Bill Jamieson: V-shaped recovery’s hard to make out through the mist

Last week I wrote here of the remarkable reemergence of “White Van Man”: on a routine car journey I spotted a sharp rise in light commercial vehicles that have emerged from the twilight of months of lockdown.

Sluggish statistics seem unaffected by the growth in traffic. Picture: Jonathan Brady/PA
Sluggish statistics seem unaffected by the growth in traffic. Picture: Jonathan Brady/PA

The same journey yesterday took longer: more heavy lorries, pantechnicons, trucks and vehicles hauling industrial machinery and earth-moving equipment. Irritation at the reemergence of slow traffic and delays at lights and roundabouts gave way to puzzlement: how is it this evident pick-up in business and commercial travel is not being reflected in official figures tracking the economy?

There is always a time lag, of course, between changes in real world activity and GDP statistics. Busier roads are only to be expected as firms seek to catch up on months of delayed work and deliveries. And road traffic gives us only a partial picture of commercial activity.

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But there may be another reason for the gap between official data and increased commercial traffic on the roads – an upsurge in the “grey economy” as many workers currently on furlough or registered as “economically inactive” take on part-time or temporary jobs to help make ends meet.

There’s no accurate, reliable way of measuring activity in this twilight zone, but HMRC had a stab in 2017 at estimating the size of the Hidden Economy. The study found an estimated 4.9 per cent of the UK population was found to be involved – individuals who have not declared their activity for tax purposes, but may or may not have taxable income from Hidden Economy activities.

The highest prevalence was found among those aged 16 to 24 (12 per cent of the total) or living in larger households (eight per cent). Low-income households accounted for 11 per cent of the total. An estimated 2.6 per cent of the UK population was operating in the Hidden Economy with a presumed taxable income.

The research covered three key types of behaviours: “Moonlighters”, whose activity supplements declared activity (57 per cent of the Hidden Economy population); “Ghosts” – who reported that they have not declared any of their sources of income (whether taxable or non-taxable) to HMRC (38 per cent); and “Non-registered”, businesses assumed to have a turnover above the VAT threshold and are not registered with HMRC.

While that overall estimate of five per cent may be significant for HMRC purposes in terms of lost tax income, the vast bulk of business activity is operating fully in the “official” economy with only a small minority thought to be in “the twilight zone”. But it may well be that the strains imposed on desperate households by the Covid-19 pandemic have tempted many to look at ways of supplementing their income.

What other factors may account for the greater buzz on our roads? Scotland’s GDP remains a yawning 22.1 per cent below the level in February, prior to the lockdown measures introduced in March. But latest provisional estimates show a real terms increase of 1.5 per cent in May compared with previous months. Output fell in nearly every industry in April. But some parts of the economy are reckoned to have seen a pick-up in activity as firms and consumers adapted to physical distancing and some people returned to work.

Figures from Lloyds Bank last week showed that “essential” spending last month was now back in line with 2019, driven by supermarket business. And non-essential spending has recovered from a plunge of 31 per cent in May to be down by just 12 per cent last month – a significant improvement.

Non-essential spend was buoyed by the opening of many shops on the high street resulting in a surge in spending in clothing, home and department stores.

And survey evidence of small business owners shows the proportion of UK small businesses predicting growth has almost doubled in just three months. The survey of more than 1,000 small business owners by Hitachi Capital Business Finance shows the highest quarter-on-quarter rise since the study began over five years ago.

The IT/telecoms sector had the largest proportion of businesses predicting growth in the next three months, while the biggest rises in confidence came from the transport and manufacturing sectors.

There were significant rises in the percentage of small businesses predicting moderate expansion in the next three months (up from 10 to 23 per cent) or no change (26 to 43 per cent).

By sector, the IT/telecoms sector had the highest proportion of small businesses that predicted growth for the three months to end September. The biggest rises in confidence since lockdown were evidenced in and transport and distribution (up from 8 per cent to 34 per cent) and manufacturing (from 9 per cent to 30 per cent), where the resurgence of growth forecasts was striking.

The research also suggests that smaller, more agile enterprises will be the fastest to adapt to the UK’s re-emergence from lockdown: small businesses that had been trading for less than five years (35 per cent) and those that employed 10 to 49 employees were most likely to predict business growth for the next three months (to 30 September).

All this could be hailed as the emergence through the mists of an invisible V-shaped recovery. However, the black cloud ahead is a very sharp rise in unemployment. In Scotland the jobless rate has already risen to 4.3 per cent or 120,000 between March and May, a 0.6 per cent increase on the previous quarter, and higher than the UK rate of 3.9 per cent. Both figures, however, are almost academic given the large number of workers on furlough and not counted as unemployed – an arrangement set to be run down from October. There are nearly 750,000 workers in Scotland on the UK government’s Job Retention Scheme.

The number of hours worked per week is regarded as a more true reflection of the impact of the coronavirus crisis. The figures here showed a sharp decline of nearly 17 per cent in the number of hours worked in May across the UK.

Almost 900,000 jobs across Scotland are being supported through the UK government’s furlough and self-employed schemes. The total of “economically inactive” in Scotland was up by 36,000, a figure likely to include many people who lost jobs, and who left the PAYE payroll and saw little point in looking for work while things were so dire. And while that persists, that V-shaped recovery will remain lost in mist.

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