Scottish job loss new year warning as economy 'headed for the worst of all worlds'

UK Hospitality Scotland said businesses are “in survival mode” and are actively looking to cut staff numbers as they grapple with the rise in employer National Insurance contributions.

The warning comes as a new survey by the Confederation of British Industry (CBI) found firms were expecting to reduce both their output and hiring over the first three months of 2025. Employer National Insurance contribution increases have been highlighted as one of the chief reasons for the gloomy economic outlook.

The CBI’s growth indicator survey, based on responses from 899 companies between November 25 and December 12, found expectations for growth are now at their weakest since November 2022 in the aftermath of Liz Truss’s chaotic tenure in No.10.

In the UK Budget in October, Ms Reeves hiked employer National Insurance contributions to 15 per cent and lowered the threshold at which employers must start paying these contributions to £5,000.

The move is expected to boost the Treasury’s coffers by £25 billion. However, Leon Thompson, executive director of UK Hospitality Scotland, told The Scotsman that Scottish businesses are “not confident” about the year ahead and are planning to either cut staff numbers or have staff working fewer hours.

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Mr Thompson warned there would be less options for part-time working as a result of the lowered threshold. He said: “There has been a cost-of-doing-business crisis for a couple of years now and this will only add to it.

“The increases to National Insurance contributions will be a very difficult issue for businesses to navigate and the result will be reviewing numbers and putting on plans to open new businesses.

“A lot of businesses are in survival mode and this is just additional heat.”

Earlier this month the Scottish Government announced 40 per cent business rates relief for some hospitality businesses in the 2025/26 Scottish Budget. But Mr Thompson said it did not go far enough to negate the impact of the UK Budget on businesses.

He said: “The 40 per cent rates relief is welcome. However, it is only available to businesses with a rateable value of less than £51,000 - so there are a lot of businesses that are not going to see that lifeline.”

The Federation of Small Businesses said firms would be looking to cut back on recruitment in the coming months.

Colin Borland, director of devolved nations at the federation, said: “There’s no doubt that confidence figures for Scotland’s small firms haven’t been massively encouraging off late - and that’s not good for their investment or hiring intentions.

“The more than doubling of the employment allowance at the Budget will shield smaller employers from National Insurance contribution rises. But when cost and cashflow are so key, governments must always be looking for ways to reduce overheads, especially as we get into the business end of the Budget negotiations at Holyrood.”

The predicted fall in activity suggested from the CBI survey is broad-based - business volumes in the services sector are anticipated to decline while distribution sales and manufacturing output are also expected to fall sharply in the three months to March.

The survey found a 24 percentage point gap between companies which gave negative responses on expected output and those which gave positive responses - a worse position than in November when there was a ten-point gap.

It is the worst figure since the 27-point gap in November 2022.

Alpesh Paleja, the CBI’s interim deputy chief executive, said: “There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds - firms expect to reduce both output and hiring, and price growth expectations are getting firmer.

“Businesses continue to cite the impact of measures announced in the Budget, particularly the rise in employer National Insurance contributions, exacerbating an already tepid demand environment.

“As we head into 2025, firms are looking to the government to boost confidence and to give them a reason to invest, whether that’s long overdue moves to reform the apprenticeship levy, supporting the health of the workforce through increased occupational health incentives or a reform of business rates.

“In the longer term, businesses will be looking to the industrial strategy to provide the stability and certainty which can unlock innovation and investment - and provide that much-needed growth for the economy, which can deliver prosperity for firms and households alike.”

Official figures showed the UK economy unexpectedly contracted in October, marking two months in a row of negative growth for the first time since the coronavirus pandemic.

The Office for National Statistics has said GDP contracted by 0.1 per cent in October.

The rate of consumer prices index inflation rose to 2.6 per cent in November, its highest level since March and the second monthly increase, while the Bank of England held interest rates at 4.75 per cent last week as it cautioned “heightened uncertainty in the economy”.

The SNP’s Michelle Thomson said: “This survey from the CBI shows very clearly that Labour’s record is one of failure - they cannot be trusted to stand up for Scotland’s economy.”

She added: “The UK’s economic model has totally failed. We are trapped in a death loop of economic stagnation and rampant inflation driving up costs for Scotland’s businesses and households on Westminster’s watch.

“After 14 years of failure, successive UK governments of all colours have proven they do not understand Scotland’s economy. Only independence offers the opportunity to take control of our economy and build a fairer future for all.”

Craig Hoy, the Scottish Conservatives’ finance spokesman, added: “Labour must urgently heed these warnings from business, especially when firms in Scotland are already buckling under the weight of the SNP’s high taxes.

“Keir Starmer promised during the election that he wouldn’t raise taxes, but soon proved he was just as bad as the left-wing consensus at Holyrood, which believes the only way to plug the financial black hole they created is by punishing hard-working Scots with more and more tax hikes.

“Businesses in Scotland will find it increasingly difficult to survive under this anti-growth agenda.”

Shadow business secretary Andrew Griffith said: “Since taking office, the Chancellor has made this country a hostile climate for aspiration, for investment and for growth. Rachel Reeves’s tax-raising spree and trash-talking her economic inheritance are literally killing businesses and jobs.

“If there is a recession – and based on these CBI expectations that seems increasingly likely – it will be one made in Downing Street.”