Recovery in Scottish business optimism dampened by rising costs

Boosting local economies must be the priority for incoming councillors, a business leader has warned as new figures show weak Scottish business confidence.

Research for the Federation of Small Businesses (FSB) published ahead of Thursday’s vote shows that, although confidence has increased over the last three months, the average Scottish small business remains less optimistic than this time last year.

FSB’s Small Business Confidence index for Scotland stands at +14.3 points for the first quarter of 2022, a lower figure than over the same period in 2021 (+18.8 points). The index measures whether businesses believe whether trading conditions will improve or deteriorate.

However, the average Scottish business owner is now more optimistic than they were at the end of last year when the index stood at -22.0 points.

During the first quarter of 2021, many shops and all hospitality businesses across mainland Scotland were forced to stay closed because of public health rules.

To aid recovery, FSB wants councils to increase the amount they spend with local businesses; to reopen their town and city centre facilities; and to support start-up businesses.

Andrew McRae, FSB’s policy chair for Scotland, said: “We’re in a much better place today than during the darkest days of the pandemic. But these figures show that many local businesses are still worried about what comes next.

“The seismic events of the last two years were no more the fault of Scotland’s councils than they were of our small business community. But local firms and local authorities will be crucial to building both momentum in the recovery and resilience for future challenges.

“Councils can get behind the local firms on their doorstep by spending more with them. They can boost high streets by re-opening their town centres facilities and rejecting out-of-town developments. Councillors can drive diversity in the local economy by backing local entrepreneurs, especially women and people from ethnic minorities.”

The research shows that nine in ten (88%) Scottish business owners say that their running costs have increased over the last three months. Two fifths (41%) of firms say they’ve increased by more than 10 per cent.

Official Scottish Government economic statistics show that more than half (53%) of Scotland’s businesses reported that prices of materials, goods or services increased by more than normal during March and April. By contrast, only one in five businesses (20%) reported that they have increased the prices of their goods or services.

Andrew McRae said: “Evidence is mounting that Scotland’s business community is being squeezed by rising costs. But few firms feel that they can pass on this pressure to their customers.

“While no government can reduce inflation single-handed, they can avoid heaping on more pressure. Councils can, for example, freeze rents on their commercial properties and their fees and charges in areas such as waste, licensing, and planning. They can also postpone and cancel new taxes on local businesses and their customers.”

There are more than 340,000 small to medium sized businesses in Scotland, sustaining more than 1.2 million jobs. However, between March 2020 and March 2021, the total number of businesses in Scotland decreased by 19,805.