National insurance hike hammering Scottish businesses with more pain to come - Fraser of Allander Institute

Scottish businesses are showing “tentative signs of recovery”, but confidence remains fragile and the hike in national insurance payments is hitting hard, a key survey today suggests.

The latest quarterly business monitor from the Fraser of Allander Institute points to improvements in the volume of new business activity, turnover, employment and capital investment. The closely-watched survey is based on the findings from 300 businesses across all 32 local authorities in Scotland.

While the overall net balances remain in negative territory, companies polled reported a recovery after a tough start to the year during the first quarter.

Business owners were hit with higher national insurance contributions (NICs) in April.

The only category where the net balance deteriorated even further in the second quarter from the opening three months of the year was export activity, as businesses reported a sharp decline from what was seen as a weak starting point in the first quarter.

The report also found that more than 60 per cent of businesses have adjusted their operations because of the rise in employer national insurance contributions (NICs), which kicked in from April, with many adapting to this through a combination of strategies, including cutting back on hiring or cancelling increases in their workforce, adding the extra costs on to prices, and reducing employee benefits and compensation packages.

Nearly 40 per cent of those quizzed expect to make more adjustments down the road.

Sanjam Suri, knowledge exchange fellow at the Fraser of Allander Institute, which is based at the University of Strathclyde, said: “The results in the second quarter marked a recovery of sorts after a very difficult first quarter. However, it’s clear that overall business confidence remains challenged.

“The tentative signs of recovery have thus far failed to make a dent in the economic outlook for the rest of the year. While most businesses have adjusted to changes in NICs, nearly 40 per cent of firms plan on making more adjustments, suggesting that the full impact of these changes are yet to materialise.”

Almost a quarter of businesses expect moderate to strong economic growth in the Scottish economy over the next 12-months. While this number has increased from the first quarter, nearly three quarters of businesses surveyed still expect growth to remain in the weak to very-weak territory.

Broader inflationary trends continue to affect businesses with 75 per cent of companies expecting increased employee costs over the coming six months.

The institute said the relative recovery in the second quarter had “thus far failed to crystallise into durable improvements in overall business sentiment”, which continues to be affected by unpredictability around trade and tariffs.

Josh Hampson, knowledge exchange assistant at the Fraser of Allander Institute, said: “The ongoing uncertainty around trade continues to show up in the sharp decline in the export activity from what was already seen as a weak starting point in the first quarter of 2025.

“Economic policy and political uncertainty are uppermost in the minds of Scottish businesses, even more than traditional factors such as borrowing costs or staff availability,” he added.

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