Scottish businesses in ‘crisis mode’, Government warned

Scottish firms are in “crisis mode” as the cost of living hinders them from bouncing back, a leading business network has found.

The latest survey findings from the Scottish Chambers of Commerce (SCC) has said the rising prices of energy, food and raw materials, coupled with labour market insecurity, have surrounded the economy with weaker growth prospects.

The SCC quarterly economic indicator report found that, since April 2022, nine in 10 Scottish firms surveyed were continuing to report major inflationary pressures.

It comes as inflation reaches a 40-year high of 9.1%.

The UK and Scottish governments have been urged to take urgent action to stop businesses in Scotland falling deeper into crisis, Stephen Leckie, president of the SCC, said.

The survey, conducted in May and June of 2022, contains the views of 360 firms in Scotland.

It found that rising energy bills continue to take a toll on businesses, with seven in 10 firms reporting it is the largest contributor to their cost pressures.

Fuel and labour costs, alongside raw material prices, are also of significant concern, the report found.

In an effort to combat the issue, more than three quarters – 77% – of firms have indicated they plan to increase prices in the next quarter.

Firms are also experiencing more labour uncertainty, with those reporting recruitment difficulties up by 10% from the previous quarter.

Half of all surveyed firms have had increased challenges hiring staff, the report notes.

Mr Leckie has warned the survey’s findings show that cost and inflationary pressures were “deterring investment”, and forcing businesses to make “difficult decisions for business survivability”.

“Urgent action is needed now from the Scottish and UK governments if we are to reverse the tide of economic decline, restore confidence and put the economy back on the road to growth,” he said.

Mr Leckie also called on Chancellor Rishi Sunak to work with businesses ahead of the Autumn budget to help firms “weather this perfect storm”.

He said: “The immediate costs crisis is on energy prices and the UK Government must act on the calls from businesses to introduce an SME energy price cap and cut VAT on energy bills from 20% to 5%.

“This immediate support would shield businesses in a similar way to households.

“Labour shortages and recruitment difficulties continue to hold back businesses who are struggling to find and or retain the talent that they need.

“The UK Government must alleviate this burden by immediately rolling back the increase in National Insurance contributions.”

But support must not end at the budget, Mr Leckie said.

“The Chancellor must present a long-term economic plan developed in partnership between business and government focused on restoring business and consumer confidence, investment, and growth to Scottish and UK economy,” he added.

Mr Leckie also urged the Scottish Government to extend the 50% business rates reliefs available to retail, hospitality and leisure sectors, from the first three months to the first six months of 2022/23.

A UK Government spokesperson said: “While no government can control the global factors pushing up the cost of various essentials, we will continue to support British business.

“The super-deduction is the biggest two-year business tax cut in modern British history allowing companies to cut their tax bill 25p for every £1 they invest. We’ve also cut taxes for hundreds of thousands of businesses by increasing the Employment Allowance, and we slashed fuel duty, saving van drivers £200 and hauliers £1,500.

“The Chancellor has made clear he will reform and cut taxes on investment in the autumn to spur growth and productivity – and we’re currently working with industry on how best to do this.”

A spokesman for the Scottish Government said: “The Scottish Government is doing everything possible with the powers we have to ensure people, communities and businesses are given as much support as possible to deal with the rising cost of living – but most of the key economic powers needed still lie with the UK Government.

“The situation is being made worse by the impact of Brexit – which Scotland rejected – and its effect on issues like labour market shortages and inflation.”