Scottish business confidence hits new low

Scottish business confidence fell to a new low in the first three months of the year, the Federation of Small Businesses’ (FSB) latest optimism tracker index shows.

In the first quarter of 2019, FSB’s Scottish Small Business Index (SBI) fell 1.8 points to -34.5. In contrast, the UK Index recovered slightly, rising by 4.9 points in Q1 to -5.0, though this figure is 11 points lower than at the same point in 2018.

This is the second quarter in succession that the Scottish SBI has hit a record low. Established in 2012, the Scottish index has now not registered a positive reading – indicating small business optimism in the economy – since the second quarter of 2018.

Andrew McRae, FSB’s Scotland policy chair, said: “Uncertainty associated with Brexit is being piled upon rising overheads, shaky revenues and squeezed margins. It’s hardly surprising that Scotland’s firms aren’t brimming with confidence.

“Again, Scottish entrepreneurs are particularly gloomy compared to the UK average. This could be due to the sectoral make-up of the Scottish economy, or how we view the prospect of the UK leaving the EU. Either way, even if we avoid the nightmare of a no-deal, no-transition Brexit, there’s much work to do to give Scottish business decision-makers the confidence they need to grow our economy.”

In Q1 2019, the net balance of small businesses in Scotland that saw costs rise over the last three months stood at 72 per cent, up from 67 per cent in Q4 2018. In addition, the research records very weak profits and revenues amongst Scottish smaller businesses.

It also finds that the share of small businesses in Scotland operating below capacity is on the rise. In the first quarter of 2019, a net balance of 62% reported that they operated below capacity over the last three months, 13.6 points up on the 48.5% recorded in Q4 2018. More positively about two in five Scottish businesses (42%) intend to grow, a figure only slightly below the UK average of 50 per cent.

On top of current pressures, next week will see the implementation of HMRC’s Making Tax Digital programme, inflationary business rates increases for those outside valuable reliefs and higher auto-enrolment pension contributions.

Andrew McRae said: “After nearly a thousand wasted days, Scotland’s small businesses still don’t know what sort of Brexit for which they’re preparing.

“Despite this farcical situation, business leaders must do what they can to ensure their firm is prepared for what might be to come by checking official sources of advice. UK-wide, FSB is arguing that vouchers should be provided to firms to help them prepare. It will be important to ensure that north of the border that this support is aligned with existing help.

“Next week, local firms in Scotland will need to adapt to a range of new tax and regulatory pressures. At the best of times, this would have posed challenges for many operators. Therefore, as policymakers north and south of the border develop their plans for the future, we’d encourage them to give smaller businesses a much needed break.”