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The government are being urged to increase the Employment Allowance in the upcoming spring Budget to help the SMEs struggling to hire.

The Federation of Small Businesses (FSB) has warned that more small firms are looking to reduce rather than increase their staff numbers for the first time since the height of the pandemic in 2020.

It’s been suggested that the Employment Allowance should be increased from £5,000 to £6,500, which would enable an SME to hire four workers on the new £11.44 NLW (National Living Wage) before having to pay the 13.8% jobs tax – as was the case when the allowance was originally designed.

The FSB believes that the Employment Allowance should be linked to the NLW to ensure it keeps up with wage increases.

FSB National Chair Martin McTague, said, “The Employment Allowance has been a big success, giving small firms a real shot at creating jobs and making their business thrive. Entrepreneurs are the ones who helped lead us to recovery after the 2008 recession, and we need to be creating a climate where they are encouraged to make a go of it, knowing they’re doing so in a supportive environment.

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“Small businesses are overwhelmingly the route into work for those who are currently out of work, and we need to be doing everything we can to support small employers.

“However, without an increase in the Employment Allowance, they will continue to be cornered by a steep climb in staffing costs and associated taxes. This is a drag on growth and adds fuel to the fire of rising expenses, highlighting why an increase in the Employment Allowance is crucial.

“The Employment Allowance was designed to hire four people on NLW without falling into the jobs tax that makes every job more expensive to create and sustain, and to be a solid support for wage policies and job creation. Now, it’s struggling to cover just three members of staff.

“Linking the allowance with the National Living Wage eases the pressure on small firms contending with NLW increases and rising labour costs. This approach strikes a powerful balance, warding off a looming surge in unemployment, empowering employers, and injecting much-needed energy into the economy.”

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