One in five small enterprises now look to grow following the decision announced in the 2013 Budget to introduce an employment allowance of £2,000 a year towards national insurance contributions, according to a survey by insurer Direct Line for Business.

In addition to those small businesses that are looking to expand, a further 33 per cent of firms are considering recruiting due to the reduced cost of employment.

Jazz Gakhal, head of Direct Line for Business says, ‘It is encouraging to see that so many UK businesses are looking to expand. The government’s decision to reduce the financial burden for small companies is a welcome boost for owners and managers across the country.

‘Given small and medium-sized enterprises account for over 99 per cent of all private sector businesses in the UK, the health of this sector is vitally important.’

Of the NI cut, seen as the largest tax cut in the 2013 Budget, chancellor George Osborne said, ‘For the person who has set up their own business, and is thinking about taking on their first employee, a huge barrier will be removed.’

Helen Dickinson, director general of British Retail Consortium (BRC), welcomed the change, saying, ‘We called for a time-limited national insurance holiday, as an easy way to encourage businesses to take on young unemployed people. Existing incentives are cumbersome and not being taken up.

‘The employment allowance will help many small businesses with the cost of taking on staff. But it won’t incentivise larger businesses, which also have a vital role in creating jobs.’