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24th December 2008

Highland Councillors accepted the recommendations for the credit crunch at their meeting on 18th December 2008.

This report offers a brief overview of the economy as context to the Council's proposed response to the economic downturn. The Action Plan identifies a number of short, medium and long term actions which the Council can take to assist Highland businesses and individuals cope with the economic downturn.

The Action Plan supports the Council's Programme to create sustainable communities with more balanced population growth and economic development across the Highlands and to build a fairer and healthier Highlands.

The UK Government in the Pre-Budget Report presented to Parliament on 24 November 2008, offered the following commentary on the Prospects for the UK Economy:
The UK economy has slowed as credit conditions tightened and high food and energy prices squeezed household incomes and company profits. The combined effects of these shocks has been to push the UK economy into recession and inflation to a 16-year high. Due to lower commodity prices, inflation has started to ease, but growth is forecast to be negative in 2009. From the second half of 2009, with support from fiscal policy stimulus, low interest rates and lower commodity prices, the economy is forecast to begin to recover, with growth picking up further in 2010 and 2011.
The latest summary from the Bank of England's agents around the UK is summarised below. It provides information on the state of business conditions from companies across all sectors of the economy between late September and late October:
Demand for consumer services continued to shrink, and retail sales values were broadly unchanged relative to a year ago.
Investment intentions had been further reduced.
Manufacturing output for domestic sales fell.
Growth in export orders had slowly sharply.
Employment intentions were scaled back further across all sectors.
Growth in labour costs remained subdued.
Annual input and output price inflation eased slightly.
Retail goods and service price inflation also eased.

This confirms recent indicators which reflect the impact of the credit crunch, both locally and nationally. The UK economy contracted by 0.5% during Q3 2008 and whilst the most up to date figures for Scotland for Q2 2008 show GDP growth of 0.1%, it is likely that UK trends will be followed. Both government and independent economists have been revising forecasts down for the UK and it is now recognised that the UK economy will contract by -1% to - % GDP in 2009. In response to the deteriorating economic situation, the Bank of England has undertaken two major reductions in interest rates which currently stand at 2%.

Official figures for the Scottish economy are more difficult to establish. The latest Lloyds/TSB Scotland business monitor showed significant slowdown in the Scottish economy over the three months to end August. It was summarised as the most pessimistic survey for 10 years with slowing output, increasing costs and falling expectations across the board. Figures for the Highlands are very limited but the following indicative figures can be noted:
The number of people unemployed (as measured by Jobseekers Allowance) in Highland rose by 237 between April 08 and October 2008, a rise of 1.82% (Scotland 2.59%). While seasonality is a factor here, if compared to October 2007 there is a year on year increase of 435 people.
There are 385 new house starts in Highland in the first six months of 2008. This is a drop from 867 in the first six months in 2007.
This reflects anecdotal evidence heard throughout the Highlands of difficult trading conditions for business which has unfortunately, in some circumstances, resulted in some businesses closing down or reducing their workforce. The proposed closure of the Strathaird Salmon factory in Inverness (350 jobs) is an example of the impact of the recession on the local economy. In addition national retailers such as MFI and Woolworths going into administration potentially also impacts on the Highlands.

Action Plan
The Council, like many other public bodies, is considering how in these difficult economic times it can assist the community through the economic difficulties ahead. The Action Plan (see Appendix) details short, medium and long term actions across six headings:
Capital Programme
Money Advice and Support to Individuals
Employability and Support to Individuals
Business Advice and Support
Wider Economic Initiatives/Other Actions
Each action has a lead officer assigned to it and a Credit Crunch Task Force team has been established to co-ordinate detailed progress on the various actions.

Members will note from the Action Plan that the actions outlined seek not only to support businesses but also to offer support to individuals at this time. To this end Members are asked to note the bringing forward and increase in funding for Welfare Rights, Money Advice and Benefit Entitlement.

Members will be aware that a number of events have already taken place in direct response to the economic downturn or which where previously arranged in support of the sustainable development of the economy:
Housing Credit Crunch Seminar on 29 October 2008
Local Food in the Highlands Conference on 7 November 2008
Building a Fairer and Healthier Highland on 18 November 2008
Tourism Seminar on 25 November 2008
Work is also ongoing with HIE and partners to co-ordinate support and ensure there is no confusion about delivery. The PACE Initiative is a good example of such joint working and was recently initiated in response to job loses at John Gordon & Son, Nairn. HIE have recently announced a number of short to medium term measures to support the region's businesses through the current economic difficulties:
One to one advice sessions to provide free tailored advice to all businesses
Web-based information
Interest Relief Grants
Accelerated capital project spend
Telephone and Email Advice
Business Clinics and Masterclass programme
With the transfer of Business Gateway to the Council in April 2009 it will be necessary to liaise closely with HIE regarding the continuation of these services.

Members will note that it is suggested that a PR strategy is required to publicise the Action Plan and to highlight the Council's pro-active approach in this matter. Allied to this there is a suggestion that a leadership group be established within the Council to take forward this work with a lead Councillor on each subject area. It is also important to emphasise positive developments for the Highlands when they arise such as new inward investment and infrastructure projects.

Resource Implications
There are no direct additional budgetary implications detailed in the Action Plan that can not be accommodated for in current or emerging Service budgets. An example of expenditure being brought forward is 35k for advisory services through the Chief Executive's budget.

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