Shetland economy could cope with massive council cuts, say reports

The Shetland economy is well-placed to withstand the effects of swingeing council cuts, according to two interim reports.

While an up-to-date study of the performance of the local economy and the likely impact of a significant reduction in SIC spending will not be available until the spring, short analyses by the James Hutton Institute and the council’s economic development unit paint a remarkably rosy picture.

The reports are part of a huge sheaf of papers received today by councillors who will meet on Thursday to discuss shedding £28 million – almost 22 per cent – from the authority’s budget this year and next.

The Hutton report by Dr George Dyer, which is based on 2003 figures, suggests cuts of this magnitude could result in 600 full-time job losses, 422 of them from the council, and a 4.5 per cent fall in Shetland’s total output.

But, argues Dr Dyer, that assumes no growth in the private sector, which he describes as an unrealistic scenario.

A nine per cent increase in Shetland’s oil and gas sector or a 4.7 per cent in fishing and aquaculture would compensate for these job losses – although Dr Dyer stops short of predicting that this will happen.

According to the economic development unit the Total gas plant, the Viking Energy windfarm if it is approved, other on- and off-shore renewables developments, North Sea platform decommissioning and broadband expansion and the business start-ups they inspire would help to compensate for council cuts.

The SIC accounts 26 per cent of employment in Shetland, while the public sector as a whole is responsible for 37 per cent of full-time equivalent jobs – and 25.4 per cent of gross regional domestic product (GRDP). By contrast, fishing and aquaculture and the Sullom Voe oil terminal produce 20.4 per cent and 7.5 per cent of GRDP.

Many sectors, such as retail and construction, rely on the public sector for contracts and subsidies or grant aid.

The unit’s study admits that rural areas are “particularly vulnerable” to cuts in public spending, and that “significant reductions in public sector spending will see decreased opportunities for the private sector, thus lessening the ability of the private sector to ‘soak up’ the impacts of public cuts”.

But a so-called “Vulnerability Index” carried out of Scottish local authority areas last year placed Shetland in the top three of the most resilient.

“[A]nalysis of statistical factors shows that Shetland is deemed to be less vulnerable to potential economic downturn from public sector cuts than most local authority areas in Scotland, and experiences less socio-economic deprivation than many areas. While the effects of moderate to severe public sector cuts are likely to impact on many of the indices used to make these calculations, it is reasonable to expect that Shetland has a certain amount of insulation from the impacts that will be felt in more vulnerable areas.

“Related to the above point is the large amount of industrial and technical development either underway or planned in Shetland over the short- to medium-term. This includes, but is not limited to, the Total Gas Plant development, on- and offshore renewable energy developments, oil and gas decommissioning (in particular the upcoming Brent field decommissioning), Viking Energy and broadband expansion. 

“These developments will not only impact on employment within Shetland, but will also encourage private sector growth in the form of new business start-ups, encourage the development of the extant workforce through the introduction of new technical expertise and training, and increase income to the public sector through rates and returns.”