Businesses have hit out over a potential rise in National Insurance paid by employers, arguing it will make hiring staff and creating new jobs harder, and hit economic growth.

Leading business groups in the UK raised concerns in response to Chancellor Rachel Reeves signalled the tax rise ahead of the upcoming Budget.

Reeves said Labour’s election pledge not to increase National Insurance on “working people” related to the employee element, as opposed to the sum paid by employers.

It comes after suggestions companies have stalled taking on new workers and investing as they await the government’s tax and spending plans.

Several business groups highlighted possible effects on small firms of a rise in National Insurance contributions.

Craig Beaumont, executive director at the Federation of Small Businesses, said a rise in National Insurance would “make every job in all our local communities more expensive to maintain”.

“You don’t get to a pro-small-business Budget without the government honouring its cast-iron manifesto commitment to not increase National Insurance contributions, including on small employers,” he said.

Alex Veitch, director of policy at the British Chambers of Commerce said: “Firms are run by working people.”

“Nearly all UK companies are small, with many family-owned, and they are the anchors in our local economies,” he added.

Meanwhile, Rain Newton-Smith, chief executive of business lobby group CBI, said employers would see a National Insurance rise as a “difficult move” as it will “increase the cost of taking someone on”, particularly for firms in the hospitality sector such as hotels and pubs, she said.

There has been a lot of speculation what will be announced by the government at the Budget on 30 October.

The chancellor claims there is a £22bn “hole” in the public finances and that some taxes will be raised.

While Labour has ruled out increasing VAT, National Insurance or income tax, questions have remained around the rate of National Insurance paid by employers.

National Insurance is paid by employers, up to 13.8% on the earnings of their staff.

This rate could be increased. The government could separately decide to introduce a National Insurance levy on the pension contributions employers pay. Currently, this is tax free.

On Monday, Reeves repeated the pledge not to raise taxes on “working people”, signalling rises in National Insurance for employers was not included in the pledge.

Prime Minister Sir Keir Starmer did not rule the tax rise as he sidestepped questions on the Budget in a BBC Breakfast interview.

Veitch said while the chancellor did have to make “difficult decisions”, raising employer National Insurance contributions would “simply hobble growth and lead to businesses having less money to invest in their staff”.

He called on any tax rises to be “countered” by steps to incentivise investment, especially for smaller companies.

Newton-Smith said there had already been “big increases” in the National Living Wage over the past few years, and if overall increases in the costs of hiring weren’t matched by a rise in how much work employees get done, it “makes it harder for businesses to create the jobs and the growth that we need to really fund our public services”.