Pressure to increase pay as business confidence and labour market hit

The typical Scottish business is now less optimistic than the UK average, a report has found.

FSB said the cost of running a business has increased since this time last year (Jane Barlow/PA) (PA Archive)

Businesses will be forced to increase pay to keep and hire staff after recent months saw a loss of momentum in the Scottish labour market and a slump in confidence, two reports have found.

A Royal Bank of Scotland survey of recruiters found hiring activity growth slowed in October despite a strong demand for staff.

The survey found there was a steep decline in the supply of both permanent and short-term workers and sharp rates of vacancy growth.

Panellists surveyed attributed the difficulties finding candidates to strong demand, the coronavirus pandemic and Brexit.

Availability of permanent staff also dropped at a near-record pace.

This was despite salaries for permanent starters rising for the 11th time in as many months.

Sebastian Burnside, chief economist at Royal Bank of Scotland, said: “Following a survey-record uplift in hiring activity during the third quarter, the latest data point to a slight loss of momentum in the Scottish labour market.

“With the labour market running hot, supply and demand imbalances may limit firms’ abilities to fill roles in the months ahead, while also pushing firms to up their pay offers in order to secure or even retain staff.”

RBS surveyed recruiters (Jane Barlow/PA) (PA Wire)

A separate report by the Federation of Small Businesses found rising overheads are leading to a slump in Scottish business confidence.

Around three-quarters (77%) of Scottish businesses surveyed in late September by the group said the cost of running their business has increased since this time last year.

FSB’s Scottish Small Business Confidence Index fell to 1.2 points in the third quarter of 2021, from 20.5 points in the second quarter.

It said the typical Scottish business is now less optimistic than the UK average, a reversal to the situation seen over the summer.

Andrew McRae, FSB’s Scotland policy chair, said: “Scottish business optimism bounced back over the summer but has slumped in the autumn. That’s partly because the easing of Covid restrictions delivered a big confidence boost that’s waned over time.

“However, punishing rises in business overheads are also taking their toll on the trading outlook. And with a rise in payroll taxes on the way, there’s no end in sight.”

David Equi, managing director of Equi’s Ice Cream in Hamilton said a rise in energy prices had hit plans to grow his business.

He said: “These spiralling energy prices make realising these ambitions so much harder. After surviving the Covid crisis, I’m frustrated that Government isn’t prepared to step up to protect local and independent firms.”

The RBS data was collected from about 100 Scottish recruitment and employment consultancies between October 12-25.

FSB surveyed 1,370 small firms between September 21 and October 1, with 168 from Scotland.