Last month, I wrote positively about government support for the hospitality sector. The £100 million package for pubs, combined with business rates relief and a commitment to review valuations, felt like recognition (at long last) that small businesses were buckling under pressure.
But this month’s unemployment figures have underlined my conclusion that it wasn’t just the hospitality sector that needed help and there is far more to do before the economy delivers the kind of growth that people need to see.
The numbers are stark: unemployment is up to 5.2%, the highest level since early 2021. More than 1.88 million people are now out of work, an increase of 331,000 year-on-year. Youth unemployment has hit 14%, a five-year high, with 575,000 young people aged 18-24 unable to find jobs. Payrolled employees fell by 134,000 over the past year, with retail and hospitality particularly badly hit: 122,000 fewer people in payroll employment in those sectors alone.
Behind every redundancy, every unfilled vacancy, every shuttered shop front, there’s a small business owner who’s had to make an impossible choice.
Small businesses can’t employ people they can’t afford
The health of SMEs and the employment figures are part of the same picture: rising unemployment is a direct result of small and medium-sized enterprises under unsustainable pressure.
SMEs are the backbone of the British economy. They account for 99.9% of the business population and employ 61% of all private sector employment. That’s 16.7 million people. When SMEs struggle, jobs disappear. It really is that simple.
And I know from the conversations I have with my business founder customers right now, they’re struggling.
From April 2025, employer National Insurance contributions rose from 13.8% to 15%, while the threshold at which employers start paying dropped from £9,100 to £5,000. For a business employing someone on £30,000, that’s an additional £866 per employee, per year, which many small businesses simply cannot absorb.
Even for those that can, absorbing costs means lower profits. Lower profits mean less investment. Less growth. Fewer jobs.
Add to this the National Minimum Wage increase means that businesses are facing their most expensive year on record for employing minimum wage workers. The Centre for Policy Studies calculated that employer NICs for a minimum wage employee will rise from £1,617 to £2,583 this year alone.
For hospitality, retail, care and other labour-intensive sectors where margins are notoriously tight, these numbers don’t add up. Businesses are being forced to choose: cut jobs, cut hours, or close altogether.
The result? Unemployment.
What needs to happen
If the government is serious about tackling unemployment, it must address the root cause: the cost of doing business for SMEs.
Raise the VAT threshold. Immediately. The current threshold is £90,000, but if it were linked to inflation, it would be £103,000. Businesses are becoming VAT liable through inflation, rather than growth. The Federation of Small Businesses estimates VAT compliance adds £4,100 on average to a business’s running costs.
I also know that struggling to pay the VAT bill can critically injure the cash flow of otherwise profitable businesses. So: raise the threshold and thousands of businesses will save thousands of pounds.
Review employment costs holistically. National Insurance, National Minimum Wage, and business rates don’t exist in isolation. Each one compounds the others. Small businesses need breathing room, not a cascade of incremental tax rises that look manageable individually but are crippling collectively.
Make it easier to access finance. Many SMEs are facing a cash flow crunch. They need working capital, not lectures. During Covid, Government-backed schemes like CBILS and RLS improved access to alternative finance and simpler application processes. The government can pull this lever if they really want to.
The choice is clear
The Government must recognise that small businesses are the solution to unemployment and give them the support they need to keep people in work.
Last month’s hospitality package showed the government can listen. This month’s unemployment figures show it needs to act before more jobs are lost and more businesses close their doors for good.
Small businesses aren’t asking for handouts. They’re asking for a fair chance to grow, to hire and to contribute. Right now, the numbers aren’t adding up. And until they do, unemployment will keep rising.
