Labour costs and tax concerns are weighing down Scottish businesses, according to the latest national poll from the Scottish Chambers of Commerce (SCC), which reveals the widespread impact of April’s National Insurance hike is causing firms across all sectors to feel the strain.

The Chamber’s Quarterly Economic Indicator, produced in partnership with the Fraser of Allander Institute, found that while confidence and sales have improved over the quarter, ongoing cost pressures and concerns continue to subdue growth and investment.

Concerns over taxation have risen by 40% in one year, with 70% of the more than 400 Scottish businesses polled reporting tax worries, compared to 50% in Q2 2024.

Added to that, both cashflow and profits have seen contraction over the quarter, despite positive sales trends across the board, issues which have left 65% of Scottish firms expecting to raise their prices next quarter, a 15% jump from Q2 2024.

Meanwhile, pressure from labour costs has also risen by 15% over the year, with almost nine in 10 (86%) of firms experiencing increased pressure from labour outgoings, compared to 75% for the same quarter last year.

As a result, staff hiring has stalled as more than half of all firms (55%) reported no changes to staff levels, with 65% expecting no changes again over the next quarter.

“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,” said Doug Smith, vice president of the Scottish Chambers of Commerce.

“These survey results highlight major concerns and challenges for Scottish businesses as a direct result of rising costs, particularly the increase in employer NICs. 

“Every obstacle to sustaining cashflow and profits has a direct impact on confidence, investment, growth and jobs across all sectors.” 

The new polling was reinforced by insights from the Scottish Economic Advisory Group, which raised concerns around skills shortages in sectors such as construction, engineering, and manufacturing, which it said highlighted the misalignment of education priorities against the practical needs of business.

The group claimed that ‘it has proven nigh on impossible’ to recruit in construction, with businesses struggling to maintain their labour forces and meet demand.

Recommended reading

• Scottish Small Business Confidence Hits Record Low as Tax Hike Looms
• Hunter Report Sparks Holyrood Row Over Scotland’s Economy
• Scottish Economy in a ‘Fragile’ State, Warns EY

The advisory group also emphasised the intense cost pressures changes to employer NICs and US tariff policies have introduced, describing such tax overhaul as ‘life or death’ for microbusinesses, as well as being particularly tough for SMEs, especially as taxation and energy costs continue to be higher than the rest of Europe.

“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,” said Dr Liz Cameron, chief executive of the SCC.

“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.”