By Rosemary Gallagher

OPTIMISM is lower among small Scottish businesses than it is across the UK as they face “spiralling” overheads, including a surge in energy costs, making it difficult for them to recover from the pandemic, new research is warning.

The Federation of Small Businesses (FSB), which today published its Scottish Small Business Confidence Index, is calling for government action to ease the burden of increasing gas and electricity bills. And business owner David Equi, managing director of Hamilton-headquartered Equi’s Ice cream, described the energy market as the “wild west”.

The FSB identified rising overheads, mainly energy and labour costs, as a key factor behind a slump in Scottish business confidence in the third quarter of this year. The research found disruption to global supply chains had also affected optimism.

Some 77% of Scottish firms said their business costs has increased since the third quarter of 2020, with only 5% reporting a fall. FSB’s Scottish Small Business Confidence Index dropped steeply to +1.2 points in quarter three of this year from +20.5 points in the second quarter. The UK-wide figure fell to +16.4 points from +18.4 points over the same period. The typical Scottish business is therefore less optimistic than the UK average, a reversal of the picture over the summer.

The FSB, which has been campaigning for the UK Government to ease the Vat burden on gas and electricity bills, warned rising overheads are making it difficult for businesses to grow their operations or tackle their environmental impact as they emerge from the pandemic.

According to Andrew McRae, FSB’s Scotland policy chair, “punishing rises in business overheads” were “taking their toll”. He said “And with a rise in payroll taxes on the way, there’s no end in sight.”

Equi’s Ice Cream has projected about a 500% increase in the cost of energy for its flagship store in Hamilton - at least £50,000 a year. David Equi said the cost of its gas bills jumped from 1.79 pence per kilowatt hour to 8.86p when he had to take out a new annual contract last month.

He said: “It’s just like the wild west out there with no government support. If everyone is suffering like that, businesses will be going to the wall. The government needs to step in. There’s a domestic price cap, so I can’t see why there’s nothing in place for businesses.”

He added that he is frustrated the government isn’t prepared to step up to protect local, independent firms.

FSB’s research also found that Scottish businesses are amongst the least likely in the UK to have increased their revenues between July and September. Only 2.3% small firms grew their revenues against a UK-wide average of 7.8%. This gap is expected to widen in the last quarter of this year, with under 3% of firms north of the border expecting revenue to go up, compared to 20% across the UK.

Stuart Mackinnon of the FSB said the Covid crisis has taken its toll on the Scottish business community with many firms having exhausted their cash reserves. He warned that the capacity for small firms to absorb the disruption of any potential new restrictions has been diminished.

He said: “We really hope policy makers in Edinburgh and London think carefully about the impact any new restrictions would have on businesses, while we understand public health is also a key factor.”