Economy, Energy and Fair Work Committee

Meeting date: Tuesday, November 24, 2020

Official Report 659KB pdf

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

Item 2 is on our inquiry into the impact of Covid-19 on businesses, workers and the economy. The committee published its interim report for the inquiry on 13 November. We are now focusing on different geographies and areas, and today we will look at urban areas. We have up to one hour for the evidence session.

Our witnesses join us remotely and I welcome Jane Morrison-Ross, the chief executive of ScotlandIS; Pamela Stevenson, service manager for economic development, business and employability at Fife Council and vice chair of the Scottish Local Authorities Economic Development Group; and David Waite, research fellow in Policy Scotland and urban studies, from the school of social and political sciences at the University of Glasgow.

I say for our witnesses’ benefit that some committee members are in the committee room with me and some join us remotely, like the witnesses. When committee members ask questions, it will help if the witnesses indicate that they wish to respond by raising their hands or typing R in the chat box on their screen. We will not have time to hear from all the witnesses about everything, but they are welcome to write to us after the meeting with further comments.

We turn to questions. What impact has Covid-19 had on Scotland’s cities, town centres and office areas—places where people normally work but have not been doing so because they are working from home? Have sufficient actions been taken to deal with the issues that have arisen from Covid for town centres and city centres?

Thank you for inviting me today. Fundamentally, city economies rely on social interaction. Cities are based on the idea that physical proximity provides benefits in economic production and consumption. When that world is turned upside down—as in the period that we are living through—that is problematic for cities.

There are questions that many urban economists such as me are posing. We are confronted with a number of short-term dislocations, such as people not returning to offices or doing so only slightly—they are being discouraged from returning at the moment. That has implications for businesses that rely on passing trade from such activity. In the short term, the effects on how city centres work are profound.

In the long term, we are confronted with the problem of whether the behaviours will set in for longer. To put it simply, in a bad-case scenario, if it is a long time before we get out of the realm of social distancing, firms and workers might decide to avoid contact for a longer time, which would have long-term scarring effects on urban economies.

Those are the big issues that economists are concerned about for big cities such as Edinburgh, Aberdeen and Glasgow.

Graham Simpson wants to come in on some of those points before our other witnesses add their comments.

The sound desk operator will operate the mics in the room. I ask our remote witnesses to leave a few seconds before they start speaking to give broadcasting the opportunity to connect them to the room.

What do the witnesses think about the medium to long-term effects on town and city centres? I used to work for a newspaper in Glasgow city centre and my former colleagues are now pretty much all working from home—that expensive office is now almost deserted.

Once we are through the pandemic, companies will have decisions to make. Some companies will decide that home working can carry on to some degree and that they do not need to spend a lot of money on expensive city centre offices because their staff can work from pretty much anywhere in the world. Will there be a medium to long-term effect on offices in town and city centres, and if so, what is the solution?

Pamela Stevenson wants to come in and Jane Morrison-Ross was nodding her head during that question.

To continue what David Waite was saying, we know what the current impact is and that, as a short-term measure, people want to work from home and are trying to stay away from crowded places. What are some of the solutions from an economic perspective? In relation to reform and recovery, we are asking what the new role of our town centres is beyond retail and hospitality. How do we diversify the uses of buildings? How do we use more buildings for enterprise touch down and as flexible spaces? Can we develop new housing in town centres? How do we start to work with national agencies on place-based remodelling of our town centres? How can we reduce our streets and expand the green space and town squares?

There is lots of information to come out of all that and there are opportunities ahead. Our town centres are in a bad position just now, particularly the commercial aspects of the cities, so we need to work together to consider the opportunities for revitalising and remodelling our cities and town centres.

I agree with what has been said so far. We are seeing a pattern across our industry of companies re-evaluating the way in which they work and looking to move towards more flexible models that have benefits. The knock-on effect is that many companies are considering downsizing their office premises in city centres. The overwhelming feeling is that companies still want a physical hub, but we will see a change in the size of hubs that companies retain as they move towards more flexible approaches.

I am not sure that we got any kind of vision there of what the witnesses think is going to happen. Clearly, if companies decide to downsize, that may have a major effect, certainly in city centres and some town centres. There will be fewer people working in those places, which will affect the economy—that is happening already. In the medium to long term, those buildings have to be used for something. How will we get people into town and city centres and keep the economy going in those areas?

Mr Simpson’s point is important and the prior remark was germane as well. It is difficult to be predictive at the moment. A lot of companies are trying to assess to what extent they will have to change their behaviours. Office for National Statistics data shows that before the crisis, home working was a small, niche practice in terms of the UK’s workforce. It is remarkable and perhaps a sign of resilience in the UK and Scottish economies that people have shifted to home working to the extent that they have in the past months.

From what I can tell, a lot of firms are giving mixed messages about what will happen to their commercial property holdings and so on, and what they will do with them. In the short term, pre-vaccine, the idea of blended working is coming in, whereby people might be in the office two days a week and work from home three days a week. Obviously, that would mean some presence in city centres, but they would still not be the vibrant city centres that we were used to prior to Covid. We will almost have to hold fire to a degree and try to make city centres as liveable as we can and, as was remarked previously, make green spaces from them and make them attractive destinations for people to interact in.

Understanding how firms will interact is challenging. We must remember that we have a sort of getting-by economy at the moment, whereby people are doing things out of necessity to keep things going. That does not necessarily mean that firms see that as optimal or the best way of running their organisations. We know that there are benefits from face-to-face interactions in terms of innovation, for example. Such interactions will still be important for many firms and reflect the value of workers being close together. Many firms will still treasure that and see it as important in the long term.

Gordon MacDonald wants to follow up on one or two points that have been made before going on to other matters.

Before I ask my questions, I want to continue the discussion about the impact of Covid on city and town centres. KPMG’s Retail Think Tank report, published in the past month, said:

“The direction of change that the UK retail sector is heading in has not diverged due to COVID-19, but it has accelerated the need for fundamental structural changes and innovation in the ways retailers operate and reach their customers.”

What are the witnesses’ views on that?

Secondly, with companies re-evaluating whether they require the same level of footprint in the city centre, what opportunities does that give other independent retailers and what is the possibility that populations that have been driven out of city centres over decades will be able to repopulate them if office space is converted back into homes? Pamela Stevenson touched on that earlier; do you want to start, Pamela?

Pamela, can you hear us?

Yes, but I notice that David Waite wants to respond.

Committee members will sometimes directly address a witness on a point that they have raised earlier, so the witness does not need to go through the convener to answer it. Gordon MacDonald mentioned that you previously touched on one of the points that he raised. However, if you prefer David Waite to come in just now, we can come back to you later.

The shocks to retail have been pronounced, for city centre retailers in particular. We know from the chief economist at the Bank of England that online channels for retail have increased significantly through the Covid shock, and it is expected that that increase will be sustained to some degree.

09:15  

The question is what kind of retail we will have in city centres. It may not look as it did before, which is a big challenge. Again, I cannot predict too much what it will be like; a lot depends on the course of the pandemic and how it affects people’s willingness to travel to city centres. Retail volumes in city centres are fundamentally shaped by the proximity of office workers, university students and so on, who all provide essential demand for those shops. The ability to get those people back into city centres will be fundamental. The question might be not whether there is retail in city and town centres, but what kind of retail we might see there.

I concur completely with what has been said. In retail, we are seeing a huge boost in online trading and e-commerce, which grew by 168 per cent in the United Kingdom in the initial stages of lockdown. There is still a huge amount of opportunity to grow that area, as Scotland’s market share as part of the UK is woefully behind where it should be.

Given the percentage of microbusinesses and small and medium-sized enterprises in multiple sectors in Scotland, I welcome the latest steps that are being put in place to look at how we can digitally enable small artisan producers and microbusinesses in multiple sectors. That will be key to recovery and economic growth, not as an alternative to physical premises but as an additional channel for those smaller businesses to make use of.

I will follow up on what David Waite and Jane Morrison-Ross said. Since Covid, we have seen small artisan businesses coming together to set up digital platforms for trading online. Through our local economic agencies and Business Gateway networks, we have been supporting businesses throughout the pandemic to adapt and repurpose their retail and hospitality capabilities so that they can continue to trade.

We are starting to see businesses working through platforms such as Shopappy and others, and they are working together to look at supply chains, procurement and distribution. We do not have answers on what retail will look like moving forward. I know that the physical presence may not necessarily be there, but there could be some sort of supply-and-demand local distribution capabilities that could lead into hubs across Scotland and link in with some of our trade development work. We have seen some fantastic examples of retail businesses converting and adapting to digital capabilities in order to trade online.

We have already touched on the fact that there has been quite a movement to digital—Jane Morrison-Ross mentioned a 168 per cent increase in sales in that area. How is that reflected in employment in the sector? Have more jobs been created or sustained? What is the situation?

We are not seeing a drop overall in the demand for skills in the sector. At the latest survey, the majority of companies in the industry—around 70 per cent—were still optimistic and were still predicting additional head-count growth.

We are seeing additional demand across other traditional industry sectors as businesses look for additional digital skills to help them make the pivot that Pamela Stevenson talked about. That covers everything, from demand for first-class computer science graduates from some of the more traditional technology industries through to digital skills for the web and e-commerce and customer relationship management skills—the fundamental building blocks that funds such as digital boost are currently trying to support in non-technology industries. We are still seeing a shortage of skills and a demand for skills.

It is great to see that so many indigenous companies are moving on to the digital platform. In addition, we have the skill set in Scotland to attract companies to come here. How well are we doing in that respect? The Californian company UserTesting recently announced that it is going to employ 70 people in Edinburgh. Is that a one-off, or are more companies coming to Scotland to get the benefit of our highly skilled employees?

A significant number of companies are still coming to Scotland. You gave a great example—another recent example is Elcom. Some of the emerging technology sectors such as geospatial data and the space sector are increasing, and are encouraging companies to come here. Spire Global is a great example—it is building more satellites in Glasgow than in any other European city. We are definitely still seeing that demand, partly because of the access to skills from our university and college sectors, and partly because Scottish Development International and Scottish Enterprise have invested in creating an infrastructure that is supportive and welcoming of those companies.

Through some of the recent events in which I have been involved with SDI, we have seen that companies are still very interested in making the move to Scotland over the next six to 12 months.

If there are no more comments from the witnesses on that area, we will move on. We are under a bit of time pressure and a lot of members want to get in. I will bring in Richard Lyle, who joins us remotely.

We have already touched slightly on some of my areas of questioning.

The report of the advisory group on economic recovery, “Towards a Robust, Resilient Wellbeing Economy for Scotland”, recommended a “pivot” to a more regional model of economic development to drive place-based recovery and solutions. Is that pivot happening? What actions would you like to see?

Yes, it is happening. The launch of organisations such as South of Scotland Enterprise, and the work that is going on in the Highlands and Islands, are supporting that.

We need to ensure that we have in place national infrastructure to support that pivot while having the regional depth of knowledge across each industry sector and geographical area that can really enable the growth of businesses in those areas. There has to be a combination of the two. From where we stand, we certainly see that depth of expertise coming to the fore across multiple regions.

I will ask Jane Morrison-Ross a further question, although the other witnesses can come in, too. More generally, what should be done to promote economic recovery from the impact of the pandemic? What should be done to support the digital sector—we have touched on that—as part of Scotland’s economic recovery?

There are two answers to that. First, the digital sector has been remarkably resilient. An overwhelming number of our members—70 per cent—are predicting growth and are optimistic about the future. In general, they are currently more concerned about clarity on an exit strategy and understanding the impact of Brexit than about Covid-specific restrictions.

That is partly because the industry has had additional opportunities to provide services and supporting products to other industry sectors. That second part is key. Every business is now a digital business, partly as a result of the need to recover but also because of the need to grow. The situation over the past eight months or so has massively accelerated the uptake of digital technology in practically every sector. Initiatives such as digital boost and the potential new fund—which I understand is being looked at with the United Kingdom Government—to provide additional support to small and medium-sized enterprises across those sectors to make the step change to use enabling technology are critical. Digital boost is fantastic, as it provides companies with support to access technology.

Part of the layer that has been identified as missing, which we would agree with, is the expertise to enable people to understand what to do with that technology and how it applies to their business, whether they are a small artisan cheese producer or a manufacturing company in the Borders. Companies need that expertise, and that issue is now being addressed.

The regional pivot point is interesting and was obviously made quite strongly in the Higgins report. In some ways, we are seeing it and we are not. Following the enterprise and skills review in 2017, regional economic partnerships were set up. In essence, they try to provide a forum in which national agencies and local authorities can discuss local and regional strategic priorities. That is a promising step and I hope that they will be effective in that role. On the other hand, local authorities still do not have a huge armoury of levers with which to shape local economic change. That is still an issue that could be thought through and discussed.

The digital economy point is important. Although I do not have the same depth of sectoral knowledge as the previous speaker, I will point out a couple of issues. First, on the production side, the Logan review has rightly been lauded for setting out a good pathway for thinking about the digital sector. We also have to think about who is using digital, which has been described by some academics as the new sanitation of our time for urban areas. Therefore, stable wi-fi and access to information and computer technology will be increasingly important for a number of workers.

What is Fife Council doing to promote that?

It is a good question, and I agree with the previous speakers.

This is a difficult time and, to be truthful, we are still dealing with the rapid response to Covid to support businesses, for which it is a very distressing time. It is therefore important that we focus on that while still looking at the short to medium term of our reform and recovery programmes.

In relation to how we dovetail with the national approach, it is fundamental that we work with our national agencies. We have fantastic examples of working closely with Skills Development Scotland, Scottish Enterprise and SDI to look at skills development and how we support businesses to retrain, reskill and adapt. We are looking at multiskilling to ensure that we can stop redundancy and unemployment during the current conditions. We are also looking at how we work with young people who are starting to leave school and college to ensure that, through the Department of Work and Pensions and our youth employment opportunities, we help them to get into businesses, to support those businesses and the individuals.

It is also about starting to look at what jobs are out there and helping businesses to understand sustainability and the use of low-carbon products and services to grow. It is about supporting businesses to look at investment in low-carbon infrastructure and longer-term efficiencies, which we are starting to see some evidence of.

Jane Morrison-Ross referred to digital connectivity. There are fantastic examples on that from across Scotland, not only in advanced manufacturing but in financial technology firms. Many indigenous little entrepreneurs have adapted and repurposed their businesses, and it has been fantastic to see so many start-ups during this time, which we simply did not expect in the current conditions.

One thing that we have been doing this year in Fife, as part of our renowned culture of enterprise programme, is to re-adapt our enterprise and education programmes into all Fife schools. We have managed to convert all of them to digital delivery approaches, which has involved improved working with CodeClan and colleges, to ensure that we can virtually engage with schools to help them to understand the economy, enterprise and education. Some of the other activities are around data-driven innovation and working with universities to help businesses, which I will not go into much, as Jane Morrison-Ross referred to it. The development and on-going support from the Scottish Government for our gateway networks and digital boost has been second to none and we need more of that, as the demand is great.

On engaging with businesses through Covid, we continue to look for opportunities to understand the barometer of where businesses are. We are looking at workforce upskilling, remodelling and adaptation, and at new trade and market opportunities, such as how businesses take existing products and put them into new markets. Through Covid, we have sometimes found fantastic examples of businesses taking existing products and putting them into a whole new sector, particularly in supporting the national health service and helping the Covid response.

Another area is refocusing on procurement. On town centres, which have been referred to, we are looking at better planning and regulation and ensuring that there is more input from place making and planning charrettes.

One big area from an economic perspective is investment-led growth, on which we work closely with Scottish Enterprise and SDI. How do we ensure that we have fit-for-purpose employment land and investment in infrastructure to support inward investment and the adaptation and growth of our indigenous businesses? We are in distressing times, but there are some fantastic opportunities ahead and opportunities for more creative thinking about how we can deliver local economic development.

09:30  

That gives us a lot to think about. Thank you.

Given our limited time, if witnesses want to go into detail, it might be helpful if that were done in writing following the meeting.

My question is for the whole panel, but perhaps we can start with David Waite this time. We have talked about recovery, but what are your thoughts on a green recovery in general and how the Scottish National Investment Bank and city deals will feature in that recovery?

There is a lot of discussion about the green recovery from local authorities all the way up to multilateral organisations. The argument is that our recovery from the crisis cannot simply sow the seeds of the next crisis—that is quite a potent argument. A green recovery might take a range of forms. Do we need to look at a green industrial policy that would really focus on the transitions process? How do we prioritise infrastructure investments that have green objectives and where those objectives play a more central role? Are we following through on the win-win promises of the retrofit agenda, which it is argued will help with jobs in the short term and lead to energy efficiencies in the long term?

If we look across the piece, city deals have been evolving since 2014, so they are quite different in nature and in the projects that comprise them. In some of the latter deals, we can see some green objectives coming through.

There are also important policy questions about how we use the sustainable development goals to frame our thinking about the green recovery. We are seeing that more and more, for example in Bristol’s recovery plan and, following the work of the climate working group last year, there is murmuring in Glasgow about using sustainable development goals as a guiding light for the green recovery.

It is early days for the Scottish National Investment Bank, but one of its core missions is the green recovery. There are many things pointing in that direction.

I agree with David Waite’s comments. We are seeing an increased focus across industry on how digital technologies and the associated supply chain can pivot to start tackling some of the climate challenges. The run-up to the 26th conference of the parties—COP 26—has helped that focus. The recent countdown to 26 event, which was run across all the innovation centres and Scottish Enterprise, brought a huge amount of focus to that.

Recently, Skills Development Scotland commissioned a study on the skills that are needed for climate technologies and for companies to start to access those skills at a practical level to tackle some of the issues. What is needed next—we have been discussing this with the Scottish Government’s new green deal team—is practical information and advice for companies to start to make a difference at a tactical as well as a strategic level.

There is a significant amount of expertise in Scotland and, as Pamela Stevenson mentioned, there is a lot of innovation that could be pivoted and refocused to start to address some of the climate challenges. The collaborative element of that is particularly important, including with organisations such as CENSIS, the Data Lab, Digital Health and the Scotland 5G Centre, and with broad academic and industry partners.

I do not have too much to add to that—David Waite and Jane Morrison-Ross have covered most of it. Our main focus is on how we help business access the expertise to be more innovative around efficiencies, sustainability and low-carbon capabilities, how we collaborate and some of the decarbonising transport and energy industry projects that we can undertake in our local areas and regions to help the supply chain opportunities.

What are your thoughts on what Fife Council is doing? Do you have examples that you can highlight for the committee?

Absolutely. I will not reference names as such, but we work with companies that are very fleet maintained. In partnership with bodies such as SE and Zero Waste Scotland, we help such businesses to explore low-carbon efficiencies and opportunities to establish clean growth visions for their fleet, transport and other logistical capabilities. Working with other partners such as the green team at the Scottish National Investment Bank, we help businesses to consider how they might fund infrastructure projects that will assist not only their business but, in the case of big employers, their supply chains, too.

We have industry action investment plans with big businesses in Fife such as Forth Ports, Shell, Babcock and Amazon. We are also working on our own infrastructure projects such as the Levenmouth rail link, the delivery of the Fife sustainable energy and climate action plan—SECAP—and how the council might explore electric vehicle charging points in its investment programme. A similar approach is taken across lots of local authorities in Scotland.

Thank you. That is very useful.

We are all aware that a number of support schemes, such as the furlough scheme, are said to be protecting employment. However, are we doing so, or are we simply delaying unemployment by pushing it into the future? I have seen a report that around 230,000 or 240,000 people in Scotland are currently on furlough. Are we just delaying what will inevitably come through as mass unemployment, or are such schemes an effective way of carrying us through this period?

I will answer that initially. However, I can speak only for the industry sector of which I have some depth of knowledge.

We found that only a small proportion—less than 20 per cent—of companies in the technology industry took advantage of the furlough scheme early on in the lockdown period. For most of them, that was a precautionary step as they assessed the impact of Covid-19 on their supply chains. We have not seen a significant number of redundancies or lay-offs as an impact of Covid or furlough. Furlough has been used more as a precautionary tool but, again, I stress that that is perhaps the case only in the technology industry. I understand that, in other industry sectors, furlough has been a much more important tool for keeping businesses afloat.

Our cross-sector advisory group, which is made up of Scotland’s key sectors, found that in certain sectors—retail and hospitality are the two that come to mind—furlough was instrumental in keeping some businesses going. There have been significant impacts and redundancies, but furlough has played an important part in helping companies to survive when they would not otherwise have done so.

Does anyone else have a view on that? Are we facing a cliff edge?

The issue of so-called zombie jobs is important. The general consensus is that furlough has been vital in enabling a number of firms to hold on to their head counts. A few months ago, there was talk of various cliff edges and of there being significant unemployment levels as we came into the winter. The view now is that, to a large extent, we have been saved from that. Obviously, there are more challenges ahead, but furlough has helped firms significantly.

However, one labour market challenge that relates to furlough is that, for those who are losing their jobs, the availability of vacancies is really sluggish at the moment. If someone loses their job, being able to go into a new one is a real challenge at the moment. Many commentators make the point that policy efforts should be put into measures such as retraining processes and helping people to move into new occupations. It is crucial for us to consider who is hiring and putting out vacancies.

Has there been a particular impact on young people in the labour market?

There is evidence, for instance among claimants in Glasgow, that young people are one of the groups that are rapidly moving into universal credit, so there are significant concerns for young people across Scotland. That is accentuated by the fact that shocks in a young career can have long-term scarring effects. The incidence of periods of future unemployment and scarring on future wages is shown to be impacted by periods of unemployment when people are young. The concern for young people is right and valid.

I am not getting a feeling from the panel that it has a view on what happens when furlough finishes, which was one of the key aspects that I wanted to explore. Everybody seems to be saying that furlough is good and that it has protected jobs, certainly in the short term, but what happens when it finishes? What will we face then?

That is a good question. I apologise, but we do not have a crystal ball for that. As David Waite and Jane Morrison-Ross said, furlough has been extremely important. We assumed that there might be a cliff edge in October, but that did not happen—we have not seen the figures coming in. Local authorities are working closely with Scottish Enterprise and Skills Development Scotland, through the Scottish Government’s partnership action for continuing employment redundancy programme, to ensure that, for businesses that are considering redundancies, we find opportunities to add value through redeployment.

What do we do now with businesses that have people on furlough? We are out there working collectively to try to ensure that those businesses are adapting, repurposing and looking at leaner processes and opportunities to multiskill. We need to ensure that, when we get to the end of March, rather than delaying the inevitable, those employees get back into business. From an economic perspective, we are getting out there and working with businesses to identify what they need now to adapt their business models.

We have to move on, because another three committee members have questions.

The advisory group on economic recovery recommended the creation of a Scottish jobs guarantee scheme; the Government has implemented that and called it the Scottish young persons guarantee. The group said:

“The scheme should offer secure employment, for a period of at least two years, to 16-25 year olds, paid at the Living Wage, with access to training, apprenticeships and the possibility of progression. It should be delivered locally, with brokerage of opportunities between employers and jobseekers: but it should be set within a coherent national framework.”

What are the witnesses’ views on the scheme? What steps should be taken to ensure that it is effective and that there are no barriers to success?

I can talk only for Fife at the minute. Again, Fife has a good relationship with our national agencies. We are striving to ensure that our employability proposition is a collaborative partnership approach that starts from the grass roots and gives a pipeline of progressive capabilities for individuals. We will be working closely with all partnerships and businesses to ensure that that is not just a short-term measure but one that provides a career journey pathway for those individuals.

We are working with Skills Development Scotland, the DWP and the youth guarantee team to get the message out to industry—our industry and the cross-sector groups that we work with—that the scheme is available. It is a very effective way of bringing young, energetic people into a business and helping them to grow into a role. It is an enormously useful tool. That, coupled with the increased focus on various apprenticeships that businesses can source, is really important in helping to close the skills gap in our industry. On average, we have 13,000 vacancies a year, and we are only seeing that increase with the current cross-sector demand for digital skills. As long as we get the message out there to the right companies and the right parts of industry, the scheme has significant potential.

09:45  

David Waite, do you have anything to add?

I have nothing to add to my previous comments, except to reiterate the point about the importance of provision for young persons in the labour market. I will leave it there.

Okay. I will leave it there, too, if we are short of time.

I want to ask about the business support that the public sector provides. Scottish Enterprise, Highlands and Islands Enterprise, South of Scotland Enterprise and Skills Development Scotland have already been mentioned, and the Scottish National Investment Bank is also coming in.

I will start with Ms Stevenson. Have those agencies been too focused on Covid or not focused enough? What about the future? We want to continue with our long-term plans as well as reacting to Covid.

That is a good point. I have been in conversations about that issue this morning. To be truthful, we are still focusing on some of the requirements of the immediate response to Covid business support funding, and we have to do that because so many of the businesses that have been affected need our support.

However, at the same time, we are still looking at the recovery programme and at how to ensure that businesses adapt so that they can engage and sustain as we move forward. Lots of work is being done to ensure that business support is still being given. Some of the immediate team are still working on the Covid response, but it is important that we are looking at advanced manufacturing and digital skills capabilities, access to finance and particularly the upskilling of the workforce and opportunities for supporting the unemployment process and the young persons process.

There is not one answer. So much is happening that, in truth, it is overwhelming, but we have to be fully engaged in the process.

You said “we” quite a lot in that answer, and I do not know whether that means the council together with those other organisations. I know that you wear a few hats. I do not expect you to be too critical of SE or anyone else, but how do you feel that those organisations are lined up with what the council is thinking? It is early days for the SNIB. How is it looking at the situation?

Through the Scottish local authorities economic development group, we are working nationally, alongside Scottish Enterprise, to start to look at what recovery will look like, based on the Scottish Government’s objectives and the AGER Higgins report.

However, at the local economic level, local authorities are heavily focused on the Covid response while still having to look at what it means to be working with our national agencies at the regional level. We are positive and we are trying to ensure that we can share best practice across Scotland to work with our national agencies.

Perhaps I can move to Jane Morrison-Ross. Do you feel that you are getting a joined-up approach from the public sector on business support, or are the different agencies looking at things differently?

In general, we have found that there is a very joined-up approach and we have very much welcomed the interactive approach. We have found that all the public sector agencies involved have been keen to come directly to industry to ask what is needed, from the point of view of recovery and when it comes to looking ahead post-Covid, and not stopping planning for innovation. That has been helped by the Scottish technology ecosystem review that Mark Logan produced, which has helped to move the focus a little bit post-Covid. For us, the balance has been pretty much on point and the direct connection and communication is hugely welcome.

Mr Waite, do you also see a joined-up approach from the public sector?

I am not as close to the policy coalface as my colleagues. However, one important point is about how we might take a regional approach—this goes back to the first question that was asked—because we know that different areas of Scotland will be impacted differently by the crisis. It is really important that we think about whether we can come up with regionally sensitive industrial policy or support to help business bases grow back, because how Aberdeen, Glasgow and Edinburgh deal with the situation and their responses might need to look quite different. This is a good test for the regional pivot that the Higgins report called for.

Earlier, David Waite mentioned that local government has limited powers to shape economic development. Can he elaborate on that a little? Does Pamela Stevenson feel that her council has had the powers that it needs to shape the economic response to Covid?

That is an important point. There have been welcome steps; for instance, city deals give a focus on spending on localities, which gives direction to local spending priorities.

One of the questions was about the extent to which revenue-raising powers might, to a greater degree, come within the gift of local authorities, so that local authorities can make investments—and take risks on them—in order to stimulate economic development. There has been less progress in those areas but, prior to Covid, there were on-going discussions in Edinburgh about the tourism levy. Therefore, there might be a case for a discussion about where fiscal autonomies lie within Scottish local authorities.

To respond specifically to Andy Wightman’s question about empowerment during Covid, I have been encouraged over the past seven or eight months by how much the local authority economic development departments have been able to respond and react positively and timeously to support businesses. The 32 local authorities have come together across Scotland to work more closely than ever with the Scottish Government. Therefore, I am very encouraged by how well the local authorities have stepped up to support businesses through Covid and been able to empower local economic development. There is a lot to do, but we have had a great opportunity to work with the Scottish Government in the past seven or eight months.

If Colin Beattie wishes to come back in, we might have a couple of minutes to allow that.

If there is time, I will explore further the digital sector, which we touched on. I want to explore what the labour market situation is like in the digital sector, because my impression is that it is buoyant. Given that we are all working digitally, I would have thought that the sector would be scooping up all the resources possible to make that happen and to expand. However, Jane Morrison-Ross said that there was also a precautionary element, in that people were on furlough.

In the early stages of lockdown, some companies used furlough as a precautionary planning tool, because they were not sure at that point of the impact on the industry as a whole or on their supply chain. There was more of an impact on business for the very small percentage—around 3 per cent—of companies that specifically supplied retail and other hard-hit sectors. That has changed over the past eight months, and the majority—almost 50 per cent—of respondents to our most recent survey were predicting a head count increase of up to five people by the end of this year. Therefore, the industry is generally buoyant and still going for growth. In our most recent survey, 70 per cent of respondents were still optimistic about the last quarter of 2020 and the first quarter of 2021 and expected an increase in profit and sales for their businesses. Therefore, apart from a small precautionary move at the beginning, the industry is comparatively very buoyant.

Is it the case that not all information technology companies are benefiting from the fact that we are mostly working remotely? Can you give us an idea of which ones are struggling in that environment, as well as those that are taking advantage of the situation and prospering from it?

Some of the larger suppliers, which typically have staff working on clients’ premises, also struggled in the earlier stages. We worked with the Scottish Government on the return to premises guidelines for the technology industry, which helped enormously, because companies were able to have people return to their premises.

Again, in the earlier stages, the major impact was on companies that supply digital products and services specifically to the hospitality and retail sectors. Many of them have now recovered, as more retail organisations have started to look at trading online and developing products and services that can be sold online. Obviously, the hospitality industry is still suffering more significantly than many others but, again, suppliers that focused on hospitality have now broadened their customer base and looked at pivoting of products and services to supply other industries.

Therefore, we have not seen a significant loss of companies in the industry, above and beyond that which we would have expected through natural attrition and retirement. Our membership base, which we had assessed in the early stages, continues to increase rather than drop off.

There has also been significant growth in start-up companies during the Covid situation and, over the past three months, we have recruited about 40 additional new start-up members. The rate of start-ups in the technology sector in Scotland has doubled over the past eight months, so there is still significant growth.

That is interesting; thank you.

That concludes this evidence session, and I thank all the witnesses on our panel.

09:56 Meeting suspended.  

10:00  

On resuming—