A Federation of Small Businesses (FSB) assessment of the potential impacts of a 1.25% increase in national insurance contributions (NICs) for employers, sole traders and employees indicates that the move could cause 50,000 more people to be left out of work.

The estimate is based on bringing together the Institute for Fiscal Studies (IFS)’s estimates of NICs rates, an international assessment of comparable employment cost increases, and the Office for National Statistics (ONS)’s latest labour market study. The FSB further warns that the impact on the jobs market could be even greater with the end of the job retention scheme approaching, a moment “that has no precedent in labour market history”.

As a result of the increase, annual Employer NICs for a small business with five employees on salaries of £31,000 will rise to £16,500. The total annual cost of the hike to the small business community is set to be £5.7 billion; and while 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, this figure — according to latest Government statistics — represents 10.5% of the small business community, not 40% as was stated at a Government press briefing.

Furthermore, and outside of the NICs increase, directors belonging to those 640,000 businesses will be impacted by a planned 1.25% increase in dividend taxation, also announced.

Mike Cherry, the FSB’s national chairman, said: “The Government’s regressive jobs tax hike will put jobs at risk, stifle start-ups and prevent new jobs from being created. It could mean 50,000 more people out of work after it takes effect in April. Combined with other rising employment costs — and firms having to make tough decisions about the futures of those who have been supported by the job retention scheme — that 50,000 figure could easily end up being a good deal greater.

“The Government often celebrates the existence of six million small businesses in the UK – the majority of which are sole traders, a group which will be hit especially hard by the NICs rise. At the same time, the extra tax on company directors adds insult to injury after a gruelling 18 months during which they received no income support from the Government whatsoever.

“We put detailed proposals to Government to address this oversight but they were not taken forward. Recent decisions around IR35 legislation will see many more people impacted by the tax increases announced”

He concluded: “Taxing the small business owners and freelancers who serve our local economies, and who have endured a terrible 18 months, just at the moment when they are trying to get back on their feet will undoubtedly stifle efforts to recruit, retain and re-skill over the critical years ahead, hampering our economic recovery in the round.”