Employment stats don't reflect reality for small firms, says FSB

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Date: 14 September 2021

An HR manager interviews a potential male recruit

Job vacancies have hit an all-time high but the Federation of Small Businesses has warned that rising employment costs are preventing small firms from hiring.

The number of UK job vacancies in the three months to August rose to more than one million according to the latest Office for National Statistics (ONS) figures. The data also shows that UK employee numbers are back to pre-COVID levels.

But the headline statistics do not reflect the reality for many of the UK's small firms, according to the Federation of Small Businesses (FSB). Its analysis of the ONS data shows that in London, Scotland and the South East there are still fewer employees on payrolls than there were pre-pandemic; at the same time, the number of sole traders nationally has fallen more than 10% - from 4.7 million in June 2019 to around 4.2 million.

"While these employment figures are encouraging on the face of it, they don't reflect the lived reality for many small employers," said FSB national chair Mike Cherry. "Labour costs are rising, skills shortages are making it harder and harder to recruit, and several regions and sectors are struggling to find their feet. With the end of furlough only weeks away, policymakers cannot afford to be complacent."

The latest HMRC statistics indicate that 72% of employees on furlough belong to businesses with fewer than 50 employees.

"What small businesses are looking for at this point is measures to facilitate the confidence and cashflow they need to retain and recruit as we head into the critical final quarter of the year," said Cherry. "As such, last week's announcement of the NICs and dividend tax hikes came as a real blow."

In response to the NIC and dividend tax increases planned for April 2022, the FSB is calling on the government to increase the Employment Allowance - designed to protect the smallest firms from high employment costs. It says that the government's own figures show that just 640,000 small businesses will receive full protection from its planned Employer NICs hike thanks to the Employment Allowance - just 10.5% of the small business community.

In fact, the FSB has warned that unemployment could rise when National Insurance rates go up. Its analysis of the potential impacts of a 1.25% increase in National Insurance contributions for employers, sole traders and employees suggest that the move could leave more than 50,000 more people out of work.

Mike Cherry said: "The government has previously recognised the need to protect small firms from employer NICs - the jobs tax - with the Employment Allowance. We're now encouraging it to go further: uprating the allowance to support firms struggling with recruitment costs, freeing up cashflow to spur recovery of local communities, and promote hiring as furlough ends."

He warned: "The [NIC] rise acts as a brake on employment, another reason in the 'no' column for employers considering expansion, and another reason in the 'yes' column if they're thinking about cutting staff numbers. The real-world impact will be huge."

Written by Rachel Miller.

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