Scotland’s unemployment rate has fallen to 3.9% between June and August 2024, according to the latest figures, putting it slightly below the UK average of 4%.

This marks a 0.9 percentage point drop over the quarter and a full 1.0 percentage point decrease over the year. The rest of the UK also saw improvements, but at a slower pace, with the national unemployment rate dropping by 0.4 percentage points during the same period.

While this dip in unemployment signals resilience in Scotland’s labour market, it comes at a time when businesses across the country are grappling with an uncertain economic outlook. Employers are facing a complex mix of opportunities and challenges as varying growth rates and workforce trends emerge across different parts of the UK.

(Image: s1jobs)Business activity rose in 11 of the UK’s 12 nations and regions in September, continuing a trend of broad-based growth in the previous month. The southwest of England led the way, posting its sharpest increase in new business in over two-and-a-half years. Strong demand in the region was supported by an accelerated pace of growth, reflecting a resilient local economy.

In contrast, the east of England, Scotland and the West Midlands saw only marginal improvements in underlying demand. The relatively muted performance in Scotland, which has long been a hub for tech and life sciences start-ups, raises some concerns about the country’s ability to maintain its competitive edge amid national economic challenges.

Employment growth in September was mixed across the UK. Northern Ireland emerged as a strong performer, leading the way in job creation, while only half of the UK’s regions managed to grow their workforce during the month, down from 10 regions in August. Wales saw the steepest decline in staffing levels, reflecting broader concerns about economic momentum in the region.

In Scotland businesses are still expressing concerns about looming skills shortages. As the country’s population ages, with the number of over-65s expected to rise by a third over the next two decades, gaps in the workforce are set to grow, particularly in industries like technology, engineering, and renewable energy.

The need for upskilling and reskilling has become more pressing, with 66% of employers saying they expect to have significant upskilling needs in the coming year. Yet many businesses are struggling to address these gaps due to funding shortfalls.

The disconnect between the skills required by fast-growing sectors and the training available is becoming a significant barrier to progress.

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Training expenditure fell from £4.8 billion in 2017 to £4.1 billion in 2022, a trend that threatens to widen the skills gap, particularly in digital and technology fields. Only 21% of Scottish firms reported feeling that their employees are fully equipped to meet their changing digital needs, highlighting a critical area for improvement.

Amid these regional growth and employment challenges, the looming possibility of tax increases has cast a shadow over business confidence across the UK.

Much of this decline has been attributed to concerns over potential tax hikes, as speculation grows that the upcoming Budget may include measures to increase Capital Gains Tax (CGT) to help shore up public finances. The prospect of further tax burdens has raised alarms among business leaders, many of whom are warning that such changes could deter future investment and hamper economic recovery.

Private equity firms have suggested they would reduce investment in the UK if CGT is increased.

(Image: s1jobs)

In a survey of chief executives and company founders, 88% said that increasing CGT would signal a lack of support for entrepreneurs, while 74% expected such a move to directly harm their businesses. More than three-quarters (78%) said that higher CGT rates would deter them from making further investments, which could stifle job creation and hinder long-term economic growth.

Tech start-ups are particularly vulnerable to potential tax changes, as many rely on share options to attract and retain talent. If CGT increases, it could negatively affect employee motivation and retention, further exacerbating the skills shortage in the tech sector.

Start-ups in Scotland, which has seen a surge in new company incorporations in recent years, are especially concerned about the impact of these tax policies on their growth prospects.

Despite the uncertainty, business leaders remain hopeful that the Chancellor will consider reforms to VAT and business rates, alongside other measures to support public and private investment, as critical to sustaining the UK’s economic momentum.

John Walls is head of data analysis at s1jobs