Tuesday October 6th 2026
Scottish Parliament
Written by Midlothian View Reporter, Liam Eunson
Reform of business rates comes top of the list of priorities for businesses ahead of the Scottish Budget, according to the latest Scottish Business Monitor (SBM).
The report covering the third quarter of 2026, produced by the Fraser of Allander Institute at the University of Strathclyde, surveyed 200 firms across all sectors of Scotland’s economy and all 32 local authority areas.
The Institute asked firms which areas they would most like to see prioritised in the Budget. Business rates were the clear first choice, with a third of firms (34%) selecting them as the main business priority – more than twice the share choosing any other area. Skills and training (14%) and income tax (12%) were the next most common choices.
The Monitor also revisited its annual questions on businesses’ relationship with the Scottish Government. The findings point to a more negative picture than last year, with around seven in 10 firms saying the Scottish Government does not understand the business environment (69%) or engage effectively with businesses on policy (71%).
However, there were some signs of progress. More than one in five firms (22%) now say they know an effective route to influence Scottish Government policy, up from 14% last year and the highest share since the question was introduced in 2023.
The findings come as businesses report improving activity but remain cautious about what lies ahead. Activity improved across all six of the Monitor’s key indicators this quarter, with sales returning to positive territory for the first time since Q2 2024. However, expectations for future sales weakened and uncertainty remains widespread.
Other key findings include:
– Uncertainty still dominates as 99% of firms said economic and business uncertainty was an important concern, and 93% said the same of political uncertainty.
– Cost pressures have eased slightly but remain widespread. 82% of firms reported higher total costs this quarter, down from 86% in Q2, and 86% expect costs to rise over the next six months. Employee costs were the most commonly reported pressure, while energy is expected to be the main driver of cost increases ahead.
– AI adoption held broadly steady, with 65% of firms using AI in their operations in the past three months, following a period of rapid growth.
– Firms are more cautious about the months ahead. The net balance expecting higher sales over the next six months fell from 10% to 3%, below the post-pandemic average of 6%.
– Expectations for Scotland’s economic growth have become more divided. Three in four firms expect weak or very weak growth in the Scottish economy over the next 12 months, although the share expecting moderate growth rose from 20% to 24%.
Emma Congreve, Deputy Director of the Fraser of Allander Institute, said: “The upcoming Scottish Budget is an important opportunity for the Scottish Government to strengthen its relationship with the business community. Our results show there is still some way to go, with many firms not yet feeling that government understands the business environment or engages effectively with them on policy.
“This matters for the wider economic outlook. When businesses are uncertain about the direction of policy or how decisions will affect them, it becomes another risk to factor into decisions around investment, recruitment and growth.
“Businesses have given a clear indication of where their priorities lie ahead of the Budget, with business rates well ahead of any other area. With cost pressures still widespread, it is perhaps unsurprising that firms are focused on one of the most direct costs they face.
“No single Budget can address every challenge businesses face. But it is an opportunity to provide greater clarity on the direction of policy, make progress on some of the issues firms have identified and build a stronger dialogue between government and business.”
Brodie Gillan, Associate Economist at the Fraser of Allander Institute, said: “It is encouraging to see business activity improve across the board this quarter, with sales returning to positive territory for the first time in over two years. Scottish firms have shown considerable resilience through a challenging period.
“But there is a clear gap between how businesses are performing today and how confident they feel about what comes next. Expectations for future sales have weakened, cost pressures remain widespread and almost all firms continue to identify economic and political uncertainty as a key concern for their business.
“That reflects the picture in our latest Economic Commentary: an economy that has remained resilient, but with considerable uncertainty around the outlook for the rest of the year and into 2027. The test over the coming months will be how to maintain momentum against a backdrop of continued uncertainty.”
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