Much like a football manager eager to move quickly on to the next match following a disappointing result, the thoughts of many in business will now be turning to the Scottish Budget next month.

Chancellor Rachel Reeves delivered what many perceived to be a crushing blow to business when her maiden Budget served up a massive tax hike via a sharp rise in employer national insurance contributions (to 15% from 13.8%), alongside a lowering of the threshold at which companies begin paying contributions on each salary. The moves are estimated to raise a whopping £25 billion for the UK’s battered public purse.

The Budget also confirmed a rise in the energy profits levy, an increase in the national minimum wage and a further hike in spirits duty, much to the chagrin of the Scotch whisky industry which is also now anticipating the return of import tariffs on single malt in the US, following Donald Trump’s resounding election victory. It has been a brutal week for distillers.

However, following a rise in funding announced by Ms Reeves for the Scottish Government via an increase in Barnett consequentials, can key industries such as hospitality and retail expect a little leeway at the Scottish Budget in December?

Read more:

In the immediate aftermath of the Budget, business groups warned Ms Reeves’s decisions would add many hundreds of millions of pounds to the already heavy costs firms are facing, declaring that the extra burden would impede plans to invest and take on staff. It was suggested some firms may be forced to reduce their headcounts to absorb the additional costs, with consumer-facing businesses left with no choice but to pass on the higher overheads at the till. These challenges come at a time when forecasts for economic growth continue to be weak over the next five years, implying disposable incomes will remain under pressure for the foreseeable future.

Leon Thompson, executive director of UKHospitality, told The Herald yesterday that Ms Reeves’s changes to employer national insurance contributions were “by far the measure that will have the biggest impact on hospitality”, noting that they will cost the sector nearly £1 billion.

The impact of the changes was also underlined by David Lonsdale, director of the Scottish Retail Consortium, who declared the Budget was “the most challenging” faced by the retail industry “in a long time”.

He said: “Scotland’s retailers will face a mammoth £190 million increase in their tax bill following the Chancellor’s announcement that employer national insurance contributions are to rise.

“Combined with increases in the statutory wage rates it’s clear retail businesses will see big rises in the cost of employment, and of course the proposed reforms to employment rights and industrial relations are in the pipeline too. Such stark increases will increase the cost of operating a retail business and are unlikely to be absorbed by businesses, at a time when Scottish retail sales are flatlining, making it likely those costs will be passed along to consumers.”

While there was much in the Budget to disappoint the business community, Ms Reeves pledged to make some changes to business rates south of the Border, which has in turn raised the prospect of similar reform in Scotland. That hope may have been fuelled by the increase in funding for the Scottish public finances after the Chancellor announced additional Barnett consequentials of £3.4bn for the next financial year, albeit this will be reduced by the rise in employer national insurance contributions that public sector organisations will have to pay.

Ms Reeves did not maintain the 75% relief from business rates that firms in the hospitality, retail, and leisure sectors down south have benefited from in the last two financial years. However relief of 40% will be provided (up to a cap of £110,000 per business) and the small business multiplier in England will be frozen next year.

Moreover, although Ms Reeves’s plans for business rates fell short of the comprehensive review many had been calling for, she did pledge to introduce two permanently lower tax rates for retail, hospitality and leisure properties “which make up the backbone of high streets across the country… and it is our intention that is paid for by a higher multiplier for the most valuable properties”.

The hospitality and retail sectors in Scotland have been left bitterly disappointed by the last two Scottish Government Budgets, which did not provide the 75% relief from business rates that their counterparts in England enjoyed (though ministers in Scotland have provided relief in different ways, for example through the small business bonus scheme). But given the Scottish Government will arguably have more headroom this year though the increase in Barnett consequentials, can hospitality and retail expect any better when the Scottish Budget is announced on December 4?

“The increase in Barnett consequentials is incredibly important and they must be used to support hospitality businesses with their business rates bills, which hasn’t been the case the past two years,” said Mr Thompson at UKHospitality. “This is even more pressing this year as Scottish businesses will also be experiencing the enormous increase to employment costs in April.

“We really need the Scottish Government to show some leadership by delivering on its commitment, made at the last Scottish Budget, to reform business rates for hospitality and we will continue to make that case to the Finance Secretary ahead of December. We also want them to reduce the higher property rate, to address the disparity with England.”

Mr Lonsdale noted that the SRC has put its “Budget asks” to the Scottish Finance Secretary, Shona Robison, following the announcement of higher Barnett consequentials last week, with further talks planned for the days ahead. He said it was vital the Scottish Budget does not place the retail industry in Scotland at even more of a competitive disadvantage to its counterpart in England, noting that many stores north of the Border are “liable for the higher property rate and pay more than they would in England to the tune of £9m per annum”. He also flagged that the Scottish Government is considering introducing a business rate surtax for larger grocery stores.

“From spring 2026 England will introduce a permanent business rates discount for retail, hospitality and leisure firms, a recognition that they pay a disproportionate amount of business rates,” Mr Lonsdale said. “This is positive news and hopefully the discounts and the quantum will be meaningful. Obviously, we need to see the detail of what is being proposed including the rates discounts.

“What is critical is that Scotland doesn’t find itself at an even greater competitive disadvantage by the reforms in England, as Scottish-based medium-sized and larger stores are already paying more, smaller stores here aren’t receiving RHL (retail, hospitality, and leisure) relief and are being told they may not be eligible for relief anyway if they don’t pay the ‘real’ living wage, and where Scottish grocery stores are being told they may face a business rate surtax.”