Chancellor Alistair Darling's increase in National Insurance Contributions in the Pre-Budget Report is a ‘tax on employment', according to the Forum of Private Business (FPB).

The chancellor announced yesterday that National Insurance Contributions would rise by an extra 0.5%. This is on top of existing plans for a 0.5% rise, meaning that businesses effectively face a 1% increase.

"This tax hike will come at the worst possible time for small firms - just at the point where, hopefully, the economy will be in recovery and they will be looking into taking on new staff," said FPB chief executive Phil Orford.

"Putting a tax on employment isn't the way to reduce the public debt - it will stop businesses from growing, restrict job creation and take more money from potential consumers who would otherwise put it back into the economy."