Business rate hikes have added to mounting cost pressures for Scottish businesses, with seven in ten (69%), excluding ‘don’t knows’, reporting that they’ve experienced increases in the last 12 months.
In the latest quarterly Understanding Business survey of more than 500 Scottish firms, published today (Monday 29 June), business rate increases were listed as a contributing factor in rising costs, with other causes including workforce costs and the price of utilities and raw materials.
More than half (51%) of affected companies said they have raised prices in response to rising business rates.
Other actions firms have taken in response to rising rates include changing strategy (38%), delaying growth plans (27%), dipping into savings or investments (22%), creating new charges (18%), and cutting staff (14%).
More broadly, two-in-three firms (65%) expect to increase prices over the next three months, which is the highest level recorded in the survey since June 2023, at the peak of the post-pandemic cost-of-living crisis.
These pressures have contributed to wider concerns over business survival, with two-fifths (40%) of businesses saying they are more concerned about survival than they were three months ago – the highest levels since March 2024. Fuel costs have also emerged as a significant concern, with two-thirds (66%) saying they are more worried about fuel prices than three months ago.
As for alleviating costs, reducing business rates was the second-most cited intervention that respondents said would help business growth. At 32% – the highest level recorded since June 2024 – it ranks second only to reduced taxation overall (40%).
June’s results point to further erosion of confidence in Scotland’s elected leaders just over one month since the start of the new parliamentary term, which saw an influx of 64 newly elected MSPs and the formation of the new government at Holyrood.
Only two-in-five (41%) firms believe the Scottish Government is taking action to address Scottish business concerns, a six-point drop from the previous wave (47%). Just over a quarter (28%) of respondents say the same about the UK Government, representing a drop of five percentage points since March (33%). Most businesses (67%) also believe the Scottish Government works more in the interest of big businesses than small firms.
Understanding Business is designed and conducted by research consultancy Diffley Partnership and strategic communications firm Charlotte Street Partners.
Malcolm Robertson, founding partner at Charlotte Street Partners, said: “These findings should trouble any politician at Holyrood or Westminster who claims to support economic growth.
“The business rates regime is little more than a tax on employers of people, of those who work for them and on the things that might give us comfort in difficult times, like going to the pub or out for a meal or on holiday.
“It is also a tax that is not fit for purpose and endless reviews and tinkering around the edges will not get the economy moving. Business rates and UK-imposed taxes on employers must come down to give businesses the confidence they need to invest and create good, well-paid jobs.”
The wider economic outlook reflects a cautious mood, and while pessimism persists for the year ahead, it has slightly improved from March’s position, which was recorded around the start of the war in Iran. Forty-eight per cent now expect conditions to worsen over the next 12 months, which is a five-point drop from March (53%), while the percentage of those expecting conditions to improve was up one point from March, to 27%. Meanwhile, the proportion who expect economic conditions to be about the same stands at 25%, up four percentage points from March.
Turnover and profitability also remained largely flat from three months ago, with 40% expecting increases in turnover (+1 from March) and 38% expecting increases in profitability (unchanged from March).
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Despite these headwinds, business leaders say Scotland remains a good place to run a business, with nearly two-thirds (64%) expressing that sentiment and three-fifths (61%) saying it is a good place to invest.
Scott Edgar, senior research manager at Diffley Partnership, said: “The latest findings point to a mixed picture for Scottish businesses. While many indicators remain relatively stable, more firms expect to raise prices in the months ahead, and concern about business survival has risen to its highest level in over two years.
“At the same time, confidence that governments are responding to business needs has fallen back. Although a clear majority still see Scotland as a good place to do business, that underlying optimism is starting to come under pressure from persistent cost challenges.”
