Labour squeeze and national insurance hike to throttle UK SMEs’ growth plans

A tight labour squeeze and soaring hiring costs are throttling small and medium-sized British firms’ recovery from the Covid-19 crisis, reveals a fresh survey published yesterday.

British businesses are intending on launching a hiring spree this year to boost growth and restore revenues to pre-pandemic levels, but fear a lack of talent could throw their plans off course.

Around one in three small businesses are planning on expanding their workforce to support growth, according to research by consultancy firm BDO.

However, 40 per cent of businesses are concerned a shallower labour pool and a scarcity of skilled workers will mean they will be unable to find suitable candidates.

Thousands of Brits have dropped out of the workforce since the onset of the pandemic, creating a tight labour market and leaving employers struggling to source appropriate candidates.

Older workers have opted to take early retirement, while younger workers have stayed in education until the UK’s economic situation improves.

Fewer available candidates has intensified competition between businesses to lure talent. Some 17 per cent of small businesses have hiked pay to attract and retain staff, BDO said.

The looming 1.25 percentage point national insurance hike, compounded by swelling labour costs as workers demand higher pay to shield their income from inflation are discentivising employers from hiring.

Around a third of firms are planning on lifting prices to offset higher taxes and staffing costs, BDO found.

Ed Dwan, a partner at BDO, said: “While many businesses are optimistic about recovery this year, it is not guaranteed.”

“With significant concerns about staff shortages on the one hand and rising costs of hiring on the other, the National Insurance hike in April could prove a tipping point for medium-sized businesses – the engine of the UK’s economy.”