The Border Divide: Scotland's Economic Squeeze in a 15-Minute Drive
It takes just fifteen minutes to drive from Eyemouth in Scotland to Berwick-upon-Tweed in England. Yet, this brief journey crosses a stark economic boundary, moving from one of the UK's highest-cost environments to a far more competitive one. This short trip underscores the greatest economic challenge facing Scotland today: a relentless squeeze on businesses that is forcing many to reconsider their future.
A Nation Under Pressure
Across Scotland, businesses are grappling with rising costs, tightening margins, and persistently low confidence. In such an environment, it is no surprise that firms are holding back on investment or, in some cases, contemplating relocation across the Border. This worrying trend is confirmed by data from the latest Quarterly Economic Indicator, which shows weak demand and revenues under significant pressure.
Investment remains stagnant, with four in five firms either holding back or reducing their spending. Charandeep Singh, chief executive of the Scottish Chambers of Commerce, has warned that Scots businesses are in the grip of a 'relentless squeeze'. The tax burden, combined with escalating labour and energy costs, is compelling businesses to scale back rather than pursue growth.
The Cost Conundrum and Price Rises
With costs increasing across the board, firms have little choice but to pass this pressure onto increasingly cautious customers. Indeed, almost three-quarters of businesses expect to raise prices in the coming months, a clear indication of how entrenched this problem has become. Scotland is increasingly seen as the higher-cost option within the UK, and businesses are responding accordingly.
From non-domestic rates to wider divergence in tax policies, the gap is no longer insignificant. While measures like the Small Business Bonus Scheme have provided some relief, for those operating on tight margins, a tipping point is always looming. This kind of environment is simply unsustainable for Scotland's economy.
A Plan for Growth and Global Challenges
In response, a different approach is being proposed. Backing Scotland's Businesses: A Plan for Growth offers a credible vision for the economic future, focused on creating a competitive economy that attracts investment to Scotland. Compared to the last Holyrood election in 2021, Scotland now competes in a far more fragmented global economy.
The post-pandemic bounce faded quickly, and by 2022, the conversation had already shifted from how businesses grow to how they survive. Since then, firms have been tested relentlessly. Soaring energy bills—among the highest in Europe—place a ceiling on scaling up key industries like aerospace and advanced manufacturing.
Policy Challenges and Investment Opportunities
Policy decisions from Westminster have often compounded these challenges. Increases to employer National Insurance contributions have made hiring new talent more costly, dampening opportunities in the labour market. Additionally, the Energy Profits Levy is stifling investment in the North Sea at a time when energy security is essential.
Despite these pressures, Scotland's attributes continue to attract more foreign direct investment than anywhere in the UK outside London. Recent commitments, such as Ryanair's new hangar at Prestwick and the Center Parcs resort in the Borders, serve as proof. However, imagine how many more investments could be secured if the next Scottish Government restored a competitive tax system, reformed business rates, and delivered multi-year fiscal planning.
Call for Smarter Decisions
Businesses are not asking for money to be thrown at their problems—they just need smarter decisions. Too many Scottish businesses feel like they are trying to compete with one arm tied behind their back. The priority now must be to remove those barriers and restore a level playing field. The next Scottish Government must make Scotland competitive again.
Charandeep Singh is Chief Executive of Scottish Chambers of Commerce.
