Confidence among small businesses has fallen to its lowest level since the height of the pandemic, according to new figures. 

The Federation of Small Businesses’ Index (SBI) found confidence fell to -67.2 in Q4, 2024, its lowest level since Q4, 2020, when it stood at -69.

The latest results represent the third consecutive quarterly slide in small business optimism north of the border, dropping from –41.2 in Q3 last year. 

The growing negative sentiment reflects uncertainty surrounding the broader economy, and falling confidence UK-wide, with the UK SBI figure standing only slightly higher at -64.5 in Q4. 

Businesses face a series of cost increases in the coming weeks, including the hike in employers’ national insurance contributions and in the living wage, both introduced by the Labour government.

Andrew McRae, FSB Scotland policy chair, said: “These worrying results underline that we need urgent, concrete government action on the issues that keep small business owners awake at night.  

“So many of the pressing issues come down to cost and cashflow. That is why, for example, the government’s plans to tackle late payments, the scourge of many small businesses in Scotland, cannot come soon enough.

“It must also be acknowledged that the upcoming Employment Rights Bill is a serious concern for small firms, with nine out of ten owners saying they are worried about its introduction. 

“We are keen to gain a fuller picture of precisely what factors are shaping this gloomy outlook and this is one of the key focuses of our largest research project to date, The Big Small Business Survey. To that end, we would encourage as many small businesses in Scotland as possible to take part.” 

Six out of 10 respondents in Scotland (59%) cited the performance of the domestic economy as the biggest barrier to the growth of their own business. Three quarters (74%) experienced rising costs in Q4, largely due to increases in utility bills, as well as labour and tax costs. 

The net balance of small businesses reporting revenue growth in Scotland fell to -36.7, compared to -13.1 in the previous quarter. Fewer than one in five (17.9%) saw revenues grow, the lowest proportion since Q1, 2021.   

Looking further ahead, there was a positive net balance of Scottish firms looking to expand in the next 12 months, at 5.4%. However, this represents a large drop from the previous quarter (30.4%) and is significantly below the UK average for Q4 of 19.2%. 

Scottish Conservative shadow business secretary Murdo Fraser said: “These deeply concerning findings must be an urgent wake-up call for the SNP and Labour governments to change their approach.

“Their high-tax policies are clearly having a hugely damaging impact on confidence among Scotland’s small businesses.”

Both Labour and the SNP insist that thousands of small businesses are exempt from higher NICs and business rates.

SNP minister calls for reversal of NICs hike

Scottish Employment and Investment Minister Tom Arthur is urging the UK Government to reconsider its increase to employer National Insurance contributions before it causes “lasting damage to Scotland’s economy.”

He said the rise was a brake on employment, endangered economic growth and was likely to result in higher prices for consumers.  

The Scottish Government estimates that the extra burden, with employer National Insurance contributions rising to 15%, will cost businesses £850 per employee on average and hit the budgets of charities and public sector bodies.  

Speaking ahead of a debate in parliament this week, the Minister said efforts to support businesses and boost investment are being undermined by the UK Government’s decision.

“Businesses now face the impossible choice of cutting jobs, reducing hours, cutting wages, absorbing the costs themselves, or passing some of the burden to consumers in the form of higher prices,” said Mr Arthur.

“Our efforts to support businesses, entrepreneurs and investment are being undermined by this tax on jobs. If the UK Government is serious about economic growth, they must reconsider this decision before they cause lasting damage to Scotland’s economy.”

Labour says skills shortage hitting housing

Scottish Labour says skills shortages are contributing to the housing emergency as the number of construction workers and apprentices falls

The number of people working in construction has fallen for two consecutive years, dropping by almost 3,500 between 2023 and 2024 alone.

Scottish Labour Economy spokesperson Daniel Johnson said “Under the SNP a housing emergency has taken hold in Scotland, but we don’t have the workforce to fix it.

“A lack of housing is causing misery across the board – driving up house prices and rent costs, and leaving record numbers of Scots stuck in temporary accommodation.

“To deal with this crisis we need to build more houses and we need to have the skilled workers to do it – but once again our skills system is failing to meet the needs of our country.”