National insurance nightmare: Why Scottish businesses think 2025 can only get worse

Scottish businesses are increasingly pessimistic about their outlook for the remainder of the year with the upcoming national insurance hike taking a heavy toll on confidence, a key survey today warns.

Bosses are worried about having to navigate a slowing economy as well as policy changes announced in both the UK and Scottish Budgets that are expected to have a “significant impact”. Despite easing headline inflation rates, more than eight in ten businesses surveyed reported higher total business operating costs in the last three months of 2024.

While borrowing costs are gradually falling, just 13 per cent of businesses indicated higher new capital investment in the last quarter of the year relative to the third quarter - which is unlikely to help longstanding concerns regarding Scotland’s productivity challenge, according to the latest business monitor from the Fraser of Allander Institute at the University of Strathclyde.

Chancellor Rachel Reeves announced major changes to employers' national insurance contributions in her autumn Budget.

The employers’ national insurance contribution changes announced in the UK autumn Budget - and due to take effect from April - are expected to heavily impact business planning, with seven in ten businesses stating that these changes will have a “significant” impact on their operations in 2025.

Looking ahead, three-quarters of businesses expect Scottish economic growth to remain weak or very weak in 2025. Businesses polled also indicate a strong desire for greater economic certainty, with nine in ten firms noting that economic uncertainty is the most important concern over the first three months of 2025. The findings come from a survey of more than 300 Scottish companies, conducted in December and January.

Sanjam Suri, knowledge exchange fellow at the Fraser of Allander Institute, said: “The survey results in the third quarter of 2024 indicated that Scottish businesses were showing cautious signs of optimism. However, the last three months of 2024 coincided with a weakening economy coupled with policy changes - especially employer national insurance contributions (NICs) are weighing on the minds of businesses as they begin 2025.

“Businesses have weathered a lot of challenges since the pandemic - spiking energy costs, high borrowing costs and inflation. We will see over the rest of the year how the impact of NICs and other employment related changes crystallises into 2025. We will be surveying business sentiment again to get a better sense of how these dynamics evolve as the year progresses.”

The survey findings come on the back of the latest Fraser of Allander Institute’s commentary, which highlighted weak economic growth at the end of 2024 and the impact of government decisions on economic growth in 2025 and 2026.

Other key monitor findings include that almost eight in ten businesses have indicated higher employee costs in the last three months of 2024. Crucially, businesses are expecting those steeper employee costs to persist, with nine in ten firms expecting higher staff costs in the first half of 2025. While businesses are still assessing how to respond to changes to NIC, they expect the impact to be significant, with close to three quarters of businesses indicating significant impact to their company from these changes during 2025.

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