THE uncertainty and confusion wrought by Brexit has caused optimism among small firms in Scotland to plunge to its lowest level recorded by a key business survey.
The latest quarterly small business confidence index, published by the Federation of Small Businesses (FSB), shows Scottish
optimism dropped to -32.6 points in the last quarter, down from -13.2 points earlier in the year.
It is the lowest reading on the index since the FSB began the survey in 2011. The previous low, of -28.9 points, was recorded in Scotland in the aftermath of the Brexit vote in the last quarter of 2016.
And optimism in Scotland was again found to lag confidence levels for the UK as a whole. The UK index fell to -9.9 points in the last quarter from -1.7 points the previous time.
The FSB survey was published as Prime Minister Theresa May pulled back from a meaningful vote on the Withdrawal Agreement in the face of likely defeat in the House of Commons, sending the UK Government’s Brexit preparations into fresh turmoil. It also came shortly before tomorrow’s Scottish Budget, at which the FSB wants Scottish ministers to unveil steps to shore up business optimism.
Colin Borland, director of devolved nations at the FSB, said the latest events at Westminster heap greater certainty on small businesses which have no clarity on how to prepare for the UK’s exit from the European Union.
And he said the survey result for small business confidence in
Scotland was “one of the less surprising stories of the day”.
Mr Borland said: “The recent months of turmoil, political uncertainty and economic uncertainty have had a negative impact on business confidence. We have seen the Scottish figure plummet to its lowest level since we started this series in 2011.
“Small businesses are keen to prepare [for Brexit] but they still don’t know, some 15 or 16 weeks out [from the Brexit date] what it is they have been asked to prepare for.”
READ MORE: Scots economy praised for resilience as private sector growth slows
Mr Borland said the Brexit disarray was coinciding with other factors which are challenging small businesses. However, with weak consumer confidence and rising overheads having been weighing on small firms for some time now, Mr Borland concluded that “it would be very surprising if the current political and economic uncertainty was not having a pronounced impact on how businesses are feeling.”
Asked why confidence levels are lower in Scotland than the UK, Mr Borland said the Scottish figure had has tracked consistently lower. He said it could reflect a higher exposure in Scotland to sectors dependent on consumers’ discretionary spend, such as
tourism, hospitality and food
and drink.
He also said the greater dependency of the Scottish economy on migrant workers from the EU could be a factor, as firms face up to a skills shortage in the event Brexit brings freedom of movement to an end.
Mr Borland said: “One in four small employers in Scotland has
at least one non-UK EU member of staff on the books. That figure rises to about 40% when you get north of Perth.
“Consistently, questions about staffing have been the top concern our members have raised ever since the referendum result in 2016.”
The FSB survey found that, with net migration from the EU at a six-year low, the number of UK small business owners citing a lack of access to appropriately skilled staff as a barrier to growth had increased.
Mr Borland added: “Something like nine in 10 of non-UK EU workers who are in employment in Scotland were hired when they were already living here.
“So, the idea you have all these employers who are out Hoovering up cheap labour in eastern
European, and bringing it over here, simply isn’t borne out by the evidence.
“But what that means is you need that population, you need that critical mass to recruit from.”
The FSB survey found that, across the UK, more than two-thirds (67%) of members do not expect to increase capital investment in the coming quarter, while one in seven (15%) said
they are planning to reduce investment.
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