Second lockdown could lead to 90,000 jobs and half of hospitality companies collapsing, study warns

The new study from the University of Edinburgh is based on computer modelling.

Portree.

Almost half of Scotland’s hospitality companies and 90,000 jobs could be at risk if the country is hit by a second prolonged lockdown, a new study by the University of Edinburgh has predicted.

The study, undertaken by academics in the university’s business school, said that if the recession following the Covid-19 pandemic is of similar severity to the 2008 recession, one in four businesses will fold with around 60,000 jobs at risk.

However, the study found small businesses would avoid the majority of the pain with medium and large businesses likely to feel the worst of any recession or renewed lockdown.

Researchers worked with Wiserfunding, a London-based financial technology specialist, who looked at financial statements of 5,000 Scottish companies in the tourism and hospitality sectors and examined their profitability and levels of debts.

To predict how the sector would be affected, 20 years of financial accounts were considered alongside previous crises such as the 2008 recession, the swine flu epidemic in 2009 and the debt crisis in Europe between 2009 and 2011.

Simulating different levels of ‘stress’ on the sector, the models predicted a ‘mild stress’ scenario, similar to the 2008 crash, would result in 28 per cent of companies defaulting and 58,520 jobs lost.

In the case of a second prolonged lockdown over winter, the number of businesses collapsing rose to 43 per cent and around 89,870 jobs considered at risk.

Dr Galina Andreeva, senior lecturer in management science at the University of Edinburgh’s Business School, said focused support tailored to the size of the company from the Scottish Government would help lessen the impact of the economic pressures.

She said: “Our results confirm that the current government efforts to support the sector are going in the right direction. However, we would recommend support tailored to company size to maximise impact.

"Firms that show the highest level of adaptability should be rewarded and offered additional support to overcome the crisis, in order to increase the chances of success in the deployment of public funds. The withdrawal of current borrowing schemes should be carefully planned in order not to create additional shocks to companies with high debt levels.

“Even once the economy starts to reopen, measures will likely be put in place that curtail economic activity to some degree—travel will be less common, businesses will have to space workers and customers further apart, restaurants will be serving fewer customers at a time, and sporting events, concerts, and other activities involving large crowds probably will remain off limits for a long time.

"People and business will need to accept this new status quo and adapt. This is the only way to ensure a faster recovery.

“Small businesses have a leaner structure, lower fixed costs and faster decision times. These elements will play a major role in the coming months and hopefully provide them with a competitive advantage.”

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