Almost three in 10 small employers would recruit additional staff if the government expanded business rates relief, according to research from the Federation of Small Businesses (FSB), which is urging the Chancellor to use the Budget to stimulate investment and job creation.

The business group found that 28 per cent of small employers would increase recruitment if Small Business Rate Relief (SBRR) were extended, while 26 per cent would raise employee pay or benefits.

A further 11 per cent of sole traders said they would consider employing someone for the first time if lower property taxes freed up additional funds.

The findings add to pressure on the government to address the cost of doing business as ministers seek to revive private sector investment and employment.

Under the existing system in England, businesses occupying qualifying properties with a rateable value of £12,000 or less can receive full relief, with support gradually withdrawn up to £15,000.

The FSB wants the threshold for full relief raised to £25,000, estimating that at least 250,000 additional businesses would no longer have to pay business rates.

The group said the existing thresholds had remained unchanged for almost a decade, despite rising commercial property and employment costs.

More than a third of small businesses, 36 per cent, described the relief as important or essential to their operations. That proportion increased to 49 per cent among retailers and 47 per cent in accommodation and food services.

Tina McKenzie, the FSB's national chair, said the Budget represented an opportunity to restore confidence among entrepreneurs facing sustained pressure on margins.

“We need a tax system that rewards ambition rather than punishes it,” she said.

“These are practical changes that would give small businesses a reason to invest, hire and grow.”

Alongside business rates reform, the FSB called for an increase in the Employment Allowance, which reduces eligible employers' national insurance bills, with future increases linked to the National Living Wage.

It also proposed raising the VAT registration threshold from £90,000 to £100,000 and reducing the Business Asset Disposal Relief capital gains tax rate from 18 per cent to 14 per cent.

Further demands included lower electricity costs and a statutory sick pay rebate for smaller employers.

The proposals reflect concerns that rising fixed costs and tax thresholds are discouraging businesses from expanding beyond their existing size.

McKenzie warned that government ambitions for economic growth would be undermined unless smaller companies had stronger incentives to invest and recruit.

“Ministers say they want growth, but growth does not happen by squeezing margins, making employment more expensive and putting barriers in the way of expansion,” she said.