New research from Premium Credit suggests that small and medium-sized enterprises (SMEs) are preparing to freeze pay and reduce hiring in response to recent tax increases, including a rise in employer National Insurance contributions.
The rise, which came into effect in April, has added to cost pressures for businesses already dealing with inflation and tighter access to credit. It forms part of the government’s broader fiscal policy aimed at balancing public finances.
Premium Credit’s Insurance Index, which tracks trends in insurance purchasing and finance, found that 52% of SMEs are concerned about tax increases, with 13% describing themselves as very concerned. Just 13% of respondents said they were not concerned.
The most common planned response is to limit pay increases, cited by 26% of firms. A further 19% said they are likely to freeze recruitment or leave vacancies unfilled. Only 7% said they are considering cutting insurance cover.
Premium Credit’s chief sales officer, Owen Thomas (pictured), said the increase in employer National Insurance is a major concern for many SMEs, contributing to plans to hold back on pay and recruitment.
Despite this, most SMEs remain positive about their revenue outlook. More than half, or 53%, expect revenue to rise over the next 12 months, while just 6% forecast a decline. Around 15% expect no change and 24% were unsure.
Late payments remain a challenge. One in five firms said the issue had worsened in the past year, while 51% reported no change and 7% said the situation had improved.
Access to credit also continues to be a constraint. Around 15% said it has become harder to secure finance since the cost-of-living crisis began in 2021, consistent with findings from the previous two years.
Among those forecasting a decline, 40% cited continued cost-of-living pressures as a main concern, 35% cited tax increases, and 30% cited economic stagnation. More than a quarter, or 26%, reported that some of their clients had gone out of business.
“Issues such as access to credit and late payment of bills remain a concern for firms and are adding to the pressure,” Thomas said. “However, despite this many are still optimistic about revenue growth in the year ahead with plans to expand through new product launches and growth in new markets. Many have also adapted and cut costs already underlining the resilience of the SME sector.”
