Rachel Reeves is under renewed pressure to drop her tax hike on businesses after new research suggested it had the greatest impact on small firms.
The findings seen by The Independent revealed that the number of job vacancies at small businesses fell by a fifth (18 per cent) in the three months to July, compared to the three months to October, when the chancellor announced the increase in employer contributions to national insurance in her 2024 Autumn Budget.
The analysis of Office for National Statistics (ONS) figures carried out by the Liberal Democrats, as the party calls on the chancellor to scrap the so-called “jobs tax”, has come with a dramatic warning from the Federation of Small Business (FSB) that their members “do not feel the government has their backs”.
The move netted Ms Reeves and the Exchequer around £25bn to pay for an increase in public spending including a massive £4bn boost to the NHS.
The analysis also comes as Ms Reeves is under pressure to fill a potential budget black hole of £40bn with experts warning she will have to break her election promise and hike income tax, VAT or employee national insurance.
The chancellor is also being urged by many in Labour and the trade unions to consider new wealth taxes, bring in a mansion tax and charge landlords national insurance.
There is also speculation that she is being sidelined after her deputy Darren Jones was given a new job in Downing Street and Keir Starmer appointed himself an economic adviser, Baroness Minouche Shafik.
However, critics have argued that the chancellor had already gone back on an election promise not to raise national insurance and the move has been counter productive in her top mission of economic growth.
The official figures recently published by the ONS show that in the three months to July, small businesses employing one to 49 people posted 216,000 job vacancies.
The figure is down from 262,000 vacancies recorded in the three months to October 2024, revealing a drop of 46,000 following the last Autumn Budget which introduced the employer national insurance increase.
Medium-sized businesses employing 50 to 249 workers saw a 13 per cent drop, with vacancies falling by 16,000 in the same period.
Large businesses employing at least 250 people saw a drop of 10 per cent, resulting from 43,000 fewer vacancies. In total, job vacancies across all businesses reduced by 105,000, from 823,000 in the three months to October 2024, to 718,000 in the three months to July 2025.
Tina McKenzie, policy chair of the Federation of Small Businesses (FSB), said: “Small businesses don’t feel the government has their backs when it comes to creating jobs.
“It’s not just hiked costs: if you threaten small businesses with court the second they hire somebody, this is the predictable result.
“Anyone working in the real economy can feel the jobs market has turned, so we’re calling on ministers to take urgent action and fix their utter mess of an employment bill before more and more people are left out of work.
The CBI said at the time of the Autumn Budget that the decision would lead to a fall in hiring with businesses less likely to “take a chance” on a new recruit.
Ahead of this year’s Budget, the Lib Dems are calling on the chancellor to scrap the jobs tax that has pushed many small businesses to the brink and left people without hiring opportunities.
Lib Dem business spokesperson Sarah Olney said: “The government’s jobs tax has proven to be nothing but an unmitigated disaster. Countless small businesses were already at the brink of collapse and this growth-crushing tax hike has only added to the pain.
“This tax rise has acted as a roadblock to breaking with the years of Conservative mismanagement that left our economy stuck in the mud. It is high time the chancellor realised that this tax rise is self-defeating, denying people opportunities to earn a living and risks sending even more businesses to the wall.”
However, a Treasury spokesperson said: “The tax decisions we took at the Budget last year mean that we have been able to deliver on the priorities of the British people, from investing in the NHS to cutting waiting lists and putting more money in their pockets with a wage boost for millions as we deliver on the Plan for Change.”
They pointed out that 43 per cent of employers (865,000) will pay no employer national insurance this year.
They added that more than half of employers will either see no change or a reduction in their national insurance bills because the employment allowance was increased from £5,000 to £10,500.
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