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BUSINESS COMMENT: How are Highland firms faring?

By David Richardson

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This matters, for no government, public agency or institution can operate effectively without knowing the answer, says David Richardson.
This matters, for no government, public agency or institution can operate effectively without knowing the answer, says David Richardson.

How are the nation’s businesses doing post-pandemic and in the midst of an inflation crisis?

This matters, for no government, public agency or institution can operate effectively without knowing the answer.

As Scotland’s largest and most respected business organisation and the voice of smaller businesses, FSB Scotland sought to find out. In particular, we wanted to better understand the issues that businesses face, and we wanted to know if they are the same throughout Scotland, or whether their importance varies from area to area.

Our Big Small Business Survey covered a very wide range of issues, but here I’ll focus on the overall health of our business community, and on the biggest long-term problem facing businesses: staffing.

With a third of the 602 responses coming from the Highlands & Islands (Shetland, Orkney, the Western Isles, Highland, Moray and Argyll), we had a wealth of information to play with. So, what have we learned?

Well, last year, six in 10 businesses in both Scotland and the Highlands & Islands (H&I) saw their turnovers either increase or stay the same, but this is down from three-quarters in our 2021 H&I business survey. Also, the cost-of-living crisis seems to have hit H&I businesses harder.

Moreover, looking back over the past three years, 2021 was a significantly better trading year right across Scotland than both 2020 and 2022 – presumably people wanted to get out and about as soon as they were unlocked.

Of course, turnover is one thing and profitability quite another – especially in an era when double-digit inflation can wipe out any modest increase in takings. While three-quarters of H&I businesses generated profit or broke even last year, a quarter made a loss – clearly worrying times for these given the lean pandemic years that went before. However, looking forward, more than three-fifths of Scottish SMEs plan to grow their businesses in the next two years, particularly younger entrepreneurs.

How best to explain all of this? As Scotland’s geography differs so do its local economies, and the relative importance of tourism to the H&I would appear to explain many of the differences between our region and the rest of Scotland: the strong and weak years; the confidence in consumer demand; and the impact of escalating costs. Oh, and it’s also worth noting that, based on a comparatively small sample of 91 responses, businesses in the northern Highlands have performed slightly better than in the H&I as a whole and the rest of Scotland. Why? Well, it’s hard to come up with anything more likely than the impact of the NC500.

Squeezed margins and uncertain trading conditions are major issues, but perhaps the most frightening long-term structural worry for employers in the H&I is the shortage of staff.

For while FSB surveys found that a third of employers on Skye were short staffed in August 2016 and 37 per cent of island-based businesses were similarly afflicted in 2017, by 2021 almost a half (47 per cent) of H&I businesses were in that predicament, and last year it increased to 57 per cent.

Meanwhile, in the rest of Scotland, ‘only’ 45 per cent of businesses did not have the headcount they needed. Needless to say, H&I businesses were not confident about their ability to recruit enough staff in 2023 – the direction of travel is obvious.

Staff shortages have consequences – serious consequences.

In fact, eight in 10 H&I businesses had to cut back on the range of services they offered, opening hours or both.

How many people couldn’t eat out because staff shortages had forced restaurants to reduce the number of people they could feed?

And what happens to the H&I’s reputation as a world-class holiday destination if staff shortages reduce service quality and perceived value for money?

Businesses in the Highlands & Islands do what they can, a third visiting education establishments to talk to pupils and students – it’s only a quarter in the rest of Scotland – and three-quarters provide in-house training. Moreover, around two-thirds pay the Real Living Wage, though most are not accredited, and most of those that don’t, don’t because they can’t afford to.

However, the bottom line is that there are nothing like enough jobseekers within the H&I to meet businesses’ needs.

This problem is not going away any time soon, and without the staff they need, businesses can’t run on all cylinders, delight their customers, or create the vibrant local economies that retain young people and attract others to move in. No wonder some are downsizing. All of this perpetuates demographic decline and the staffing crisis.

These are matters for governments, and at FSB Scotland we will continue to do all we can to bring the realities of business life, and the solutions necessary to giving businesses and local economies the brightest possible futures, to their attention.

David Richardson is regional development manager at FSB.

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