More Scottish traders bracing for economic decline than expecting growth - bucking post-Covid trend

Both the SNP Scottish Government and the Labour UK government have made economic growth a key priority. But a new study has revealed that the number of small businesses in Scotland expecting to shrink, close or sell up outstrips the number anticipating to grow for the first time since the outbreak of the Covid pandemic when large parts of the economy were prevented from trading to protect public health.

An SNP minister has labelled the findings “deeply concerning” but has blamed policy choices made by the UK Labour government for the drop in confidence of small businesses.

The study, conducted through the FSB’s small business index for Q2 of 2025, found that almost one third of small businesses expect to contract, close or sell up over the next 12 months, compared to just under a quarter that expect to grow.

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The latest results represent both the highest number of traders expecting to contract, close or sell, and the lowest number expecting to grow, since the outbreak of the Covid pandemic in the first quarter of 2020.

Overall, small business confidence in Scotland has also dropped to a net rating of -35.7, a significant decline on the previous quarter of -15.3.

Guy Hinks, chair of FSB Scotland, said: “For the first time since the country went into lockdown, more small businesses in Scotland expect to shrink, close or sell up than expand. That is deeply concerning, not just for thousands of small businesses, their staff and customers, but for the prospects of the whole Scottish economy which is largely driven by SMEs (small and medium enterprises).

“The governments in Westminster and Holyrood have been making all the right noises about supporting the small business community. These stark findings show the urgent need for decisive action.”

He added: “At Westminster, that means taking steps to tackle the blight of late payments, the inappropriate use of personal guarantees on business loans and listening to business concerns about the Employment Rights Bill and its dampening effect on firms taking on staff.

“At Holyrood and in local authorities across Scotland, that means ensuring the needs of small businesses are fully taken into account whenever any policy is brought forward, from creating a level playing field for small firms bidding for valuable public contracts to local visitor levy schemes.”

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Almost half of small businesses in Scotland have reported a fall in profits over the last three months, compared to just over a quarter who saw an increase, while twice as many cut staff, at 18 per cent, as increased employee numbers, at nine per cent.

Scottish Conservative shadow finance secretary, Craig Hoy, said: “This must be an urgent wake-up call for the SNP and Labour governments to urgently change their economic approach.

“It is deeply alarming that such a vast number of Scottish businesses could close or shrink over the next year.

“That exposes the damage the high-tax, anti-growth from the left-wing parties is doing to our economy.

“Labour have hammered businesses with their national insurance rise, while SNP ministers have spent years failing to pass on much-needed rates relief.

“They are crying out for support but instead Labour and SNP ministers are continuing to add to the burden businesses are facing. Only the Scottish Conservatives are proposing to give businesses a tax cut and put common sense measures in place to help boost economic growth.”

Speaking in the City of London today, Chancellor Rachel Reeves is expected to put “financial services at the heart of the government’s growth mission” as she unveils the biggest set of reforms to financial regulation in a decade to attempt to kick start economic growth after a difficult first year in managing the UK economy.

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She is expected to add that “Britain cannot succeed and meet its growth ambitions without a financial services sector that is fighting fit and thriving”.

SNP Business and Employment Minister, Richard Lochhead, said: “These figures from the Federation of Small Businesses are deeply concerning, and prove that Scotland’s economy is being impacted by challenging global trading conditions and uncertainty caused by policies like the UK government’s damaging National Insurance tax on jobs.

“The Scottish Government is working closely with businesses to drive economic growth and prosperity in our towns, cities and communities and provide support through a competitive non-domestic rates relief package worth an estimated £733 million this year. This includes the most generous small business rates relief in the UK.

“However, we are doing all of this without the full economic powers needed to fully address the issues facing Scotland’s economy. We need decisive action from the UK government, including a reversal of its damaging decision to increase employers’ national insurance contributions which, as the Federation of Small Businesses has highlighted, is severely hampering business confidence, investment, growth and jobs.”