By Max Clarke

Confidence is up across Britain’s 4.8 million small businesses; the backbone of the economy, though they are failing to hire new staff, the Federation of Small Businesses quarterly ‘Voice of Small Business' index reveals.

As public sector cuts continue to take effect, pushing youth unemployment up to record highs, the private sector is being relied on to shoulder the excess by creating jobs. The index revealed that 2.5% of businesses surveyed actually intended to decrease headcount. Looking ahead to the next three months, however, businesses paint a more encouraging picture with fewer members reporting that they will decrease (-1.7) headcount.

"The fact that more small businesses had to lose staff in this quarter than they anticipated is a worry,” said John Walker, National Chairman of the Federation of Small Businesses, — “especially as female and youth unemployment both edge towards a million. If the Government truly wants the private sector to pick up the slack that its austerity measures create, small businesses need a helping hand.”

The FSB has called on the Government to help businesses by extending the National Insurance Contributions (NICs) holiday to the very smallest businesses. This would help small firms to take on staff — especially in those areas reliant on the public sector where unemployment is likely to rise further.

Small business confidence, which the Small Business Index measures, rose for the first time to +6.7 in the first quarter, after falling in each quarter in 2010. This perhaps indicates that the economy will return to growth when GDP figures are released at the end of the month, so avoiding a technical recession. In total 36 per cent of small firms expect overall business performance to improve in the next three months.

However, across the UK, business confidence is weakest in those areas heavily dependent on the public sector. Small firms in Northern Ireland are least confident at -25 per cent and Wales is second lowest at -11 per cent. This gives further clout to the need to extend the NICs holiday.

Illustrating the mixed news in the report, Walker voiced his uncertainty in Britain’s recovery: “While the overall picture suggests that members are bouncing back from a harsh winter, and that the economy should return to growth in the first quarter, questions still remain about the strength of recovery."