Introduction, Overview and Methodology
- The COVID-19 pandemic had a significant impact on Scottish businesses and the economy, with impacts differing across sectors, reflecting their ability to trade during the pandemic.
- Given the pace and scale of the collapse in economic activity in some sectors, the Scottish and UK Governments introduced a significant package of business support measures aimed at helping businesses survive and maintain employment through the crisis.
- This report builds on earlier work to evaluate the impact of the support measures available to businesses in Scotland. It considers measures introduced by both the Scottish and UK Governments up to summer 2021. It draws on scheme management information data, survey data, business intelligence, secondary sources and modelling work to understand how many businesses have been supported and the extent to which the measures have helped businesses survive through the immediate crisis.
- It considers the extent to which businesses report that their needs were met by the current package of support, and summarises businesses' views on priorities to be considered in any future support.
Uptake of Business Support Schemes
- Data from the Office for National Statistics' (ONS) Business Insights and Conditions Survey (BICS) shows that 32% of businesses in Scotland received Scottish Government (SG) grant support, 80% received support from the Coronavirus Job Retention Scheme (CJRS) at its peak and 34% received support from UK Government-backed accredited loans or finance agreements.
- There was a steady increase in the share of businesses receiving UK Government-backed loan support over the period June-July 2020 to June-July 2021.
- 43% of businesses still had staff on furlough leave in June-July 2021, highlighting the reliance many businesses had on CJRS even as restrictions eased in Scotland.
- Of the SG grant schemes, the Strategic Framework Business Fund had the greatest reach with 20% of businesses in scotland receiving support. 13% received Small Business Grants, 6% received the Business Contingency Fund, and 5% received financial support from the Business Restart Grant. 1 in 10 (11%) businesses received sector-specific grants from the SG.
- The Accommodation & Food Services sector had the highest proportion of firms receiving support from SG grants (78%), reflecting the targeting of much of the SG support schemes at those sectors most impacted.
- A higher proportion of SMEs (34%) received SG grant support than large businesses (10%), reflecting the targeting of SG grant support at smaller businesses.
- The BICS findings are reflected in the scheme management information data which indicates that the CJRS had the greatest reach of all the schemes, with 906,400 jobs in Scotland furloughed under the scheme since its inception, accounting for more than a third of all employee jobs in Scotland.
- Of the SG schemes, the management information data shows, in line with the BICS findings, that the two core grant schemes (Business Support Fund and Strategic Framework Business Fund) had the greatest reach, with 91,258 grants approved for the (now closed) Business Support Fund grants, reflecting the relative scale of funding available under the scheme (£1bn out of the £3.7bn SG total). As at June 2021, 47,658 grants had been awarded through the Strategic Framework Business Fund totalling £344.8 million.
Impact of Support on Businesses
- Feedback from the business representative organisations suggests government support has provided lifeline support for businesses during lockdown, helping most business survive up to this point.
- The BICS data supports this message, indicating that the support received from the Scottish and UK Governments has helped most beneficiaries survive through the immediate crisis. 72% of businesses in Scotland who received support reported that it had helped them continue trading.
- The sectors that have benefited most from the support provided by the Scottish and UK Governments (those with the highest proportion of businesses reporting the support helped them continue trading in BICS) were: Arts, Entertainment and Recreation (87%); Accommodation and Food Services (82%); Construction (80%); and Professional, Scientific, Technical Activities (74%).
- The SG Office of the Chief Economic Adviser's (OCEA) Strategic Framework Sectoral Viability Model found that business support (CJRS in particular) was effective in softening impacts of the pandemic, but did not restore viability close to pre-COVID-19 levels in the worst affected sectors e.g. Accommodation & Food Services. It found grants schemes (e.g. Strategic Framework Business Support Fund) were most effective for micro businesses.
- The sectoral viability modelling identified Construction, Manufacturing, Professional, Scientific and Technical Services, Admin and Support Services and Non-Essential Retail as sectors that had their viability significantly impacted but subsequently restored by support from the CJRS and NDR Relief in the initial emergence from 'lockdown'.
- Findings from BICS indicates that the support received from the Scottish and UK Governments has had a bigger impact on SMEs (73% felt it had helped them continue trading) than on larger businesses (65%), largely reflecting the targeting of SG support at smaller businesses.
- Reflecting the high uptake of the CJRS, feedback from the business representative organisations highlighted the fundamental role the scheme has played in maintaining business viability and the likely impact that its unwinding may have on redundancies if demand remains weak and businesses' turnover is insufficient to cover wage bills. This is supported by results of the sectoral viability modelling which indicate that business support – CJRS in particular – was crucial in maintaining a degree of profitability in the worst affected sectors at crucial stages in the pandemic.
- Of the Scottish-specific schemes, the two core grant funds (Small Business Grant and Strategic Framework Business Fund) appear to have had the biggest impact, reflecting their scale relative to the other interventions.
- Feedback from the business representative organisations indicated that the loan schemes were less popular than grant schemes, with many businesses reluctant to take on new debt given the uncertainties they face. Nevertheless, the number of businesses receiving financial support from the UKG government-backed loan schemes has increased since the initial evaluation undertaken in summer 2020 indicating that businesses are taking tentative, but necessary, measures to survive in subsequent lockdowns.
- Where debt has been taken on, there were fears that it may hamper business recovery and growth for many businesses. This indicates that the loan schemes may potentially have a lower net benefit to businesses than the grant schemes.
Additionality of Scottish Government Support
- BICS data shows that a higher proportion (82%) of businesses that received Scottish Government support (including those also receiving support from the UK Government) felt it helped them continue trading compared to those that received UK government support only (65%). This suggests Scottish Government support had an 'additional' impact, over and above the impact of the UK Government schemes.
- The share of businesses that received SG support (including those that also received support from the UKG) that reported it helped them continue trading has declined slightly compared to the last comparable waves of BICS in 2020, while those that received UKG support only has been relatively stable.
- Feedback from the business representative organisations suggests that Scottish Government support had filled many gaps in UK Government support but only for a limited number of businesses and sectors.
- At the time of analysis, the extent to which the sectoral viability model methodology can be applied to assess the relative impacts of SG support is relatively limited. As data on sector level disaggregations of take-up of SG support improves, future modelling could be more precise. Nonetheless, modelling results indicate that the support provided by the Business Support Fund Grants, on their own, have been effective in softening impacts of restrictions, but at the aggregate level have not restored viability close to pre-COVID levels in the worst affected sectors.
Application Process for Scottish Government Schemes
- Businesses remained content with the level of advice and support available, although this was less positive than feedback collected in summer 2020 following the first lockdown.
- Feedback from the initial evaluation undertaken in the summer of 2020 found that business representative organisations recognised that the SG was working at pace and therefore some of the issues encountered were understandable given the timescales involved; however, some of these issues continued to be highlighted in this exercise.
- Businesses described a confusing landscape and difficulties in finding information on the schemes available. Some businesses were unaware of the support available to them.
- Businesses felt the application process for some schemes was cumbersome and inefficient. Some businesses report not having received any explanation for having their application rejected.
- Feedback on application processing times was mixed. A noted complaint following the first lockdown in 2020 was the perceived inconsistencies of approach across local authorities when appraising applications for the Business Support Fund Grants and differences in the efficiency at which applications were processed, however this appeared to not be as much of an issue for the subsequent grant schemes.
Perceived Gaps in Support
- Although the support offered by Scottish Government addressed some identified gaps in UK Government support, the two together did not and were not intended to provide total coverage of all sectors of the economy.
- Perceived gaps identified in feedback gathered for this evaluation included businesses not linked to the rates system, businesses that had second-hand impact from directly affected sectors (e.g. suppliers), and early-stage businesses that did not have sufficient financial history.
- Business representative organisations highlighted the continuing impact of the pandemic on businesses as the COVID-19 context changes and restrictions are relaxed, and called for continued and flexible support. In particular, businesses highlighted concerns about the unwinding of CJRS. This is echoed in the BICS and management data where a significant number of businesses were still using CJRS, and the sectoral viability model which demonstrates the importance of CJRS for sectors where demand remains weak.
- Business representative organisations identified some areas where further support might be considered, including:
- support and practical advice for businesses to comply with physical distancing and health and safety requirements;
- support for businesses that are digitally unequipped to gain from the accelerated trend in e-commerce;
- support for businesses operating on a largely seasonal basis; and,
- support for businesses required to close for longer periods.
- In addition, business representatives highlighted: the need for advice and support for the newly unemployed; recommended collaboration with stakeholders when designing and processing future support schemes; COVID-19 induced skills shortages; the need for support to develop local supply chains; the opportunity to use green investment to drive the recovery; and the role the Scottish National Investment Bank could play in the recovery.
This evaluation report has brought together updated evidence from scheme management information data, survey data, business intelligence and modelling work to provide an early stage evaluation of the initial impact of the business support schemes available to businesses in Scotland. It has shown that:
- The support provided by the Scottish and UK Governments has provided lifeline support to businesses during 'lockdown', helping most businesses survive up to this point. However, the viability analysis shows levels of support have not been sufficient to offset losses across many sectors, resulting in some businesses closing and some letting go off staff to cope with financial pressures resulting from the pandemic.
- While the CJRS has had the greatest reach and impact, the support provided by the SG, which focussed on small businesses and sectors most impacted by lockdown, has provided complementary support, filling many gaps in UK Government Schemes and has had an 'additional' impact on business survival over and above the UK Government schemes.
- Grant support appears to have been a more popular means of support for businesses to cope with the impact of COVID-19 in the short- and longer term. Businesses were worried about the impacts of 'debt overhang' especially on investment.
- Some issues remained in the application for and processing of schemes.
- As the support package unwinds due to the loosening of restrictions in summer 2021, businesses' viability is mostly reliant now on the rebounding of the economy and consumer demand. Early indicators are pointing to a recovery in both Scotland and the UK, however sectoral differences are expected to remain in the near future as businesses in the most affected sectors deal with issues such as reduced savings and debt.
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