Employment growth slows as UK small businesses falter post-Budget

Employment growth among UK small businesses slowed significantly in December, according to new data from HR and payroll software provider Employment Hero. Its latest Jobs Report found a monthly increase of just 0.5%, marking one of the weakest end-of-year hiring periods in recent years.

The findings draw on anonymised payroll data from more than 115,000 employee records across small businesses nationwide. Year-on-year, employment growth has dropped from 7.8% in December 2024 to 2.5% in December 2025 — a clear indication of a labour market losing momentum.

Retail and hospitality, typically buoyed by seasonal hiring, contracted by 2% in December. Employment Hero said the subdued figures reflected a cautious stance from small business owners following the October 2025 Autumn Budget, which many believed offered limited relief amid persistent cost pressures.

Employment Hero has tracked small business employment patterns for over a year, revealing how government policy shifts have shaped the market. Following the Spring 2025 Budget, a monthly employment decline of 1.1% was recorded in April — the sharpest drop of the year — setting the tone for a prolonged period of weak hiring.

Kevin Fitzgerald, UK Managing Director at Employment Hero, said: “We’ve been tracking employment trends across the UK for a full year and the data makes clear the real-world impact that policy has on small businesses. Our latest figures show that, while small businesses remain resilient, they are cautious, with employment growth slowing and the usual seasonal surge failing to materialise.”

He added that the coming year will be pivotal: “Many are still adjusting to changes from last year’s Autumn Budget and structural barriers continue to hold back investment and growth. Looking ahead, the Employment Rights Bill will be front of mind for many small business leaders, who will be considering how best to navigate the changes coming into force in April 2026. This is a real opportunity for the government to provide clear guidance and work collaboratively with small businesses, helping them plan and grow.”

Despite the slight uptick in December, the long-term trend remains subdued. Employment Hero’s report points to persistent caution across key sectors, with limited hiring appetite and patchy recovery outside London and the South East.