Scottish businesses are hiking prices and slowing recruitment in response to the rise in employer National Insurance Contributions (NICs) introduced this month, new research from the Fraser of Allander Institute reveals.

The latest edition of the Institute’s quarterly Scottish Business Monitor shows that almost 90% of the 250 businesses surveyed in March anticipate higher business costs over the next six months, while 80% expect Scottish economic growth to remain ‘very weak to weak’.

The report also found that eight out of ten businesses have seen payroll costs increase as a direct result of UK Government changes to employer NICs.

The changes to NICs are expected to heavily impact business planning this year, with four out of five Scottish firms saying these changes have increased their overall payroll costs.

According to the survey, Scottish firms are adapting to these pressures through a combination of strategies, including cutting back on hiring and cancelling increases in their workforce, adding the extra costs to prices, or reducing employee benefits and compensation packages.

Nearly half of the surveyed firms said they’ve raised prices for their customers to offset higher staffing costs, while a similar number have paused recruitment and scaled back hiring plans.

Fewer than one in ten Scottish businesses said they expect no significant impact on their operations due to the tax changes.

These findings build on the data that the Fraser of Allander Institute highlighted in its last Scottish Business Monitor, which found 94% of Scottish companies expected NIC changes to ramp up their costs over the first half of 2025, while more than 45% of businesses reported that the tax changes would substantially affect them

Aside from dealing with the pressures of NIC increases, the near-term outlook for Scottish firms has also been affected by ongoing questions around trade and tariffs, with firms indicating that economic and policy uncertainty were more important than the availability of credit and staff.

So far this year, multiple reports have shown that Scottish businesses are becoming increasingly pessimistic.

A study in January found dismal expectations, driven by weak economic and business conditions as well as increasing uncertainty, with concern that any growth could be a short-term boost rather than sustained in the medium to long term.

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Likewise, data from February showed that falling capital investment for Scottish firms over the last months of 2024 had added to anxieties, with 90% of businesses struggling with the lack of economic clarity as they entered the new year.  

Added to that, the Fraser of Allander Institute’s latest Economic Commentary, published earlier this month, highlighted limited improvement to economic and business conditions in Scotland so far this year, driven by rising global trade tensions.

“Increases in employer NICs – both through the higher rate and the reduced threshold – have already been affecting businesses as they prepared for the implementation of the changes in April 2025,” said Sanjam Suri, knowledge exchange fellow at the Fraser of Allander Institute.

“With four out of five businesses facing higher payroll costs and almost half cutting back on hiring and increasing prices, the effects of higher costs have been making their way through companies’ plans for the coming year. Add in the uncertainty around trade, and it makes for a difficult in-tray to manage.

“Economic policy and political uncertainty are uppermost in the minds of Scottish businesses, even more so than borrowing costs or staff availability. Next quarter, we will look to gauge how businesses have been adapting to that uncertainty, as well as changing labour market regulations.”