Tourism and hospitality firms are on a “financial knife-edge” and lack trust in the Scottish Government to deliver for the sector.

Those are the stark findings of new survey commissioned by the Scottish Tourism Alliance (STA), published today, which found 85% of respondents have "no or low trust" in ministers to deliver funding for the industry over the next year; 58% said they have no trust at all.

The survey, based on the views of more than 300 tourism and hospitality firms, underlines the pressure on profitability from rising operating costs, despite a surge in visitors to Scotland from overseas, and the domestic market continuing to be impacted by the cost of living crisis.

And it heaps further pressure on Scottish ministers to provide support for business when Finance Secretary Shona Robison announces the Scottish Budget for next year on Wednesday (December 4).

The survey, produced in partnership with research specialist 56 Degree Insight, is published after Chancellor Rachel Reeves controversially increased employer national insurance contributions and the national living wage in the UK Budget last month. The tax hike has led to calls for the Scottish Government to provide relief from business rates for the next financial year, in line with the support given to retail, leisure and hospitality businesses south of the Border.

The Scottish tourism survey was conducted ahead of the UK Budget, but the STA said it was “another financial blow” to the sector.

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While official figures published last month revealed a further rise in international visitors to Scotland in the first six months of the year, the survey showed that businesses are struggling to make a profit and invest in the quality of their visitor offer because of pressure from rising costs and the continuing fall in domestic tourists.

Figures published by the Office for National Statistics (ONS) found a total of 1,975,000 visits were made to Scotland by overseas residents in the first six months of the year, up 14% on the same period of 2023 and a rise of 46% on 2019. Data also show that visitors to Scotland spent £1.5 billion over that period, 2% higher than 2023 and 30% on 2019, adjusted for inflation.

However, the STA survey found that nearly half of Scottish tourism and hospitality businesses (45%) have either no or just one to three months of cash reserves, a 6% fall on last year, while 78% of hospitality operators who responded have a financial safety net of three months or less.

More than three-quarters (77%) reported higher energy costs and 85% said they were facing steeper supplier expenses. The survey also found 58% are spending more on staff costs, which will rise further because of recent changes at the UK Budget, and around half (49%) said their taxation burden was greater.

Despite a 21% rise in net turnover, and positive international visitor numbers, business profitability is down 1%, the survey, which was carried out in October, found.

Meanwhile, given a choice of 18 actions the Scottish Government could take to create the best environment to do business, almost half (47%) put ‘greater recognition of tourism as an economic driver’ in their top three. This was followed by reviewing the Short Terms Lets (STLs) Licensing Scheme (34%) and reducing the regulatory burden on business (34%).

Marc Crothall, chief executive of the STA, said: “The lack of trust in the Scottish Government to deliver for the sector over the next 12 months sends a powerful message to ministers that they must use the upcoming Budget to demonstrate their commitment to protecting tourism and hospitality businesses, restoring their confidence, and investing in the quality of our visitor product and people.

“Despite repeatedly delivering for the Scottish economy, outperforming the rest of the UK when it comes to attracting international visitors, the majority of business owners who have responded say that they continue to feel overlooked and undervalued by the Scottish Government.

“I know first-hand that both the First Minister [John Swinney] and the Cabinet Secretary for Economy and Gaelic [Kate Forbes] value the sector’s importance, but that’s not coming through to most businesses working on the ground, who have suffered as a result of policy making decisions and financial challenges over recent years. It is positive action, not just words that is needed.

“Our businesses have clearly spoken and recognition of tourism and hospitality’s crucial role as an economic driver is their main priority from the Scottish Government, along with cutting the regulatory burden and prioritising a review of the catastrophic STLs scheme.

“Passing on the 40% business rates relief being afforded to our hospitality counterparts in England by the UK Government, at the very minimum, and introducing a permanently lower rate that is fair and proportionate would go some way to restoring the sector’s confidence in government.”

Mr Crothall also warned that Scotland's success among international tourists should not be taken for granted, warning that it risks developing a reputation as an expensive country to visit.

He said: “The survey reveals many of the sector’s businesses are on a financial knife-edge. In the face of rising costs, tourism and hospitality businesses cannot afford to raise customer prices, despite continuing to experience rising costs in the form of inflationary pressures and the forthcoming significant increase in national insurance employer contributions, along with ongoing global uncertainty.

“Scotland is starting to get a reputation for being overpriced for the quality of experience offered compared to other competing destinations. With the visitor levy on the horizon in Edinburgh and other parts of Scotland, there is a risk we will reach a tipping point where we are too expensive, even for the high-spending American market.

“Without government support, our businesses will struggle to make enough money to invest in their team, the quality of their product and advance in their journey to becoming net zero. This is in turn constricting our ability to meet the ambitions of our national tourism strategy, Scotland Outlook 2030, and overall having a detrimental impact in our ability to compete on price, improve quality of experience and offer the value for money today’s customers expect.

“After several challenging years for the sector, behind the scenes we are also seeing an increasing rise of mental health issues amongst business owners in the sector, as they struggle to cope with rising business costs and challenges."