Costs warning as optimism at small Scottish firms hits six-year high

Smaller Scottish firms are more confident than at any time in the past six years but concerns are growing over rising costs and staff shortages, according to a new report.

Monday, 26th July 2021, 4:55 am
The re-opening of shops in Scotland has bolstered confidence among small businesses.

Latest figures from the Federation of Small Businesses (FSB) figures also 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.

The FSB’s latest small business confidence index for Scotland has risen to +20.5 points 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 per cent) of Scottish firms reported an increase in running costs compared to this time last year, while only eight per cent said their overheads had decreased. In addition, more Scottish firms believe their profits will fall over the next three months than increase.

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Andrew McRae, the 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 per cent) say they plan to grow in the year ahead, while a fifth intend to downsize, sell, or close their business.

Of the firms looking to expand, potential barriers cited include the strength of domestic economy (59 per cent), consumer demand (36 per cent) and problems accessing skilled staff (32 per cent).

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,” he said.

“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.”

The FSB said there are 360,000 small and medium sized businesses operating in Scotland, supporting more than a million jobs north of the Border.

The findings of the survey echo those of a Bank of Scotland study which last month reported Scottish businesses are now the most optimistic in the UK after a sharp rise in confidence.

A net balance of 18 per cent of businesses surveyed expect to increase staff levels over the next year, the third consecutive month the reading has increased.

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