Rural Scotland Business Panel Survey

3. Costs

Key findings

Almost all businesses (93%) were concerned about rising costs, with just 7% not concerned.

Businesses were most concerned about the costs of energy (65%) and fuel (62%). A third of businesses were concerned about the cost of goods sourced from within the UK (34%) and around a fifth by the cost of labour (22%), the cost of imported goods (20%), and the cost of transporting goods (18%).

To help respond to cost increases, around half of businesses were increasing their prices (54%), while over a third were exploring new markets (37%), collaborating with other businesses (35%), and working with new suppliers (34%).

Rising costs

The vast majority (93%) of businesses were concerned about rising costs (62% very concerned and 31% fairly concerned). Just 7% were not concerned (Figure 3.1).

Findings reflect the economic context at the time of the survey, with cost increases for both businesses and households being widely reported in Scotland and across the UK. They also echo the findings from the previous wave (October/November 2021) where the most significant concern for businesses was increased costs.

Variation in concern

Concern about rising costs was high across the board. However:

• tourism (98%) and food and drink (96%) businesses were slightly more concerned than average, whereas
• creative industries and financial and business services businesses were less concerned than average (19% and 14% respectively said they were not concerned).

Cost concerns

Of those concerned about rising costs, the top concerns were the cost of energy (65%) and fuel (62%). A further third (34%) were concerned with the cost of goods sourced from within the UK.

Around one in five were most concerned with costs of labour, goods imported from outside the UK, and transporting goods. Fewer than one in ten were most concerned with cost of premises and exporting goods.

Findings again reflect the economic context for the survey, with fuel and energy costs both increasing and due to increase further (for example, energy firms increased prices in April 2022, with further increases expected to come in October 2022).

Variation in cost concerns

Businesses in the Highlands and Islands (22%) and those in island locations specifically (24%) were more likely than average to be concerned about the cost of transporting goods.

Those in remote rural and accessible rural areas were more likely than average to say cost of fuel was a concern (67% for both).

Some concerns were more prevalent in certain sectors:

• Food and drink – fuel (70%), goods imported from outside the UK (28%), and transporting goods (22%).
• Tourism – energy (82%), goods sourced from within the UK (41%), and labour (32%).
• Creative industries – transporting goods (25%).
• Financial and business services – energy (75%) and premises (17%).

Sole traders and microbusinesses (0-4 staff) were less likely than average to be concerned about cost of labour (17%) but were more likely to be concerned about cost of fuel (64%).

Cost of labour was a top concern for around a quarter (26%) of employers, but also for one in ten (10%) businesses without staff (suggesting that cost of labour may be restricting the latter group of businesses from employing staff or be off-putting to them doing so in future).

Response to cost concerns

To help respond to cost increases, around half of businesses were increasing their prices (51%). Around a third were exploring new markets (34%) or working with new suppliers (32%). Other actions included postponing investment plans (29%), collaborating with other businesses (28%), using cash reserves (27%), and doing more online (25%) (Figure 3.3).

Variation in response to cost increases

The following sectors were more likely than average to take certain actions:

• Food and drink – postponing investment plans (36%), seeking external finance (16%).
• Tourism – increasing prices (86%), using cash reserves (33%), changing our product or service (22%), scaling back production or services (19%).
• Creative industries – doing more online (41%) and changing product/service (25%).
• Financial and business services – doing more online (42%).

Large businesses (25+ staff) were more likely than average to be exploring new markets (61%), working with new suppliers (48%), and seeking external finance (21%).

Businesses in remote rural areas were more likely than average to be postponing investment plans (35%) and collaborating with other businesses (35%).

Those operating above pre-COVID-19 levels, were more likely to be taking actions involving changes to their working practices, including: increasing prices, exploring new markets, collaborating, and doing more online.

On the other hand, those operating below pre-pandemic levels were more likely to be scaling back, postponing recruitment or investment plans, or using their cash reserves (Table 3.1).

A number of actions were also more common among those striving for growth, and those importing and exporting from particular markets (see Appendix A).