Scottish business optimism rises but overheads spiral

Andrew McRae, the Federation of Small Business
  • Staff shortages a problem for 1/3 firms with growth ambitions

BUSINESS optimism amongst Scottish smaller firms is at its strongest since the summer of 2015, according to new research.

The Federation of Small Businesses (FSB) figures show the average Scottish business is now more hopeful about prospects than its UK-wide equivalent for the first time since the third quarter of 2020.

FSB’s Scottish small business confidence index rose to +20.5 points this summer from +18.8 points in the first quarter of the year. The equivalent UK-wide figure fell to +18.6 points from +27.3 points in the first three months of 2021. The index measures whether firms believe trading conditions will improve or deteriorate over the next three months.

However, almost two-thirds (64%) of Scottish firms reported in an increase in running costs in comparison to this time last year, while only eight percent said their overheads had decreased. Further, more Scottish firms believe their profits will fall over the next three months than increase.

Andrew McRae, the Federation of Small Businesses’ (FSB) Scotland policy chair, said: “These figures show just how tough the last 18 months have been for Scottish businesses. Despite punishing increases to overheads and fears about profits, firms north of the border are the most confident they’ve been in years that trading conditions will improve.

“But this post-lockdown positivity won’t last unless policymakers get behind our local firms during the recovery. That means taking steps to tackle spiralling overheads. It means ensuring that smaller firms aren’t crushed by the debts they took on to survive. It means providing new protections for the self-employed so that we can encourage the next generation of entrepreneurs.”

According to the research, two fifths of Scottish businesses (38%) say they have plans to grow in the year ahead, while a fifth (20%) say they plan to downsize (12%), sell (3%), or close their business (5%).

Firms with expansion ambitions were asked to identify the biggest barriers to growth: three fifths of Scottish businesses cited the domestic economy (59%); just over a third highlighted consumer demand (36%); and just under a third warned of the problem of accessing skilled staff (32%).

Andrew McRae said: “As the economy has reopened, skills and staff shortages have given firms across Scotland a headache. Self-isolation rules and a reduction of workers caused by the UK leaving the EU are amongst the factors that have been blamed.

“We know that many smaller firms are looking at new ways of attracting and retaining workers. But policymakers also need to realise that if local firms can’t find the skills they need, then growth and innovation is impossible. That’s why decision-makers in Edinburgh and London need to look at their labour market, skills, and public health policies and ensure they’re geared up for the recovery.” There are more than 360,000 small and medium sized businesses operating in Scotland. These firms and the self-employed support more than a million jobs north of the border.

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