Reeves must stop punishing SMEs to save lifeless jobs market
Amid record redundancies and a stagnant jobs market, Budget decisions must stop punishing SMEs, writes Kevin Fitzgerald
The Budget delivered by Chancellor Rachel Reeves last year promised support for small and medium businesses. A year later and we’re still waiting to see it. Instead of opportunity, SMEs have faced higher costs, weaker growth and a hiring freeze that’s put the brakes on progress.
As we contemplate what comes next, we may reflect on the year past. You’d be forgiven for feeling as if SMEs have been handed punishment-by-policy, a slap on the wrist for a crime they didn’t commit. Penalties for the very people who are driving the UK economy.
All of this is playing out against a frosty economic backdrop – with the threat of an even colder winter Budget still hanging overhead.
Don’t just take my word for it, the data backs it up. Our Annual Jobs Report shows the damage of last year’s National Insurance hike in black and white, with a weakening labour market plain to see. Headcount growth, which had been steady all year, fell off a cliff. December – usually the busiest month for seasonal jobs – actually went backwards at -0.9 per cent.
Why is that important? Simply put, if firms can’t hire, they can’t grow. If they can’t grow, they pay less tax. Productivity stalls. Innovation dries up. All at the exact moment the country needs more of everything – more jobs, more growth, more ideas.
UK jobs market is stuck
Our data shows that employment growth – the number of new staff per business – was just three per cent last year, nearly five percentage points down on the steady eight per cent year-on-year growth from 2024. Not exactly a platform for a “pro-growth” agenda.
SMEs aren’t a side-show. They employ most people in this country, representing the bulk of private sector employment and accounting for more than half of UK turnover. If they’re held back, the whole economy slows. Yet despite the extra burden on small businesses, public finances remain shaky. Which makes you wonder – what was the point?
Right now, firms are freezing hiring or cutting staff altogether with decisions around NICs holding businesses back. The Bank of England says redundancies are happening at the fastest pace in four years.
Meanwhile, employees are nervous too. Our research shows people – the employees that make up the businesses we rely on – are so anxious about the UK economy that it is impacting career choices and future prospects.
While employment rights reform is on the horizon, anxiety and uncertainty about the UK’s economic reality mean many employees are clinging on to jobs for dear life. Too scared to leave their jobs for fear of what awaits them in the market. There is a watering down of ambition across the UK.
Reeves can (and must) change the course
More than half of employees say job security is their top priority, putting ambition on hold as they seek more confidence and sustained employment market growth. There is not a huge belief that change is coming. The majority of employees think the UK labour market is getting worse. Over half don’t believe they could find a new role within three months if they had to. That’s not a healthy market – that’s stagnation.
And stagnation kills innovation. A dynamic jobs market with new people joining and people feeling confident enough to pursue new opportunities when they become unhappy and unproductive is crucial to drive growth. Businesses need new people, new energy, new ideas. Without movement, we stall.
So where next? Right now, we’re stuck: businesses can’t hire, workers won’t move.
But we still have some time until the next Budget. While this creates uncertainty, there is also time for Reeves and her team to change course. Time to stop punishing SMEs and start giving them the freedom to hire, grow and build.
Small businesses don’t want handouts. They want a fair chance to do what they do best: power the economy. The only question is whether they’ll be given that chance.
Kevin Fitzgerald is UK managing director at Employment Hero