Jobs growth at 16-month high, but tax fears mount

Job creation in Scotland among private sector employers has hit a 16-month high but confidence across the UK is being undermined by concern over tax rises.

The Royal Bank of Scotland growth tracker for September showed the private sector economy north of the Border achieved a ninth consecutive month of growth, with the services sector continuing to underpin the data.

However, firms continued to face sharply rising cost burdens in September. Higher labour and material costs is said to have driven up prices, though the rate of input price inflation eased for the second consecutive month, reaching its lowest level since February 2021.

The tracker’s headline business activity index eased to 51.2 last month, from 52.7 in August. A reading above 50 denotes expansion and below that level contraction, with 50 indicating no change.

Judith Cruickshank, chair of the Scotland board at Royal Bank of Scotland, said Scotland had ended the third quarter on a “positive note”.

“Sustained growth in new business inflows enabled firms to increase their activity levels, although the pace of growth slowed.

“Notably, hiring activity surged, with job creation reaching its highest level since May 2023. Expansions in new business, activity and employment were driven by service firms, while manufacturers experienced broadly stable output and jobs but a sharp fall in new orders.

“The steeper decline in factory orders indicates more challenges for the Scottish manufacturing sector in the coming months. The uncertain political and economic landscape will also act as headwinds to growth, leading the Scottish private sector to increasingly depend on its service firms to drive the economy forward in the coming year.”

Separately, the latest ICAEW Business Confidence Monitor showed business confidence has declined as fears of further tax rises in this month’s budget have led to a fall in business confidence for the first time in a year.

Scottish businesses reported that domestic sales grew in the third quarter for the first time in 18 months, climbing above their historical average but below the rate seen in the UK as a whole.

The survey of 1,000 professional advisers, which took responses up to 20 September, before the Labour Party conference, showed that 29% of respondents cited the “tax burden” as a growing concern.

Alan Vallance, chief executive of the institute, said: “The findings show that businesses are troubled by the tax burden and increasingly reluctant to invest.

“As the UK prepares to host a major investment summit [next Monday], and speculation mounts ahead of a difficult budget, the chancellor must give companies the certainty and stability they need.

“Reforms to VAT and business rates, alongside public and private investment to drive long-term growth and prosperity for the UK, could help to achieve this.”