Scottish businesses are sending a clear message to ministers ahead of the Scottish Budget, with business rates reform topping their priorities and growing numbers questioning whether the government understands the pressures they face.

New research from the Fraser of Allander Institute at the University of Strathclyde reveals that almost seven in ten businesses believe the Scottish Government does not understand the business environment, while an even greater proportion feel it fails to engage effectively with firms when developing policy.

The findings come from the latest Scottish Business Monitor, which surveyed 200 businesses across all sectors of the economy and all 32 Scottish local authority areas during the third quarter of 2026.

Business rates emerged as the overwhelming priority for reform, with 34% of firms identifying them as the issue they most wanted addressed in the Scottish Budget.

That was more than twice the proportion selecting any other priority, with skills and training attracting 14% and income tax 12%.

For businesses already managing rising employment costs, energy bills and uncertainty about future trading conditions, the research suggests that direct financial pressures remain central to their concerns.

The findings also reveal a widening gap between government and the business community.

Some 69% of respondents said the Scottish Government does not understand the business environment, while 71% believe ministers do not engage effectively with businesses on policy.

There was, however, one encouraging development, with 22% of firms reporting that they know an effective way to influence Scottish Government policy, compared with 14% last year.

That represents the highest figure recorded since the question was introduced in 2023.

The economic picture itself is similarly mixed.

Business activity improved across all six indicators measured by the Monitor during the third quarter, with sales returning to positive territory for the first time since the second quarter of 2024.

Yet confidence about the months ahead remains fragile.

An overwhelming 99% of businesses identified economic and business uncertainty as an important concern, while 93% highlighted political uncertainty.

Although cost pressures have eased slightly, 82% of firms still reported higher costs during the quarter, and 86% expect their costs to increase over the next six months.

Employee costs remain the most commonly reported pressure, while energy is expected to be the main driver of further increases.

The survey also found that 65% of businesses had used artificial intelligence in their operations during the previous three months, suggesting the adoption of new technology has become increasingly established.

Despite improvements in current trading, expectations for future sales have weakened, with the net balance anticipating growth over the next six months falling from 10% to just 3%.

Three quarters of businesses also expect weak or very weak growth in the Scottish economy over the coming year.

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 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.”

For businesses across the Highlands and Islands, where operating costs, transport, staffing and energy can present additional challenges, the national findings will be particularly relevant.

The survey does not provide a separate Highland breakdown, but its findings highlight pressures affecting firms throughout Scotland.

With the Scottish Budget approaching, businesses have identified where they want action, leaving ministers to decide how those priorities will be reflected in future tax and economic policy.

The message from the research is not that Scottish businesses have stopped investing or adapting, but that improving trading conditions have yet to translate into lasting confidence about what lies ahead.