The tax regime has prevented 55 per cent of West Midland firms recruiting more staff, according to a new report.

Researchers for the Federation of Small Businesses (FSB) said firms believe the UK tax system has a negative impact on their business and it stopping them from taking people on.

The 55 per cent figure in the West Midlands was slightly below the national average of 58 per cent. Researchers found the picture was worse in the South East, where two thirds of smaller companies said taxes had a “negative” impact on jobs.

A survey of almost 10,000 firms showed that those in the North West and London also had above average complaints about the effect of taxes on employment.

The FSB said it was concerned that a temporary boost to employment over Christmas was coming to an end and urged the Government to freeze National Insurance contributions and introduce an NI rebate for small firms.

John Wright, chairman of the FSB, said: “The January employment figures showed a welcome fall in the number of people out of work but we fear the severity of the recession will begin to be evident when the latest figures are released.

“What the UK economy needs is real action to get more people into work, especially under-25s who make up a large proportion of those currently unemployed.

“A cut in National Insurance contributions would encourage small businesses to take on more staff and grow their business. Small firms can help to strengthen economic recovery if they are given a chance to grow and flourish, but they will need a helping hand.”

A total of 19 per cent of companies surveyed in the region said they would take on staff to achieve business objectives in the coming year – in line with the national average.