By Scott Reid
Scottish businesses across all sectors are feeling the strain of April’s “life or death” hike in employer national insurance payments, putting growth plans on hold, a key study today warns. The survey of more than 400 firms north of the Border found that while confidence and sales have actually improved over the past quarter, ongoing cost pressures and concerns continue to impact growth and investment. The latest Scottish Chambers of Commerce (SCC) quarterly economic indicator, which is produced in partnership with the University of Strathclyde’s Fraser of Allander Institute, found that taxation concerns have risen sharply in the past year, with 70 per cent of businesses citing increased worries regarding taxes, compared to 50 per cent in the second quarter of 2024. The SCC’s report also highlights “significant challenges” around cashflow and profits, despite positive sales trends across the board. On balance, both cashflow and profits have seen contraction over the second quarter of 2025. Meanwhile, the number of firms expecting to raise their prices during the coming quarter has risen to 65 per cent, compared to 50 per cent a year ago. Pressure from labour costs has risen by 15 per cent in one year. Nearly nine in ten – 86 per cent – of firms were experiencing increased pressure from labour costs during the most recent three-month period, compared to 75 per cent for the same quarter last year. The latest poll also showed staff hiring had stalled, as more than half of all firms – 55 per cent – reported no changes to staff levels and 65 per cent expect no change in the next quarter. Doug Smith, vice president of the Scottish Chambers of Commerce and chairman of the SCC Economic Advisory Group, said: “The latest findings paint a troubling picture: investment is frozen, employment is stagnating and concerns are growing around taxation at a time of economic uncertainty around tariffs, immigration, tax and general fiscal policy. “These survey results highlight major concerns and challenges for Scottish businesses as a direct result of rising costs, particularly the increase in employer national insurance contributions (NICs). Every obstacle to sustaining cashflow and profits has a direct impact on confidence, investment, growth and jobs across all sectors.” He added: “The lack of skills is a real challenge not just in meeting the demand of future projects but also in completing current and day-to-day work. We need a clearer focus from both governments on matching education to the needs of business.” The survey was conducted between May 12 and June 9 and 405 firms responded. Combined, those companies employ in the region of 50,000 people. Of those firms, 92 per cent were classed as small and medium-sized enterprises (SMEs) – businesses with less than 250 people. The latest economic indicator was reinforced by insights from the Scottish Economic Advisory Group, which raised concerns around skills shortages in sectors such as construction, engineering and manufacturing, alongside the “misalignment of education priorities with the practical needs of business”. The group also emphasised the intense cost pressures of NICs – described as “life or death” for microbusinesses, and particularly tough for SMEs – as well as increased taxation, and energy costs significantly higher than the rest of Europe. The group claimed that it has proven “nigh on impossible to recruit in construction, and businesses are struggling to maintain labour forces to meet demand”. Fiona McKee, founder of The HR Practice, said: “It is increasingly difficult to recruit skilled workers, and salary expectations are unrealistic, pushing costs up on top of employer NICs.” The issue of tariffs was also raised by businesses with overall taxation concerns increasing again over the quarter and over the year. Survey fieldwork began a month after Donald Trump’s so-called “Liberation Day”, which saw the US president unveil new tariffs on imports. In the report, one small manufacturing firm in Ayrshire noted: “At the moment they are 10 per cent on our products. Should they be any higher it could be a serious problem.” Barriers Liz Cameron, chief executive of the SCC, said: “While agreements have been reached between the US and UK governments to remove barriers, we urge ongoing cooperation and collaboration to rebuild business confidence and restore certainty. “The new agreements with the EU and India are pragmatic moves towards building strong trading relationships with our economic partners. These will reduce costs, cut red tape and make it easier for Scottish businesses to compete and grow across the world. However, more still needs to be done on people and migration to attract skilled talent, with a migration system aligned with the needs of Scotland’s economy.” Professor Mairi Spowage, director of the Fraser of Allander Institute, added: “Economic conditions remain challenging across the UK as we go into the summer months. After healthy growth in January and February, we have seen contractions in March and April, which means the size of the economy in Scotland is essentially the same as it was six months ago. “Businesses reported a slowdown of activities in the first quarter compared to the same period last year. This decline in activity may reflect the impact of increases to employer national insurance contributions (NICs) as well as uncertain conditions, particularly from trade and tariff decisions taken by the US government. “Many businesses and consumers will be hoping that the economy turns a corner over the summer and that wider factors stabilise,” she added. National insurance nightmare: Why Scottish businesses think 2025 can only get worse