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More than two-thirds of firms believe the Scottish Government does not understand business, a report has suggested.
According to the Scottish Business Monitor, 69% of companies do not think the Government understands the business environment, while 71% do not think ministers engage effectively with businesses on policy.
The University of Strathclyde’s Fraser of Allander Institute said the figures show an increasingly “negative picture” in the relationship between business and government.
The report found reforming business rates is the top priority for companies, with 34% saying they would most like to see it prioritised in the upcoming Budget.
Some 14% said supporting skills and training are the top priority, while income tax was the top for 12%.
The survey of 200 firms across all council areas in Scotland also found 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.
Activity improved across all six of the monitor’s key indicators in the third quarter of 2026, with sales returning to positive territory for the first time since the second quarter of 2024.
However, expectations for future sales weakened and uncertainty remains widespread.
Nearly all (99%) firms said economic and business uncertainty was an important concern for them, while 93% said the same of political uncertainty.
More than four in five (82%) companies reported higher total costs this quarter, down from 86% in Q2, with 86% expecting 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.
Meanwhile, the net balance of businesses expecting higher sales over the next six months fell from 10% to 3% – below the post-pandemic average of 6%.
Looking to the wider economy, 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.”
Cabinet Secretary for Economy, Tourism and Transport Stephen Flynn said: “This Government is resolutely committed to growing the economy and to doing so while listening to the businesses and industries on the front line.
“It’s why we have established the National Council for Economic Growth to bring further insight, challenge and expertise to our decision-making and to ensure growing the economy is a shared endeavour between government and business.
“I am pleased this year’s survey shows an increase in the numbers of companies agreeing the Scottish Government engages effectively with businesses on policy and agreeing they have an effective route to influence policy.”
