Scottish businesses are raising prices and hiring fewer staff in response to growing financial pressures as a result of the increase in employer National Insurance Contributions (NICs), according to the Fraser of Allander Institute at the University of Strathclyde.
The latest edition of its quarterly Scottish Business Monitor revealed that almost nine out of 10 of 250 businesses surveyed in March anticipate higher business costs over the next six months, while 80% expect Scottish economic growth to remain “very weak to weak”
The report also found that eight out of 10 businesses report increased payroll costs as a result of the rise in employer NICs with many adapting to this through a combination of strategies: cutting back on hiring or cancelling increases in their workforce, adding the extra costs on to prices, and reducing employee benefits and compensation packages.
Business sentiment
Price increases in response to the rise in employer NICs have the potential to trigger higher-than-target inflation, something that has been flagged as a concern by Bank of England policymakers as well. The recent changes to NICs are expected to heavily impact business planning this year; four in five businesses surveyed said these changes have increased their overall payroll costs.
Business sentiment has also been affected by the uncertainty around trade and tariffs, with firms indicating that economic and policy uncertainty was more important than credit availability or staff availability.
The findings come on the back of the Fraser of Allander Institute’s latest Economic Commentary, which highlighted the increasing economic and trade policy uncertainty facing the UK and Scottish economies due to rising global trade tensions.
Other key findings include: Almost half of businesses have increased prices to pass on higher costs to customers because of the increase in employer NICs; almost half of surveyed businesses have reduced hiring or scaled back plans to increase employee headcount in response to the increase in employer NICs; and fewer than one in 10 businesses expect no significant impact to their operations due to the rise in employer NICs.
Higher costs
Sanjam Suri, Knowledge Exchange Fellow at the University of Strathclyde’s Fraser of Allander Institute, said: “These results bear out what we expected in the previous edition of our Scottish Business Monitor. Increases in employer NICs – both through the higher rate and the reduced threshold – have already been affecting businesses as they prepared for the implementation of the changes in April 2025.
“With four out of five businesses facing higher payroll costs and almost half cutting back on hiring and increasing prices, the effects of higher costs have been making their way through companies’ plans for the coming year. Add in the uncertainty around trade, and it makes for a difficult in-tray to manage.
“Economic policy and political uncertainty are uppermost in the minds of Scottish businesses, even more so than borrowing costs or staff availability. Next quarter, we will look to gauge how businesses have been adapting to that uncertainty, as well as changing labour market regulations.”