More than a quarter of Scots businesses expect to shrink, figures show

More than a quarter of Scottish small business expect to shrink over the coming year, the Small Business Index (SBI) has found, as it reported its second-lowest quarterly revenue results in its 15-year history.

The survey, from the Federation of Small Business (FSB), showed that 29.1% of small businesses expect to contract over the next 12 months, compared to just 6.4% which expect to grow.

More than half (57%) of small firms said their profits decreased during the latest financial quarter.

The proportion reporting revenue growth fell to a net balance of minus 43.7% – the second-lowest quarterly revenue results in 15 years.

Small business confidence in Scotland has rapidly declined, the figures show (Andrew Milligan/PA). PA Media

Overall, small business confidence in Scotland has fallen to a net rating of minus 69.0 – a significant decline on the previous quarter (minus 35.7), the report found.

The drop in confidence in Scotland was one of the steepest among all parts of the UK, with only the East Midlands and West Midlands experiencing a greater drop in the third quarter. The UK-wide SBI also fell, 14.1 points, to minus 58.1.

Nine in 10 (89.4%) Scottish small businesses experienced increased running costs, with higher tax (56.8%), labour (55.3%) and utility bills (50%) being the biggest drivers.

Looking ahead, fewer than one in 10 (8.7%) businesses expect to see an increase in profits over the next three months, which is significantly down on the previous quarter (30%).

The FSB said the results highlighted the need for urgent government action to kickstart the economy.

Guy Hinks, FSB Scotland chair, said: “What Scotland’s small businesses need to see is tangible steps being taken to get the economy moving again.

“There are several positive measures which the governments at Westminster and Holyrood can take.

“We’re calling on Rachel Reeves to take bold action in the Budget to support entrepreneurship and ease tax and employment cost burdens on small firms – we must turn this around and enable small businesses to grow rather than having their ambitions held back, and in turn hampering economic growth.

“The economy cannot afford for small firms, who employ more than a third of Scotland’s total workforce, to stop hiring or cut staff.”

He urged the UK Government to increase the Employment Allowance which would help small employers offset the cost of National Insurance.

“That would offer some relief from the rise in employers’ National Insurance which was introduced in April and has made it more expensive to hire staff,” he added.

“Other positive steps could include a Statutory Sick Pay rebate, to help small employers manage the £5 billion annual cost to UK small businesses of sickness absence.

“Increasing the VAT turnover threshold to £100,000 would also encourage growth.

“At the same time, the Scottish Government should seize the opportunity offered by its Community Wealth Building Bill to tackle some of the challenges facing small firms bidding for public contracts.

“This should include targets for increased spending with small and local businesses to ensure the Bill delivers on its aims.”

A spokesperson for the Scottish Government said: “We are calling for the Autumn Budget to deliver real support for public services, infrastructure and the cost of living.

“We continue to call on the UK Government to reverse its damaging decision to raise employers’ National Insurance contributions and work with us to develop tailored migration routes, including a Rural Visa Pilot, to help Scotland’s small businesses to thrive.

“We will continue to work closely with businesses to drive economic growth and prosperity in our towns, cities and communities.

“This includes ensuring the Community Wealth Building Bill delivers for business and our local economies.”

A UK Government spokesperson said: “Small business owners put in the hard graft every day and we are backing them by tackling the scourge of late payments that cost the economy £11 billion a year and boosting access to finance so they can invest and grow.

“Through our Small Business Plan – the most comprehensive support package in a generation – we are taking a pro-business approach that has helped interest rates to fall five times since the election, established historic trade deals with the US, EU and India, and are reforming business rates, cutting red tape and speeding up licensing reforms.

“These are all efforts to help lower costs for businesses and have helped deliver the fastest growth in the G7 since the start of the year.”