A bombshell report predicts Dundee will see the highest proportion of business failures in the UK and thousands of job losses.
The research by St Andrews University academic Professor Ross Brown found that almost one in 10 firms in the city are at immediate risk of failing as they run out of cash.
His study estimates that 8.65% of all city firms – a total of 286 – are at risk of collapse, which could lead to more than 3,000 job losses.
Mr Brown, along with Marc Cowling from the University of Derby, looked at the failure risk of businesses of different headcounts and then applied this to the make-up of firms in the largest 100 towns and cities in the UK.
Damage to the city’s economy
He warned: “It appears that cities like Dundee with the greatest levels of socio-economic problems will be the most negatively impacted by the pandemic.
“If nearly 10% of the entire business stock in Dundee were to close, that would inflict significant levels of structural damage to the city’s economy.”
Dundee was the only Scottish city to be listed in the top 10 of cities at most risk.
The report noted it was “less affluent” cities and towns outside of the wealthy South East of England that will suffer the most from business failures caused by the Covid-19 crisis.
Dundee City Council leader John Alexander called the research an “interesting academic exercise” but said it didn’t account for other factors and intervention measures that could impact survival rates.
He said: “The determination and ingenuity of the people of Dundee and the support of the city’s business community must be considered, as well as intervention measures being looked at by government at all levels.
“Clearly the pandemic is having a negative effect on the global economy which is bound to be reflected in the local picture but the council has in place robust recovery plans, some focussed on key sectors like tourism, which build on our creative and innovative record.”
However, Dundee and Angus Chamber of Commerce (DACC) chief executive Alison Henderson said the 8.65% failure rate was fairly close to the Chamber’s economic research.
DACC’s quarterly survey of local firms found 6% flagging concerns about surviving the Covid-related economic crisis.
She added: “Businesses need additional support to recover into 2021 as we look to protect those sectors who are particularly badly hit, notably hospitality and associated suppliers.
“We’re very concerned that levels of unemployment will rise over the next three to six months, and the unknown impacts of Brexit on the economy are looming too.
“It is set to be a very challenging coming quarter.”
Micro firms at most risk
The academics looked at how businesses of different sizes distributed surplus profits in previous years – whether they were retained as a precautionary step or taken out of the company.
They found that very small micro firms employing less than 10 people and the largest firms employing more than 250 employees are the greatest drivers of aggregate job losses.
They also noted it was apparent less affluent cities and towns outside of the wealthy South East of England will suffer the most from business failures caused by the current Covid-19 crisis.
Mr Brown, who is professor of entrepreneurship and small business finance at St Andrews University, previously estimated 10,000 Scottish SMEs were under immediate threat of closure.
He added: “Overall, our work suggests that the locations most impacted like the city of Dundee will need more intensive levels of support to help overcome the longer-term damage of the current crisis, especially in terms of alleviating firm closures and associated increased levels of unemployment.
“Our work suggests the sensible targeted approach towards business support being adopted by the Scottish Government should also include a spatial element to ensure the most affected communities receive the greatest levels of support.”
The report came as data showed Scotland’s economy grew by 16% in the third quarter of this year, from July to September, after coronavirus lockdown measures were eased.
But since then, tougher restrictions have been imposed across much of Scotland and economy secretary Fiona Hyslop warned Brexit will have an impact on the economy.
Andy Duncan from Dundee Against Austerity said the city was “lining up for a serious catastrophe”.
He said: “Total coronavirus unemployment will not hit until about April next year because at the moment furlough is stopping a lot of the immediate redundancies.
“I am not surprised to hear these figures particularly for those in the hospitality industry.
“These people are being left with nowhere to turn and it is an extremely difficult time for everyone.
“Dundee is constantly hitting the highest rate of everything that is bad and we can see how these figures are concentrated in areas of deprivation and what they call low-skilled jobs.
“With Brexit as well, this is lining up to be a serious catastrophe.”