Covering the first quarter of 2011, the Index shows that small businesses' employment intentions weakened even though business confidence has improved since the end of 2010.
At the end of 2010 a balance of -2.5% of businesses thought they would have to make cuts to their employment levels. However, -6.5% actually decreased headcount during the quarter - showing that businesses are having to make tough decisions.
This comes as unemployment figures released last week showed that both female and youth unemployment rose while the overall unemployment figure fell to 2.48 million in the three months to February. However, looking ahead to the next three months, businesses paint a more encouraging picture with fewer members reporting that they will decrease (-1.7) headcount.
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% 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% and Wales is second lowest at -11%. This gives further clout to the need to extend the NICs holiday.
John Walker, national chairman, Federation of Small Businesses, said: "The fact that more small businesses had to lose staff in this quarter than they anticipated is a worry - 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.
"At the end of 2010 the feeling across the country was very downbeat as businesses lost confidence, having to deal with a rush of challenges from the impending rise in VAT, to the economy dipping back into negative territory. This continued into 2011 as fuel prices increased and inflation affected spending power.
"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."
