Rachel Reeves Budget Triggers Surging Job Losses Across Small Businesses in 2025

Over 300,000 small businesses in the UK are planning to lay off workers following the sharp increases in employer national insurance contributions and the minimum wage announced in Rachel Reeves’ October budget. Surveys reveal a turbulent jobs market as companies prepare for the rising cost pressures set to take effect from April.

The main rate of employer national insurance contributions will rise from 13.8 per cent to 15 per cent, with the threshold triggering these payments reduced from £9,100 to £5,000. This will particularly affect small businesses and those employing lower-paid staff. Reeves’ budget also introduced a 6.7 per cent hike in the minimum wage, adding further financial strain on employers across the country.

Findings from Iwoca show that 31 per cent of small business owners plan to delay pay rises, while 27 per cent intend to postpone promotions to offset these escalating costs. Over a quarter of a million small and medium-sized businesses have already revealed intentions to cut jobs to remain compliant with their budgets. An employment index by consultancy BDO slid to 94.30 in February, nearing levels seen during the aftermath of the 2008 financial crisis.

Recruitment has started to slow, with the latest figures from KPMG and the Recruitment and Employment Confederation (REC) indicating a significant drop in job vacancies. February saw vacancies contract at the second fastest pace in five years, dragging wage growth down to a four-year low.

Amid these alarming predictions, business confidence has also taken a hit. BDO’s confidence index suffered a dramatic fall to 91.40 last month, hitting its lowest point since January 2021, when the UK was still managing the economic impact of the Covid-19 pandemic. Analysts warn that such economic uncertainty could deter both business investment and recruitment, creating cycles of stagnation across key sectors.

Despite these challenges, HM Treasury expressed optimism, pointing to recent Lloyds Banking Group data that indicates business confidence has reached a six-month high. However, with the government facing mounting pressure to address fiscal gaps, targeted cuts, including potential welfare reductions, are rumoured to be in discussion for the coming months.

The next forecast from the Office for Budget Responsibility on March 26 will provide more clarity on the broader economic impact of Reeves’ budget. As small businesses brace for increased financial burdens, questions arise over whether these measures will achieve the intended balance of wage growth and long-term economic stability.