A snapshot survey from the Scottish Tourism Alliance (STA) of a portion of its membership reveals a sharp decline in business confidence ahead of the UK Budget, with employers warning that they have exhausted all options to reduce costs and are now operating at the limits of what is sustainable.
A total of 74 tourism and hospitality businesses from across Scotland took part in survey, including accommodation providers, restaurants, visitor attractions, tour operators and wider sector SMEs from all parts of Scotland.
More than 70% of businesses surveyed report a negative outlook for the next six months. Rising operating costs were cited as the biggest threat to profitability (59%), followed by taxation (50%) and declining consumer spending (32%).
Many businesses say they have already made as many redundancies as they can since the last Budget and are now relying on staff taking on multiple roles to maintain trading, while 15% of respondents expect to make members of their teams redundant in the next six months, a concerning indicator for a sector that supports around a quarter of a million jobs across Scotland.
Almost three-quarters of respondents expect to increase prices in the months ahead, while 46% plan to delay or cancel investment, and more than a third expect to reduce staff hours. Only 8% of businesses say they do not anticipate major changes.
Businesses express deep concern about speculation that VAT thresholds will be cut and about any further increases to the cost of employing people, including National Insurance rises or changes to employer pension contribution thresholds.
Several warned that additional pressures “cannot be absorbed without cutting services” or risking business failure. Respondents also told the STA that short-term policy decisions on employment costs “store up long-term damage” for the workforce, limiting their ability to support staff progression and invest in skills.
Marc Crothall, Chief Executive of the Scottish Tourism Alliance, said:
“Confidence across Scotland’s tourism industry has weakened significantly, and these results are a clear indicator of just how stretched businesses are. Although many businesses are telling us that trading has been strong in terms of top-line sales, the bottom line is squeezed. In nearly all cases, businesses are telling us that as a result of shrinking margins, plans for any investment are severely constrained.”
“Many businesses have made all the redundancies they can, are running lean and have no room left to reduce staffing without cutting services or compromising the visitor experience. Employers are increasingly relying on staff to take on multiple roles just to keep their doors open.”
“The area of most concern is the growing fear of further increases in the cost of employing people. Businesses are clear – they simply cannot absorb any additional pressures through National Insurance or employer pension changes. This is why the asks we set out in the STA Holyrood Election Manifesto remain so critical: meaningful business rates relief, a stable and competitive tax environment, and long-term investment in the workforce. These are the foundations that enable employers to retain staff, support progression and invest in skills. Short-term fiscal decisions may offer temporary wins, but they risk long-term damage to the very workforce the Scottish economy depends upon.”
“With the UK Budget days away and the Scottish Budget to follow in January, the Scottish Tourism Alliance is urging both governments to take decisions that restore confidence to the sector, reduce the cost burden on employers and support investment. Without meaningful intervention, we risk further contraction, job losses and a decline in Scotland’s competitiveness at a time when we need growth, stability and a thriving visitor economy.”
“The message from this survey could not be clearer – even slight increases to the costs of doing business will cripple many tourism and hospitality businesses at this point in time, a warning echoed consistently through the survey’s open comments.”
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Sentiment toward the upcoming budgets remains overwhelmingly subdued. When asked what they most want the Chancellor to address, the majority of respondents’ comments expressed frustration or pessimism, with respondents calling for a reduction in employment taxes, meaningful business rates relief and a more stable, long-term approach to the fiscal environment for tourism and hospitality.
When it comes to the Scottish Budget, respondents sent a clear message that the sector is looking for any business rates relief to be passed on, no further increases in income tax and for thresholds to be brought back in line with the rest of the UK, and for support from the Cabinet Secretary for Finance and Local Government to mitigate the impacts from the UK Budget. Several survey respondents also raised concerns about introducing a visitor levy during this time of financial instability.
The STA is calling on the UK Government to use the Budget to ease the cost burden on employers, support business investment and provide the stability the sector urgently needs.
