The jobs carnage that business groups warned would follow the chancellor’s tax increases is no longer a forecast. It is showing up in the numbers.
New research from Rathbones reveals that one in five UK small and medium-sized businesses cut staff over the past year, with hospitality firms bearing the heaviest burden. More than a third of hospitality SMEs reported making redundancies, well above the average across all sectors, and 69 per cent said increased taxation or regulation now represents one of the biggest threats to their survival.
The principal culprits are not hard to identify. Employer national insurance contributions rose from 13.8 per cent to 15 per cent in April 2025, while the threshold at which the charge kicks in was slashed from £9,100 to £5,000 per employee. Taken together, the changes amount to a £25 billion hit on business payrolls, a burden that falls disproportionately on labour-intensive small firms that cannot easily absorb the cost through automation or scale.
The Rathbones survey paints a picture of businesses that have already exhausted the obvious coping strategies. Seventy per cent cite rising costs as the single biggest threat to their business. Fifty-eight per cent point to taxation and regulatory burdens. Business rates and employer NICs are singled out as the most painful pressure points.
What is particularly telling is how businesses are adapting. Nine per cent have increased their use of freelancers and contractors, a shift that reduces NICs liability but carries its own risks under tightening employment status rules. Another nine per cent have moved towards part-time or flexible roles, restructuring their workforce to manage the per-head cost of employment.
For hospitality and retail businesses, where margins have always been thin and where staff costs represent the largest single expense, the arithmetic has become brutal. A small restaurant employing fifteen people on or around the national living wage will have seen its annual NICs bill rise by several thousand pounds, on top of the minimum wage increase itself. Add business rates, energy costs and food price inflation, and the operating model that worked two years ago may simply no longer be viable.
More than half of SME leaders surveyed, 51 per cent, said that targeted relief on business rates or employer NICs would directly support their ability to grow and invest. That is not a request for handouts; it is a statement of economic reality from the businesses that employ the majority of the UK workforce.
The danger for the wider economy is that small firms respond to the cost squeeze not by cutting once and recovering, but by permanently downsizing their ambitions. A business that lays off two people this year and decides not to replace them next year is a business that has quietly accepted a smaller future. Multiply that across hundreds of thousands of firms and the aggregate effect on employment, productivity and growth becomes significant.
For small business owners navigating these pressures, the immediate priority is honest cash flow planning. Hoping that costs will ease or that relief will arrive in the next Budget is not a strategy. The businesses that come through this period in the best shape will be those that have looked hard at their numbers, made difficult decisions early and found ways to protect the core of their operation, even if that means a leaner version of what they had before.
