The number of SMEs that hire staff is declining

The percentage of SMEs who have increased their staff has dropped from 24% to 20% between Q4 2024 and Q1 2025. 17%, however, have reduced the number of employees.

According to the latest British Chambers of Commerce data, 63% of companies said that their workforce was constant.

The most recent quarterly research conducted before the Spring Statement looked at the hiring activity of over 5,000 UK businesses, of which 91% are SMEs.

BCC’s quarterly recruitment outlook also revealed that the number firms trying to recruit dropped from 59% to 54% during the winter.

76% of firms who have tried to recruit within the last three months reported difficulties. This is down from 79% the previous quarter.

Jane Gratton is the deputy director for public policy at BCC. She said, “Firms struggle under the weight due to skills shortages and recruitment problems, as well as spiralling employment costs.

There are signs that businesses are pausing their recruitment plans, cutting back on training investments and in some cases reducing the number of employees. It is alarming to think about the impact that this will have on business growth and job opportunities.

83% of construction and engineering firms report difficulties in recruiting staff. Transport and logistics also had difficulties with 82%. Even on the opposite end of the spectrum, 63 percent of firms in the marketing and communication sector still had difficulties with hiring.

73% of businesses cite labour costs as the primary pressure on them to increase prices (compared to 75% in Q4 2020). Pressure is most intense in the manufacturing industry (82%), transportation and logistics (81%), hotel and hospitality (81%), and construction (80%).

Gratton continued: “Firms now face higher bills due to the increase in employer national insurance contributions as well as the national minimum wages. It will take until the end of this year to see how much impact there is.

The recruitment crisis in construction is of particular concern. Although it was encouraging to see that the Spring Statement announced a boost in investment for construction skills, this is not likely to be the solution firms are looking for.

SME Investment in Staff

Businesses are still cutting back on training, as they did in the last quarter. 20% of firms responded that they had cut their investment. While 22% of firms reported that they increased their training investments, 58% said the training budgets remained unchanged.

Gratton said that the proposed legislation on employment rights continues to be a major concern. It threatens to increase costs and complicate business operations. Ministers must listen to the concerns of business and make sure the legislation is balanced. The government needs to act quickly to reduce costs and address the skills shortage, giving businesses the tools to grow and invest.

One small hospitality company in Cumbria said to BCC, “We still plan for a huge hit on our modest profit when the new financial period starts.” Changes to NI contributions and rate support reductions, as well as the increase in the minimum wage, are all factors that should be considered when investing or hiring new employees.

A small manufacturing company in Essex stated: “Over these past six months, we have reduced our staff and will not be increasing staff for the next 3 years due to changes in labour and tax costs.” We will be shifting all future expansion to the USA.

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