The Federation of Small Businesses' most recent survey found that 43% of its members expect to reduce headcount in the next six months. That figure — which would represent hundreds of thousands of jobs — reflects a perfect storm of cost pressures that has descended on British small businesses over the past three years.
The National Insurance Impact
The increase in employer National Insurance contributions announced in the Autumn Budget has hit small employers particularly hard. Unlike large businesses, which can absorb cost increases through supply chain leverage and economies of scale, a sole trader with three employees experiences the full marginal cost.
The tax rise is estimated to add approximately £1,900 per year to the employment cost of a worker on the median wage. Multiplied across a three-person business, that is a significant hit to viability.
The Business Rates Problem
Business rates — the commercial property tax that funds local services — has long been identified as a structural impediment to UK high street retail and manufacturing. Multiple reviews have produced incremental reform but no fundamental change.
What Would Actually Help
The Confederation of British Industry and the Federation of Small Businesses have been remarkably consistent in their prescriptions: business rate reform, a longer period of implementation for National Insurance changes, and reform of business lending to improve access to growth capital.
Whether the government's forthcoming small business strategy will deliver on these priorities is the central question for the sector in 2025.
