Scottish Economic Report: March 2004
Demographic change in the Highlands and Islands 1
Head of Strategic Planning and Research
Highlands & Islands Enterprise
The economic fortunes of the Highlands and Islands have changed remarkably since the mid-1960s following more than a century of continual decline. Many factors have contributed to the recovery process, including the establishment of the Highlands and Islands Development Board, the arrival of oil fabrication yards in the Inner Moray Firth, Wester Ross and in the Western Isles, and the upgrading of the A9 trunk road to the central belt. In addition, diversification
of the economic base through expanding the tourism sector, the growth of fish farming and processing and the arrival of Information and Communications Technology (ICT) industries has helped reverse the long-term trend of out-migration. These structural developments have been augmented by a change in the perception of rural areas, which has led to more people viewing the area as an attractive place to live and work.
The population of the Highlands and Islands in 2001 was 433,745. This figure is just under one per cent greater than the corresponding figure for 1991, with the main growth being found around the Inner Moray Firth. In the previous decade the population of the region grew by 2.7 per cent.
Looking at the Local Enterprise Companies (LECs) we see that the main growth areas are Inverness and Nairn, and Moray Badenoch and Strathspey, with Ross and Cromarty also experiencing modest growth. The parts of Ross and Cromarty that grew the most were those in the east, within the Inverness travel to work area. However, Wester Ross also witnessed modest growth over the period.
Skye and Lochalsh grew steadily during the 1990's, following on from two decades of rapid expansion, but not every LEC area experienced growth. There was gradual population decline in Orkney and Shetland, Caithness and Sutherland, Argyll and the Islands, and in Lochaber. In addition, the Western Isles lost in excess of 10 per cent of its population, having lost five per cent in the 1980's.
Looking at these changes on a map makes it much easier to comment on what is going on.
The blocks on the first map are 2001 Census wards, and compare population change between 1991 and 2001. The red areas represent significant growth, while the dark blue areas have lost at least 10 per cent of their population since 1991. A very clear pattern emerges when looking at this map. We can see that the main centres of population - and of economic activity - account for almost all the increase in population. This is clearly the case in Shetland, Orkney and in Argyll. The real hot spots are around Inverness, and along the Moray coast to Forres and Elgin. It is interesting to note that closer inspection of the main centres reveals that there has been population loss in wards within most of the urban boundaries.
The picture in Argyll clearly shows that the main growth was within travelling distance of Oban and Lochgilphead, while the heart of the towns themselves lost population. The growth we are witnessing is quite suburban in nature. New housing estates have been built around the fringes within easy travelling distance of the industrial estates and retail areas.
The only main population centre without growth in its immediate hinterland is Fort William, most likely due to there being a chronic lack of available land for housing development around the town.
The other side of the picture is, of course, the blue areas. The map shows that the areas losing the greatest proportion of their population are the outlying islands in Shetland, Orkney, and across the Western Isles. There is also a steady out-migration of people from the Argyll islands, and from the remoter parts of the mainland.
What we are witnessing is a pattern of steady growth around the population centres, some growth in more accessible rural areas, and steady decline in other mainland areas. The issue of most serious concern for the region is that of the significant loss of population from the smaller, more fragile islands.
Closer inspection of the figures reveals that nine of the islands have lost more than 20 per cent of their 1991 population, and nine islands have 30 per cent or more of their population aged over 60 years - compared to the national average of 21 per cent. This suggests strongly that the out-migration is dominated by younger, economically active people.
The key conclusions we can draw from this are that the significant progress made during the 1980s has slowed considerably during the 1990s. The towns (and city) of the region have been the main drivers of demographic growth, and there is concern surrounding the long-term future of the fragile islands.
Achieving population growth for a fourth consecutive decade is a prodigious achievement for a remote, sparsely populated region. The historical context of more than a century of continual decline makes this turnaround all the more remarkable. In fact, if the population growth of the last 30 years were to continue for the next 30, then the population would be back to the level it was at in 1851, although the settlement pattern would be considerably different. Despite this long-term growth, the population density of the region - which covers 51 per cent of the Scottish landmass - is still around 10 persons per square kilometre. The corresponding figure for the rest of Scotland is approximately 130 people per square kilometre.
The approach to development taken by Highlands & Islands Enterprise (HIE) is based on the assumption that population growth is a good barometer for economic growth. The development and implementation of policies that encourage population growth will help deliver further economic growth. While the trend here is clearly one of long term growth, it is a tenet of economics that trends continue right up to the point when they stop. Future decisions on where people want to move to will be based on circumstance and opportunity, not past statistical trends.
It is clear from the statistics that the growth in the Highlands and Islands is dominated by the Inner Moray Firth. The Inverness and Nairn area is home to 37 per cent of the Highland Council area population, but 45 per cent of all employees in the region work there (ABI 2001). The city is the economic driver for the region. However, in a European, UK or even Scottish context, Inverness is a very small city, and other cities have grown rapidly in recent years as well. Within Scotland, Perth and Stirling have grown at similar rates to Inverness in the past decade, as has Edinburgh, which is substantially larger than Inverness. The HIE area accounts for less than 10 per cent of the Scottish population, and Scotland for less than 10 per cent of the UK's. While it is very important that we support the most remote and fragile communities, we must also foster and facilitate growth in the more successful parts. A strong Highlands and Islands needs a strong Inverness.
Population movement around Inverness is a topic of great interest to local policy makers. Analysis of Census figures, annual population projections and data from the Highland Health Board clearly show a significant net out-migration of 17-20 year olds. Young people are leaving the area, principally to access further and higher education opportunities. Conversely, in-migration is being driven by a number of factors. A recent survey of in-migrants undertaken for HIE identified that 55 per cent of those moving to new houses in Inverness are from elsewhere in the Highlands and Islands, and these people are moving to Inverness primarily to access employment opportunities. Of those from outwith the Highlands and Islands, 66 per cent are from elsewhere in Scotland. Strong 'pull' factors for this group, and those from further afield were the quality of life, coupled with relatively low house prices. This area is growing due to net in-migration from its extended hinterland and from elsewhere in the country. It is often suggested that Inverness's success is at the expense of the more remote parts of the region. However, it is more likely that people are leaving the remoter areas in search of broader employment opportunities, and Inverness is now of a sufficient size to meet their requirements. Had Inverness not reached this critical mass, these people would be lost to the region as a whole.
Traffic flows around the city have risen by 75 per cent in the past ten years, and house prices are now rising steeply and catching up with other urban areas of Scotland. Evidence suggests that the main constraint is a lack of supply, despite the number of planning applications rising by 20 per cent in the last two years. The main areas where supply does not at present meet demand are in the provision of affordable housing, and at the other extreme, in the provision of top-of-the-range housing.
There are also constraints on the housing market outwith Inverness. The contraction of the social housing sector (sales through right-to-buy outnumber housing association new-build by a ratio of 3:1) makes it increasingly difficult for local people on low incomes to enter the housing market. In some of the more scenic areas more than 30 per cent of the housing stock is second or holiday homes. Unlocking the constraints on augmenting existing provision of affordable housing will be essential to regenerate fragile rural communities. Housebuilding in rural areas is predominantly undertaken by small local firms, generating significant local benefits through use of local labour, suppliers and materials. This sector can be used as an economic driver in addition to providing opportunities for people to live and work in rural communities.
The average household size in the Highlands and Islands fell from about 2.5 to 2.3 during the 1990s and this trend is expected to continue in the coming years. While the population grew by just under 1 per cent the number of households rose by over 10 per cent. The most obvious outcome from this is that more housing will be required just to keep the population at its current level. Continued growth will require a significant increase in supply right across the region.
The unemployment rate in the Highlands and Islands is currently at a historically low level, although the figures are still seasonal which suggests the economic base still requires to be broadened. The rate is most seasonal in the areas that rely most heavily on agriculture and tourism for employment. Supporting diversification opportunities and working to extend the tourist season will help reduce these trends and provide more employment stability.
On the whole, the low figures mean the challenge now facing the Enterprise Network is not so much creating jobs, but creating jobs that pay higher than average wages. The acknowledged highly qualified workforce needs to be matched with suitable job opportunities. Average earnings in this region are only 91 per cent of the Scottish average (New Earnings Survey 2002), demonstrating we need to focus on attracting and developing high tech, knowledge economy jobs to the area, providing modern employment opportunities worthy of the area's spectacular natural environment.
The economic growth across the region during the 1970s and 1980s was linked to the establishment of the fabrication yards at Nigg and Ardersier. This helped justify massive investment in the transport infrastructure through the upgrading of the A9 trunk road to the central belt. Traffic flows on that route and on the A96 between Inverness and Elgin have risen by 75 per cent in the last ten years. As these routes near capacity it is necessary to plan the next phase of infrastructural investment to ensure the growth can continue into the future. Improving connections to the global economy, supporting and encouraging exports from the region and identifying new international markets will be essential to sustain the economy in the long term. The development of Inverness airport will help support growth across the region. Recent research undertaken for HIE and Highlands and Islands Airports Limited revealed that 63 per cent of passengers flying into Inverness with easyJet travel beyond the Inverness and Nairn area. It is also estimated that the employment benefits from increased air travel are similarly distributed across the region. Improving links to other international destinations - such as a new link to Sweden next year - will only help to make this region a more attractive place for people to live, visit and do business.
The Highlands and Islands is the only part of the UK to have its own intra-regional air service. It also has a vast network of ferry services linking its 96 inhabited islands with the rest of the country. Improving these intra-regional links to make it easier and more affordable to get around the region will be essential if communities in remote mainland locations and on the islands are to be sustained. Air services to the islands are not luxury travel; they are lifeline links and must be maintained to secure the future of these communities.
In addition to transport communications, the electronic communications systems require upgrading to allow rural businesses to compete with the rest of the world. HIE is currently working on helping even the most remote communities to access Broadband. Broadband lays the foundations for e-business development, improves productivity and market expansion and allows businesses to compete more effectively on the world stage. Having access to Broadband is becoming an essential business tool. Developing a modern economy and continuing to encourage people to move here will require investment in the infrastructure businesses expect to find.
The other key challenge to this part of the country is highlighted when we look in more detail at the Census figures. We can see there is a significant difference in the pattern of the population when we compare the Highlands and Islands with the rest of Scotland.
There is clearly significant net out-migration of 15-24 year olds. As previously discussed young people from across the region are leaving to pursue further and higher education and employment opportunities elsewhere in the UK and overseas. On a pro-rata basis the region has almost 10,000 fewer young people in this age bracket than Scotland as a whole. This loss must be addressed by working to provide opportunities for young people, as well as attracting new people to the area. At the forefront of the provision must be the development of the University of the Highlands and Islands Millennium Institute as a first class higher education and research establishment.
The natural resources of this region offer scope for comparative advantage in a number of emerging industries. Nuclear decommissioning at Dounreay, marine energy research and development at the European Marine Energy Centre in Stromness, the growth of a healthcare cluster in Inverness and marine biotechnology developments in Argyll are all sectors with the potential to create significant numbers of high value-added employment opportunities.
If this region is to continue to develop, the focus of the HIE Network's investment will be in the more fragile areas. However, we will still work to stimulate further growth in the Inner Moray Firth and the other more successful areas. We need to be open minded about what sectors might grow in the future and work on creating an environment that will foster growth wherever it emerges.
In order to grow the population the Highlands and Islands also needs to tell the wider world all about itself, and hang out a big 'welcome' sign. Lower birth rates and an ageing population are now common in almost all parts of the developed world, which means that demographic and economic growth - wherever it occurs - will be driven by in-migration. If we are to continue to benefit from in-migration we need to let everyone know that the Highlands and Islands has a talented and capable workforce, a spectacular environment offering a very high quality of life, first class ICT links, and is open to anyone who wants to come and live here to contribute to its society.
1 The views in this article are those of the author, not the Scottish Executive