Hard to swallow: The 700 made redundant at the Johnnie Walker plant in Kilmarnock will be joined on the dole by tens of thousands more

This time, North Sea Oil is not a winner and financial services are also on the downturn

MACHINE operators at the Johnnie Walker whisky bottling factory turned up for work last week expecting another ordinary day.

There had been disconcerting rumours circulating about the future of the Kilmarnock plant, but other than that there was nothing to suggest that last Wednesday would be anything other than routine.

That was until Bryan Donaghey, managing director of parent company Diageo Scotland, was seen in the factory. Suddenly the rumour mill went into overdrive.

"There was no way he was coming down to Kilmarnock for a couple of redundancies," said one worker."We knew then that it was very serious indeed."

Hundreds of employees of the iconic brand were summoned to the company restaurant to be told the bad news by managers that the plant was to close with the loss of 700 jobs.

"We were told and the whole place erupted with anger," said the worker. "We were just disgusted. Everyone was struck dumb. Then there were a lot of tears, but not just for ourselves. They were for the future of Kilmarnock itself."

The Johnnie Walker plant has been one of the Ayrshire town's biggest employers for decades. Three or four generations of local families have worked there. Marriages have been made there and parents have worked alongside children.

Closure of the bottling plant would sever a tie which goes back 150 years to when John "Johnnie" Walker first began selling whisky in his grocer's shop in the town's high street.

Now, as with Gartcosh in 1986, or Ravenscraig in 1993, the Ayrshire town faces being separated from its own history. Kilmarnock was not alone last week in feeling the economic pain. Diageo's cuts – along with last week's announcement by Lloyds of 355 job losses in Scotland, and reports placing doubts over the long-term viability of the two Clyde shipyards – have confirmed a trend which has been building up in Scotland all year.

With the recession only now moving into its second phase – one which is likely to involve hundreds of thousands of job cuts – the question facing employees across the country is which of them is next. And while the construction industry, North Sea oil, electronics, and financial services may have taken up the slack from the decline in Scotland's traditional manufacturing industries in recent years, they too are going through the recessionary mill. What new private industries can now fill the ever growing gap?

The most recent Labour Force Survey found that employment in Scotland was down by 25,000 compared with the previous three months and down by 40,000 from the same period last year. Scotland's biggest sector – in financial and business services – took the biggest hit, shedding more than 35,000 jobs. Only increases in an expanding public services sector mitigated the fall.

Political economist John McLaren says the omens are not good. "If you look at past downturns in Scotland, they have been less severe than the UK partly because a large part of the Scottish economy is in the public sector, partly because North Sea Oil has been doing well and sometimes there has been inward investment coming in at the same time.

"This time, North Sea Oil is not a winner and financial services, which have been growing quite a lot, is now on the downturn."

As we report today, the employment situation in Scotland is showing few green shoots of recovery. A new report, commissioned by Scottish Enterprise, which will be published this month, estimates that there will be 106,000 fewer jobs in Scotland by the end of next year than in 2008.

Even in the longer term, the report – written by Oxford Economics – concludes that, up until 2018, there will only be a 0.2 per cent increase in employment, equivalent to 6,700 more jobs, way below the UK figure of 1.7 per cent. Scotland's manufacturing base, of which Johnnie Walker in Kilmarnock was a standard bearer, is set to go into freefall. By 2018, Oxford Economics forecasts there will be "an estimated 56,600 job losses" – equivalent to nearly one in four jobs in manufacturing north of the Border.

McLaren believes food and drink industries such as Diageo are now very vulnerable. Much attention is likely to fall on the other big players in the whisky trade. In April, Chivas – the number-two producer in Scotland after Diageo – halted production at its Dunbarton plant for a week following a drop in demand, prompting fears about its own long-term health.

Billy Parker, of the manufacturing union Unite says that, in the whisky trade, the big multinationals such as Diageo no longer see the need to bottle the drink in Scotland, as was once always the case, pointing to further job losses. And in the wider manufacturing industry, he sees little cause for optimism. While Scotland's biggest listed company – Scottish and Southern Energy – is promising to recruit more staff, "take that out of the equation and you're looking at a dramatic drop in employment across Scotland," he said. "Even those that stay open are cutting back: many manufacturing firms are cutting wages, while others are introducing four-day weeks." Yesterday, in a move that may be copied by other major employers, BT offered tens of thousands of its employees the chance to go on long-term holidays in return for taking huge pay cuts. The company says it was forced to act after making a 1.3 billion loss in the first three months of this year.

The drop in manufacturing has long been factored in to Scotland's economic prospects. But following the banking crisis of last year, the uncertainty facing Scotland's financial services sector – until now a bulwark of the country's economy – poses a new threat. The announcement by Lloyds Banking Group last week of 355 job losses is just one of many expected in the coming months. The bank has yet to announce cutbacks to its retail wing, as its Lloyds and Bank of Scotland branches are merged. Job losses there may be the highest seen yet.

The extra 80,000 jobs created in and around Edinburgh since 1999 are attributed mostly to the growth of the trade in finance. With both the former Bank of Scotland – now subsumed within Lloyds – and Royal Bank of Scotland in such turmoil, there are few willing to bet how the sector will fare. Paul Hughes, at Scottish Enterprise, sees a mixed picture. "We've seen losses for the major banks but you are now seeing companies like Tesco Finance and Virgin moving into Edinburgh. There is an opportunity here. Scotland represents a cost advantage compared to other parts of the UK and has a highly skilled workforce. You can already see companies taking advantage of that."

That mixed bag is also found elsewhere. Analysis from Scottish Enterprise also indicates that construction and electronics firms are cutting back on staff but firms in security and defence are recruiting.

But the pain for others will continue. Bank of England data last week showed that lending to non-financial companies is continuing to slide. The consequences for small businesses are devastating. "Losing staff is the last thing small businesses want to do when they have spent so much time training people up," says Colin Boreland, of the Federation of Small Businesses.

The burgeoning public sector has soaked up some of the displaced Scottish workforce. In the ten years since devolution, public service employment has risen by almost 50,000 jobs.

The creation of a Scottish Parliament and a Scottish administration has been accompanied by a rise of almost 10 per cent in the size of the public sector to 579,600.

However, although employees in the public sector might normally expect to be insulated from the storm, analysts warn that with both Labour and the Conservatives at Westminster warning of huge public spending cuts ahead, they too are in danger. New teaching recruits are facing the toughest conditions for years, with hundreds of applicants applying for each post. While few public bodies have yet ordered redundancies, the coming public sector squeeze – with the Scottish budget expected to contract by up to 7 per cent over coming years – could lead to job cuts long after the recession has technically ended.

All that appears to be left is the perversely beneficial effects that the recession is having on some sectors of the jobs market. Hoteliers across Scotland are reporting a boom in the so-called "stay-cation", as Scots decide to holiday at home, which has driven their profits up. Crieff Hydro is one homegrown resort which reported double-digit growth in the first part of the year.

Iain Herbert, chief executive of the Scottish Tourism Foundation, said: "There is quiet optimism. We had a very good start to the year when we saw the start of the Stay-cation. It was helped by the good weather."

The immediate task is helping Kilmarnock to survive the trauma. This week, Scottish finance secretary John Swinney – battling against Labour accusations that SNP ministers were "sleeping on the job" as the Diageo crisis unfolded – is hoping to draw up an alternative plan to closure,

However, the mood in the town remained one of betrayal. Willie Coffey, the MSP for Kilmarnock and Loudon, said: "My dad, my two uncles and my sister worked for Johnnie Walker. This is an iconic brand even outside the drinks industry and it was born in our town. Yet this company does not seem to place any value on that and that is scandalous. There is a mixture of deep anger and heartbreak here."