Reform of business rates tops the list of demands ahead of the Scottish Budget in a new survey that continues to show a lack of confidence in the government’s understanding of the challenges businesses face.
Among 200 firms across a range of sectors 34% named business rates as the clear first choice for priority action – more than twice any other issue. Skills and training (14%) and income tax (12%) were the next most common choices.
The institute’s latest Scottish Business Monitor (SBM), covering the third quarter of 2026, also revisited its annual questions on businesses’ relationship with the Scottish Government.
The findings point to a more negative picture than last year, with around seven in 10 firms (69%) saying the Scottish Government does not understand the business environment nor engages effectively with businesses on policy (71%).
However, there were some signs of progress. More than one in five firms (22%) now say they know an effective route to influence Scottish Government policy, up from 14% last year and the highest share since the question was introduced in 2023.
The findings come as businesses report improving activity but remain cautious about what lies ahead. Activity improved across all six of the Monitor’s key indicators this quarter, with sales returning to positive territory for the first time since Q2 2024. However, expectations for future sales weakened and uncertainty remains widespread.
Among other key findings, uncertainty still dominates as 99% of firms said economic and business uncertainty was an important concern, and 93% said the same of political uncertainty.
Cost pressures have eased slightly but remain widespread. Eight in ten (82%) of firms reported higher total costs this quarter, down from 86% in Q2, and 86% expect costs to rise over the next six months. Employee costs were the most commonly reported pressure, while energy is expected to be the main driver of cost increases ahead.
AI adoption held broadly steady, with 65% of firms using AI in their operations in the past three months, following a period of rapid growth.
Firms are more cautious about the months ahead. The net balance expecting higher sales over the next six months fell from 10% to 3%, below the post-pandemic average of 6%.
Expectations for Scotland’s economic growth have become more divided. Three in four firms expect weak or very weak growth in the Scottish economy over the next 12 months, although the share expecting moderate growth rose from 20% to 24%.
Emma Congreve, deputy director of the Fraser of Allander Institute, said: “The upcoming Scottish Budget is an important opportunity for the Scottish Government to strengthen its relationship with the business community. Our results show there is still some way to go, with many firms not yet feeling that government understands the business environment or engages effectively with them on policy.
“This matters for the wider economic outlook. When businesses are uncertain about the direction of policy or how decisions will affect them, it becomes another risk to factor into decisions around investment, recruitment and growth.
“No single Budget can address every challenge businesses face. But it is an opportunity to provide greater clarity on the direction of policy, make progress on some of the issues firms have identified and build a stronger dialogue between government and business.”
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