The 2025 Budget increased employer National Insurance Contributions to 15 % from 13.8 %, adding £25 billion to business costs across the UK. For the average small firm with 10 employees earning the National Living Wage, this equates to an extra £4,500 a year in payroll tax alone – money that would otherwise pay for stock, marketing, or a Christmas bonus.
The impact is immediate and severe. iwoca’s Q3 2025 SME Expert Index found that 76 % of finance professionals believe government policies like the NI hike are having a “negative” or “very negative” effect on the 5.5 million SMEs. The British Chambers of Commerce reports that 40 % of firms have already frozen hiring, while 28 % plan to reduce hours or staff in the next six months. In hospitality and retail – sectors dominated by small employers – the pain is acute: margins are razor-thin, and every extra percentage point on payroll pushes more businesses toward the edge.
Large corporations can absorb the hit through efficiencies or price increases. Small firms cannot. They employ 60 % of the private-sector workforce and drive most local economic activity. When they cut jobs or hours, communities suffer.
The solution is straightforward and targeted:
A £500 direct payroll relief per employee for every business with fewer than 50 staff.
Paid automatically through PAYE in the 2026/27 tax year.
Estimated cost to the Treasury: £1.2 billion – less than 5 % of the £25 billion the hike is expected to raise, and fully offset by keeping people in work and businesses open.
This is not a giveaway; it is a lifeline. The 2016 Employment Allowance offset the first £3,000 of NICs and helped thousands of small firms. Do the same again, but bigger and faster, before the next wave of closures hits.
Without relief, thousands of local shops, cafés, and tradespeople will be forced to cut jobs or close. With it, they can keep employing, keep serving, and keep communities alive.
The 1832 Club is fighting for these changes. The more members we have, the louder our voice in Westminster.
Join today from just £5/month or £40/year and help to support pro-SME candidates.
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