Introduction

The Coronavirus has had a profound effect on our health, economy and wider society. This paper highlights some of the key developments, including how governments have responded to date and some big ideas about reform. Members will wish to discuss these impacts and ideas for reform in developing their final conclusions.

This paper provides links to the key sources of evidence, however please refer to Resources paper for the full range of sources reviewed for this work. 

Part One - Impact

Health Impacts

The most obvious and immediate impact of the virus has been on our health. As of 11 August there have been 4,208 COVID-19 related deaths in Scotland. The virus has not had the same impact on everyone. Data from the National Records of Scotland shows that COVID-19 disproportionately affects men, older age groups (with 77% of all deaths in Scotland among people aged 70 or over) and those in care homes (47% of all deaths). Additionally, those living in more deprived communities are twice as likely to die of COVID-19 as those in least deprived areas. The risks of dying from the virus are four times higher for black and Asian ethnic groups than white ethnic groups. Many people who contracted the virus will undergo a prolonged recovery with the potential for long term damage to their health.

Inevitably there has been a knock on impact on overall hospital admissions and the wider health care system, with delays to routine procedures and acute care for cancer patients. Within communities and among families we have seen a prominent rise in mental health issues resulting from social isolation, loss of income and reduced access to services. The Institute for Fiscal Studies reported that two-thirds of UK adults feel somewhat or very worried about the effect COVID-19 is having on their life.

Impact on our Economy

Alongside the devastating health impacts of the pandemic, the policy response to this is having severe social and economic effects. The long term consequences are difficult to predict, but there is no doubt that they will be profound and long-lasting. These effects are also being felt differently by different groups in society, for example, with the low skilled, youth, migrants and women, tending to be more negatively affected.

The economic recession in the UK is predicted to be greater than any other recorded downturns and the OECD predict that unemployment is likely to triple even if a second wave of infection is avoided. This will dwarf the numbers of those who lost their jobs in either the recession in the 1980s or at the peak of the global financial crash. The Scottish Government’s chief economist has suggested that GDP here could fall by as much as 14% in 2020, unemployment could reach 10% later in 2020 and economic output might not recover to where it was before the crisis until the start of 2023.

How Different Regions and Sectors have been affected

The effects will not be felt equally across different parts of Scotland and sectors of the economy. For example, economic output in accommodation and food services was down 85% over two months of March and April. Analysis from the Scottish Funding Council also suggests that universities will lose around £72 million in the 2019-20 academic year alone. Some commentators suggest providing additional stimulus to specific sectors, such as tourism, which has been particularly badly affected would generate the largest short-term benefits to the economy.

In terms of different regions, Glasgow, Edinburgh and Fife are thought to have the highest number of jobs in the most vulnerable sectors of the economy, although rural areas with a high dependency on tourism have been badly affected as well. The ability of local areas to recover from the lockdown will vary with issues like levels of deprivation, and the skills and qualifications of the local workforce being important factors. The Fraser of Allander Institute highlight how the disproportionate impact on tourism related industries in Scotland’s rural communities – including their ability to bounce-back in future - suggests that further geographical measures may be needed.

Impact on Communities

The immediate economic effects are evident in communities. The ONS reports that the number of people claiming work-related benefits in Scotland increased by 74,000 between March and April 2020, with the highest rises in claims being in deprived areas. The Resolution Foundation notes that families on low to middle incomes such as key workers and workers in shut down sectors of the economy are more exposed to the crisis as they are less likely to have savings. Due to hardship or social isolation, there has been an urgent need for food, with many communities needing food banks, deliveries and community support more than ever.

Impact on Education

The lockdown measures brought three months of closures for nurseries, schools, colleges and universities. The disruption could have profound impact on children’s wellbeing and longer term learning outcomes. A Children’s Parliament survey of children noted a decline in the wellbeing of children, particularly girls aged 12 to 14. The educational attainment gap between the poorest and most affluent young people in Scotland has been further exposed, with the outcry which greeted the handling of SQA exam results amplifying concerns. A survey of parents and young people found that 40% of low income families said they were missing at least one essential resource to support learning at home. Those with limited or no access to the internet and other digital tools are overwhelmingly from lower income households. One academic has said that the school lockdown will have “imposed three-and-a-half years of inequality in the space of less than half a year”.

Women and Young People

Young people overall have been hit hard by the immediate and long term consequences of the pandemic to their wellbeing, learning and employment. Securing their future prospects is recognised as an urgent challenge. Women have also been disproportionately impacted by school and nursery closures and are more likely to work in the worst affected sectors of the economy such as hospitality and the caring professions. Domestic abuse and the reality that staying home is not safe for everyone has been a further concern.

Part 2 - GOVERNMENT INTERVENTION AND PUBLIC EXPENDITURE

UK Wide Action

As with Governments across the world, the UK Government has spent unprecedented sums supporting health services and the economy. Future expenditure will happen within the context of constrained public sector finances and governments will be thinking carefully about how much debt to take on and the consequences of this for future generations.

The financial support given by the UK Government to combat the effects of the coronavirus has been estimated at around £193 billion. In his July economic update the Chancellor announced a package worth up to £30 billion, which included plans to protect jobs, help younger workers and encourage spending. Also included was a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation, and admissions to certain attractions from 15 July 2020 to 12 January 2021. The half price on restaurant bills scheme in August has attracted much attention.  

As of 31 May 8.7 million jobs in the UK were being supported through the government’s furlough scheme which covered around a quarter of the labour force. The Bank of England lowered the interest rate (the cost of borrowing) to 0.1% and have put in place a package of measures to help keep firms in business, people in jobs and to minimise the longer-term damage to the economy when COVID-19 subsides. Despite these drastic measures, however, there are now real concerns about how many people will become unemployed when the furlough scheme unwinds across the UK.

Scottish Government Interventions

Many of the initiatives in the economy and to increase expenditure are in reserved areas, where only the UK Government has the powers to act. In Scotland an external Advisory Group on Economic Recovery (AGER) was formed in June to provide urgent expert advice on Scotland's economic recovery. Their report sets out 25 recommendations, including providing a jobs guarantee which would offer "secure employment, for a period of at least two years, to 16-25 year olds, paid at the living wage and with access to training and the possibility of progression". A sub-group of the Enterprise and Skills Strategic Board (ESSB) also produced a report recommending actions and interventions to help mitigate the expected rise in unemployment due to the pandemic which the Scottish Government has responded to. The Scottish Government has also responded to the AGER report saying that “This is an opportunity we will seize. Our wellbeing economy will be built on the principles of sustainable economic growth, accompanied by tackling inequalities, and delivered as a green recovery to meet our climate change targets and wider environmental objectives”. They have since pledged £50 million support to youth employment including the Scottish Jobs Guarantee, and introduced a Transition Training Fund to support individuals facing redundancy and unemployment in those most exposed sectors.

The Fraser of Allander Institute points out that whilst the Scottish Government is taking on higher spending as a result of the crisis, the revenue raised from income tax and other devolved taxes is falling. Although this spending gap will largely be offset by increased funding from the UK Government, the pandemic has highlighted the constraints in current powers and the risks and uncertainty around the Scottish budget going forward. Scotland’s finance Minister, Kate Forbes called for a removal of limits on devolved governments’ borrowing powers and new powers to switch funding from capital infrastructure projects to day-to-day spending. To date these proposals have been rejected by the UK Government. 

In June 2020, the Scottish Government established a Social Renewal Advisory Board which aims to build on the positive changes in policy and practice which have developed through the crisis in partnership with frontline service deliverers in local government, the third sector and communities. The board will focus on reducing poverty and disadvantage, embedding a human-rights based approach and advancing equality. A series of ‘policy circles’ will draw on lived experience to work at pace on key policy issues; addressing low income, community-led and place based renewal, cross-cutting delivery, financial security, food, the housing system, third sector and volunteering. 

Part 3 - Ideas for Change

Preparing for future health shocks

Governments around the world are thinking about what policy approaches to take next and how to balance economic, environmental and social impacts. One consequence of the pandemic has been an increased awareness of our vulnerability as a human community and of the systems we rely on. Protecting ourselves from future shocks has become an urgent task and health and social care systems have come under intense scrutiny as countries have scrambled to ensure they are equipped to deal with the influx of Coronavirus patients and the wider fall out from the lockdown measures. Subsequently attention has focused on how to make national health and social care services more modern, flexible and resilient in future. Enhancing the status of care providers and mental health provision, reducing social isolation, improving the quality of life of seniors, and securing health financing are key priorities across countries.

The EU launched its largest ever health programme (€9.4 billion) to support preparedness for cross-border health threats and other challenges such as health inequalities and an ageing population. Promoting medical and pharmaceutical innovation and the digital transformation of health systems are initiatives within this. For individuals, a Universal Basic Income has been widely discussed as a potential way of ensuring all citizens would be protected against sudden drops in income and ill health.

Future government intervention 

Central to all considerations is the role of the state and the extent to which we think governments should intervene in our lives and the systems which underpin society. For example, some claim the pandemic has exposed our reliance on the public sector and essential services and revealed the limitations and weaknesses of the private sector. While the crisis has exposed long-standing inequalities it has also created ‘new vulnerables’ such as those who have suffered a drop in income or have been employed in hard-hit sectors, and those, such as young people, who face an uncertain future. Providing a safety net for these groups now and securing their long term interests is a further challenge. Arriving at the right balance between short term demands and longer term societal interests needs will be another pressure point for all countries.

Whilst for some countries these new interventionist policies will just be for the short-term, others are now exploring how new models of state intervention could be beneficial in future. In the US and Germany, for instance, governments are considering equity stakes in domestic air carriers. Outside of government, radical thinking is also happening around establishing ways of managing government stakes in private companies for the public good. As Sandy Begbie said to the Assembly in February, it is important that we get right the relationship between the state and private sector for the good of us all.

Around the world, much attention has focused on providing support to particularly badly hit sectors, such as the tourist industry. Countries such as New Zealand, Japan, Austria and Iceland have considered policies such as a four day week, state subsidies and marketing campaigns to encourage domestic tourism. Singapore and France have focused on digitalisation of public services and increasing digital skills to build up resilience and competitiveness. In Japan the authorities have agreed to promote domestic migration to encourage people to return to and revitalise struggling regions.

The economy of the future 

Many commentators argue for a bold new direction in policy-making. The New Economics Foundation argues that ‘government must take urgent steps to lay down a robust framework which ensures big business bailouts deliver wellbeing for people in the short term, and lays the foundations for a more equal, more sustainable post-coronavirus economy’. The Foundation proposes bailouts should be conditional on improving working conditions and reforming corporate governance so that firms are more able to take a long-term societal view. Such calls to make business bailouts conditional on social and environmental requirements are being made in many countries. In France, for example, some of the largest companies have appealed for recovery funds to be directed towards supporting environmental and social justice reforms. Wales, France, Belgium, Denmark are some of a number of countries pledging not to bailout out firms based in tax-havens. Addressing the future of high carbon industries, such as aviation, surface transport and agriculture is a further consideration.

Building an economy that is resilient and fair has already been a theme for discussion in the Assembly and this theme has continued to be developed by commentators in Scotland. Common Weal published a report on how to build a ‘resilient economy’, the ambitious, long term aim of which is to reduce inequality and raise democratic participation, community cohesion and public trust whilst also creating quality public infrastructure. Themes which echo the wellbeing economy ideas Katherine Trebeck (WEAll) spoke about in Assembly weekend 3.

Tax reform

Tax reform has also been an important area for discussion. According to Professor Ronald MacDonald of the University of Glasgow, the post-pandemic period is an ideal opportunity to reform the tax system if we are to recover from the deep economic scarring, inequalities and large outstanding debt stocks the crisis has created.   In The future of taxation in the UK, the Institute of Chartered Accountants (ICAS) also say that the pandemic presents governments with an opportunity to generate public support for tax reform to address issues such as the UK’s overly complex tax system, the perception of widespread abuse of this and resulting sense of unfairness.

Conclusions

The economic and social impacts of COVID-19 are profound and are exacerbating many of the inequalities in society.  These issues and some of the big ideas for reform are similar to issues previously discussed in the Assembly prior to the pandemic.  Around the world thinking is going into how to build a sustainable and fair economy.  Assembly members will wish to discuss the issues and ideas for reform as they come back together again to develop their final conclusions.