one, have taken evidence on city deals. There are mixed views on city deals and how effective they are. What has the experience been in Aberdeen? Is the city deal driving change, or would that have happened anyway without it? I know that Jennifer Craw is very much involved in the city deal for Aberdeen.

I am delighted to talk about the city region deal. In 2016, the deal for Aberdeen city region, for £250 million, was signed. More than 90 per cent of that funding has now been committed.

The major investment was in OGTC—it was a strategic investment to drive the focus on technology and innovation at both operator and supply chain level. OGTC has been incredibly successful in delivering on that agenda and repositioning the UK North Sea as a driver of innovation in technology. We had a reputation for being a lagger rather than a leader in implementing new technology, so OGTC has been a huge success in that regard.

The other two major innovation projects are in life sciences and food and drink. BioHub in Aberdeen is addressing the big challenge in life sciences, which is the question of where spin-out companies from the universities and start-ups operate from in order to build a cluster effect that links national health service clinicians, university researchers and commercial companies. We have started on the site up at Foresterhill, where the main construction project will go ahead.

In food and drink, the focus is on innovation, advanced manufacturing, automation and the close links between research, the consumer and food manufacture.

Would those projects have happened without the city region deal? No. The other projects include a focus on Aberdeen harbour south, which is critical in providing the deep-water, non-tidal capability that will drive the future offshore wind and renewables, and other elements of decommissioning, in a new era for the harbour. In addition, there is a focus on supporting broadband connectivity from both a city and a shire perspective.

Those innovation projects would not have happened without city region deal funding. The key focus is on diversifying the economy for the long term, maximising our oil and gas industry and supporting growth and innovation in the other sectors, and supporting the infrastructure to support those industries.

Back in 2016, we knew that digital was important—today, we know that it is critically important. I firmly believe that the city region deal was a huge game changer for investment and diversification in the north-east Scotland economy, looking to the medium and long term. We have developed an effective partnership between the public and private sectors, and we have built credibility in demonstrating that investment is going to drive change in the future economy, and in the shape of the economy as we move forward.

You mentioned the harbourside development, which is linked to the offshore wind sector. We will look at that in our next evidence session. Can you tell us more about what that project is delivering at present?

Aberdeen harbour south is due to come on stream next year. It is about the difference that a deep-water, non-tidal port will make in supporting offshore wind as it is currently developing. There is a requirement for a longer quayside, deeper water and larger equipment moving in and out, so we need a port-side facility that offers the ability for efficient movement into storage, marshalling for offshore and going straight back offshore.

If you look at where the ScotWind licences are off the north-east coast, you will see that the harbour is perfectly positioned as a deep-water, non-tidal facility that can be the central point for north-east licence holders as those licences are awarded. It is a game changer for Scotland’s offshore wind capability and—certainly from a north-east Scotland perspective—a game changer in relation to offering the licence holders a solution for operation during the development phase and beyond.

10:15  

Somebody made the point earlier that furlough has been a blessing, which it certainly has been. Are there specific sectors that we now know will need support beyond furlough, from March onwards? Are we able to identify those sectors so that we can start to prepare? Are we also able to identify sectors in which lots of jobs will go when furlough ends? It has been said in the discussion today that we can expect another wave of job losses then. What work has been done to prepare for that, to allow us to put measures in place to support those sectors?

To an extent, there is a bit of clarity around the sectors that will need additional support. Most members are aware of hospitality’s on-going challenges and it is pretty clear that there will be a phased recovery for that sector. In addition to that, any sector that is linked to travel will need support. Live events are key for our region, given some of the recent investments in P&J Live—an events complex in the region. Aviation, in particular, will need support. A more sustained and focused approach to support for such sectors will be key when it comes to recovery.

It was Andrew Burnett who made the point about furlough being a life saver. Furlough has clearly protected employment in a range of sectors and still has a relatively significant uptake, as I mentioned. With regard to where the focus should be, in some of our more recent surveys a higher proportion of members have said that they expect their employment to remain constant over the next three months rather than decline, which speaks to the importance of giving as much clarity as we can around those Government support schemes, as far in advance as we can.

Furlough decisions that were made recently gave us the benefit of having the scheme in place until March. Although we have a review in January on employer contributions, it is much clearer that a furlough scheme will be held in place until March. That forward clarity is important.

Work is obviously going on to support tourism, hospitality and other sectors, such as aviation, alongside the Government’s consideration of recovery plans and actions that need to be taken. Conversations are also going on with industry bodies generally on some of those forward-looking spaces.

We have talked a lot about the oil and gas sector, which will need specific support: the energy transition fund is linked to that, and the North Sea transition deal will be the next stage. A range of sectors will need support but it is relatively clear which sectors they are at the moment.

In addition to furlough, a number of different grants have been made available to sectors such as hospitality. Do you have any feedback on how easy it is for businesses to access those grants? We got feedback from other areas that some businesses find it more difficult than others. How easy is the process? What is the feedback from businesses on access to the available support?

Generally, it seems to be scheme dependent. There is the core scheme of the framework grants that are currently in place and, although there is a bit of work for businesses to do to navigate their eligibility for those, I have not experienced too much feedback from businesses that they are not able to claim those grants.

However, there are separate concerns in other parts of the country about additional packages that have been announced. Increasingly, one of the most common pieces of feedback that we get is about schemes that have very short time windows for application; it is a challenge for businesses to navigate what is out there.

For example, recently, a scheme with a very short time window was announced on wholesale food and drink. We have seen a broad array of specific grant schemes, which is welcome, but there were challenges in accessing some of the earlier schemes. There were challenges for businesses in our region to access some of the hotel-specific schemes that were put together. Feedback from the Aberdeen City and Shire Hotels Association suggests that a smaller than expected proportion of businesses have been able to receive that support. It varies on a scheme-by-scheme basis but, generally, the core grants are accessible. With regard to sectoral schemes, a lot depends on the businesses’ ability, by engaging with trade organisations and others, to keep track of the schemes that are out there. There is a challenge in being able to get that information.

I will give a quick answer to your previous question on trying to prepare for the wave of redundancies that is coming. Unfortunately, we have recent experience from 2015 of the impact on the oil and gas industry and the surge of people moving from employment into unemployment and looking for opportunities. Finding ways to deliver messages to people en masse is critical. The partnership action for continuing employment team that we have in the north-east is important. In 2015, we got people together in a room and ran events for 2,000 people; we ran four of them each year. Obviously, in a Covid environment, we cannot do that, so we are trying to replicate that virtually.

We are trying to create programmes that will handle the volume of people coming through the doors who do not have in mind a firm destination or think that starting up a business will be the right thing for them, but who are exploring self-employment along with all other options.

Again, it is about trying to protect the business support infrastructure, because it is likely that we will be stretched over the next six months. From what I have heard, the business support schemes are working quite well now. That differs slightly from April and May, when the initial support schemes were introduced rapidly. The information that was available was limited; businesses were asking our business advisers about eligibility criteria and we were operating in a real-time situation, where we had no more information than the public or the business community, which was a huge problem. Local authorities, which are administering a lot of the business support mechanisms, are obviously under lots of pressure. They are experiencing stretched resources but, from what I hear over recent times, the funds are getting to businesses, which is important.

Thank you for that. There is a debate in the Scottish Parliament tomorrow on those issues, so I am sure that many of my colleagues will be able to pick up your positive comments about how the business support grants are now working.

That leads me to my final question, which is on the Scottish economy. Do we need to start to have more regional planning and put in place regional strategies? We hear talk about an industrial strategy. The Scottish Government seems to lump together a lot of strategies and say that that is an industrial strategy, but I wonder whether we need a Scotland-wide industrial strategy or whether we need more regional planning and regional strategies, given that the economy in the north-east is quite different from that of the south-west?

That is a really good question, and my answer is that we need both. At Scotland level, it is important that we understand where our industrial strengths are and where there are opportunities for the future. Therefore, I would always support having a Scottish strategy that links to our overall ambitions.

At regional level, we should be able to demonstrate and identify the regional position and how to play to regional strengths. It so happens that, in the north-east of Scotland, we punch above our weight in terms of population size on many aspects. We are way above on oil and gas, we are above on food and drink and, on life sciences, we are about equal to what would be expected. On tourism, we are slightly above, but we are overweighted in business tourism, which is why we are so disproportionately impacted at the moment by there being no business events or business travel, and by the impacts of travel restrictions and restrictions on live events at TECA—the event complex Aberdeen.

Therefore, we need both. We do not want to end up with overduplication, but we need a mature regional approach that talks to the national strategy and understands how each region plays to its strengths. The regional economic partnerships have played a positive role in taking forward that agenda. The city region deals are critical in enabling investment in those strengths and opportunities.

The north-east of Scotland is unique because of the balance, relationship and partnership between the public and private sector. The private sector has a vested interest in ensuring that the region is planning for the medium to long term, because of the understanding and knowledge that the oil and gas sector is a major employer that will transition and will not have the current dominance, from an economic and employment perspective. Therefore, it is important to balance that out and to build new employment for the future.

My personal view, based on our experience through the regional economic partnership, the regional economic strategy and Opportunity North East working closely with our partners, is that it is important to have both approaches.

We will hear briefly from Andrew Burnett before we move to final questions from Richard Lyle, who I want to give some time to.

I agree with Jennifer Craw that it has to be both. Given the strength in the regional economies and the diversity in the regional economic framework, we should be looking to focus on our strengths at regional level. However, it needs to be joined up to help Scotland to make the sort of impact in the global environment that we need in a post-Brexit world.

To refer to the previous question, although we are being successful in getting the money out of the door to businesses, there is still a missing component, which is how businesses engage with Government. The past 10 months with Covid have demonstrated to us that businesses are reliant on the information that they pick up through the tools that we use to send it out. If businesses do not use social media or engage with Business Gateway, they do not get information about what support is available.

Pre-Covid, that probably would not have been much of an issue but, in a situation in which businesses are under intense pressure and are looking for the most relevant and current helpful and simple steps to help them to survive, we are slightly exposed, in that our connection mechanism between business and Government is not as tight as it needs to be. That point was highlighted in the 2019 business support inquiry.

I am not sure what the solution is, but it is perhaps about having some sort of digital user interface. We work hard to ensure that businesses submit their tax returns online, and we could do the same sort of thing to ensure that they have access to all the business support initiatives that are available. That would be really helpful were a situation such as this one to happen again, when we would need to get messages out about what is available to help businesses to address the immediate challenges—and to do so through their channels. At times, the current approach has felt a little reactive to the needs of the business community.

I thank our panel of witnesses. I am obliged to Richard Lyle, who has told me that, because we have had an extensive session, the matters that he wanted to ask about have been covered.

I suspend briefly for a changeover of witnesses.

10:30 Meeting suspended.  

10:31 On resuming—