Coronavirus UK: Ian McConnell: The hazards of temptation for Tories to think this is all over

However, we must keep in mind how sharply economic output tumbled last year – it fell by 9.6 per cent in Scotland and 9.8% in the UK as a whole.

And the survey findings, as well as the accompanying observations from Scottish Chambers president Tim Allan and Fraser of Allander director Mairi Spowage, provide plenty to reflect upon.

They also highlight the need for continuing support from the UK and Scottish governments for businesses in sectors hit hardest by the pandemic, and still far from operating anything like normally. Large numbers of businesses remain closed and, while many may never reopen, others will return as long as the rug is not pulled from under them with a premature end to support.

Chancellor Rishi Sunak’s insistence the UK Government’s coronavirus job retention scheme will end in September continues to look hazardous, given this backdrop. And the silence is deafening in terms of what substantial ongoing support, if any, he intends for sectors which will continue to struggle for many more months.

You get the impression at times from the Tories that they think this crisis is just about all over. Listening to bold reopening talk from Prime Minister Boris Johnson and new Secretary of State for Health and Social Care Sajid Javid does nothing at all to dispel that impression. International vaccine success and rapid immunisation rollout has made a huge difference but the effects of this awful pandemic, on households and businesses, are sadly going to be around for a long, long time.

Everyone wants to move forward, and is striving to do so, but the Tories must not underestimate what we are dealing with here. Forward progress will be most enduring when it chimes with what is sensible from a public health perspective. And, even with a fair wind, the UK Government must recognise the scale of enduring woes for key sectors that are struggling only because of the pandemic and will eventually return to something like normal, if a patient approach to support and preserving supply-side capacity is forthcoming.

Against this backdrop, Mr Allan’s comments this week on the continuing difficulties for the international travel sector were stark.

He declared: “Sectors such as tourism and international travel, which continue to operate with severe restrictions, are having to adjust to increased domestic demand, a simultaneous fall in international travel and a tightening supply of skilled labour. The sector needs continued financial support and greater clarity on when confusing and burdensome travel regulations will end, allowing greater numbers of international visitors to return.”

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The outlook for international travel continues to appear cloudy. Overseas flights and holidays have, of course, resumed to some extent. However, as well as having to be aware of green, amber and red lists and trying to read the runes on what might happen next, people in the UK travelling overseas face onerous and expensive testing requirements.

There is some hope that vaccination “passports” might become ever-more important in overseas travel, thus eventually reducing costs from having to test, but much remains to be seen, and this will not solve the problems for families with children of ages not covered by the immunisation programme.

Of course, it is not just UK requirements that travellers have to contend with but obviously also rules in countries people wish to visit. The current surge in coronavirus infections in Scotland and the UK as a whole appears to raise further uncertainty on what the future will hold for international travel. And the UK Government, which has spearheaded the recent four-nations approach, has certainly not made life easy for would-be travellers or for this key sector, in terms of providing visibility.

The international travel sector is a huge employer, spanning airlines, airports and ground-handling operations, travel agents, and holiday companies, while supporting jobs in aerospace engineering and many other areas.

It is clear that, even with things going as well as they can on the coronavirus front, the sector is not going to be back to any kind of normality soon, and there is unfortunately in any case the potential for further significant turbulence on the journey ahead.

So the case for further financial support being needed is well made by Mr Allan. This support should apply crucially to job retention, as well as to companies themselves.

Looking across the economy, Scottish Chambers’ survey highlights general labour market challenges, and companies’ “caution” when it comes to investment and staffing.

Highlighting additional challenges with Mr Sunak’s planned ending of the UK Government’s coronavirus job retention scheme in September, Scottish Chambers says: “While firms are optimistic about sales revenue, they are more cautious around investment and staff levels with most firms envisaging no change to these [in the coming quarter].”

It sounds this note of caution even though the employment picture improved in the second quarter and the number of companies projecting a rise in staffing in the coming three months is greater than that forecasting a fall. Scottish Chambers focuses on the fact, however, that a majority of companies across sectors forecast no or little change in employment levels in the third quarter.

This analysis makes sense, given recovery in general is from a relatively low base as a result of the effects of the pandemic.

Scottish Chambers says of employment projections: “Most firms, across all sectors, expect little change in Q3 which could result in sluggish jobs growth, with further challenges expected as the furlough scheme is withdrawn.”

The survey from Scottish Chambers and Fraser of Allander highlights a raft of challenges, including the pressure on exporters arising from Brexit.

Making no bones about the broadly based export troubles, which many Brexiters tend to like to rather skate over, Scottish Chambers says: “Covid-19 disruption and Brexit fallout has resulted in trading difficulties for businesses in services, manufacturing and retail as evidenced by falls in export sales and orders across these sectors.”

The UK left the European single market on December 31 last year, at the end of a transition period which followed the country’s technical Brexit on January 31, 2020.

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While noting significant “dislocation” in global trade because of the coronavirus pandemic, Ms Spowage said: “We also know that the end of the EU transition period has caused significant issues for manufacturers and others trying to rebuild these supply chains since the start of this year. This chimes with [the] survey results, which show significant negative impacts on exports.”

As observed often, by many people, this hit to exports is the last thing companies which have over the years built successful sales to the EU need right now, amid other huge pressures.

Scottish Chambers also flags difficulties created for companies by inflation.

It observes: “All sectors have recorded increases in concern over inflation, which may escalate as more consumers spend savings accumulated over the last 16 months and create uncertainty for business in terms of their costs and prices.”

And this brings us to another key point – even those sectors enjoying meaningful and in some cases strong recovery are facing major challenges.

Inflation is among these challenges, as are shortages of skills and labour (in significant part because of Brexit) and of materials.

The hospitality sector is facing shortages of key workers, as a result of the pandemic and Brexit and also because many staff have decided to move to alternative employment they now perceive to be more secure, given the impact of the Covid crisis.

Labour shortages across a raft of sectors were highlighted by Tony Danker, director-general of the Confederation of British Industry, in an interview with The Herald last month.

He said: “You see them in obvious places like hospitality and construction. You also see them in professional services and technology and engineering. There appears to be labour shortages everywhere.”

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The latest survey of UK construction sector activity, published this week by the Chartered Institute of Procurement & Supply and IHS Markit, shows that even sectors enjoying the strongest recovery are facing significant problems.

And the troubles facing the construction sector could have various major knock-on effects.

The CIPS- IHS Markit report showed the UK construction sector’s recovery accelerated further in June, with growth in activity the fastest for 24 years, but severe shortages of products and materials saw a survey-record rise in purchasing prices.

CIPS observed June had been the worst month for supplier delays since the survey began more than 24 years ago.

Duncan Brock, director of CIPS, noted that “a wave of new orders overwhelmed supply chains again” in June.

He said: “The meagre availability of raw materials placed obstacles in the path of stronger workflows where supplier delivery times extended into record-breaking territory once again and surpassed the height of disruption when the pandemic first hit.”

And that was not all. Mr Brock flagged particular difficulties for UK construction companies in getting imports from the EU, and inflationary pressures.

He said: “A lack of delivery drivers and logistics difficulties for EU imports left stock undelivered or unavailable and construction companies waited while costs mounted. Construction’s heavy load remains inflation, rising to its highest rate since April 1997 as a staggering 86 per cent of respondents reported paying more for their goods in June.”

These are major challenges, and they should be addressed.

Obviously, however, sectors struggling to recover would be happier if they were facing problems arising from a rapid rebound rather than remaining on their knees. Such a view would be easy to understand, given dramatically mixed fortunes for sectors dictated by the pandemic and associated restrictions over which businesses have no control.

In such a situation, government obviously has a huge responsibility to manage the situation to preserve supply-side capacity and employment in those sectors which are still facing a huge battle, until such times as things return to greater normality across the board.

We are on the right road, but it is going to be a long haul. The Johnson administration in particular, given it has the big tax-raising powers throughout the UK, must recognise this, and avoid any temptation to think it’s all over. Can it?