Businesses have warned tax hikes announced in the Budget offer nothing but “pain” and will leave employers with less cash to give pay rises and create new jobs.

Chancellor Rachel Reeves has decided firms will bear the brunt of her £40bn total tax rise by increasing the National Insurance rate as well as reducing the threshold that employers start paying it at.

It means more than half of the tax rises in the Budget will be paid for by employers, with the jump in the amount they pay in National Insurance on workers’ wages to generate £25bn a year.

Reeves said the rise in National Insurance hike was “difficult”, but the right choice in order to fund public services.

Although there were some exemptions or relief for the smallest firms, the increase to National Insurance will have big cost implications for businesses.

It comes as firms also face having to pay higher minimum wages, higher business rates, as well as the cost of adapting to new workers’ rights under new laws.

Firms have warned such extra costs could ultimately impact the government’s goal of growing the UK economy.

But Reeves said the “only way” to drive growth was through investment, warning “there are no shortcuts”.

“We are asking business to contribute more,” said Reeves. “I know that there will be impacts of this measure felt beyond businesses.”

Businesses come in all shapes and sizes, meaning the impact of the choices made by the chancellor in her Budget will affect them differently. Big, multinational corporations, are likely to be able to take on and absorb extra costs, but smaller, independent companies, could be hit harder.

• National Insurance: The rate that employers pay in contributions will rise from 13.8% to 15% on a worker’s earnings above £175 from April. The threshold at which employers start paying the tax on each employee’s salary will be reduced from £9,100 per year to £5,000. However, the chancellor said she would extend the Employers Allowance – the amount employers can claim back from their National Insurance bill – from £5,000 to £10,500.

• Minimum wage: The minimum wage for over 21s, known officially as the National Living Wage, will rise from £11.44 to £12.21 from April 2025. For 18 to 20-year-olds, the minimum wage will rise from £8.60 to £10. Apprentices will see pay jump from £6.40 to £7.55 an hour.

• Business rates: The current 75% discount to rates, due to expire in April 2025, will be replaced by a discount of 40%, up to a maximum of £110,000. It still means that many businesses will see their business rates nearly double.

• Workers’ rights: Plans to upgrade workers’ rights will cost businesses up to £5bn a year to implement, according to the government’s own analysis. The new measures will have a disproportionate impact on smaller businesses.

There are concerns that the rise in taxes will end up hitting workers and consumers.

In some cases, companies could pass on the increased costs they face through higher prices, however, employee wage rises could be restricted as employers look for savings. Other tax revenues could also be hit, if firms make smaller profits and people receive smaller pay packets.

The Office for Budget Responsibility, the UK’s official economic forecaster, said it assumed “most” of the increased National Insurance cost would be passed on to workers and consumers from employers through lower wages and higher prices.

Leading business groups said the Budget was a “tough” one for business, pointing to the National Insurance hike as a blow to the ability of firms to invest.

“At first blush, there is precious little in the government’s first Budget which offers anything other than short-term pain,” said Roger Barker, director of policy at the Institute of Directors.

Rain Newton-Smith, chief executive of the CBI, which claims to represent 170,000 firms, said the burden on business would make it “more expensive to hire people or give pay rises”.

Kate Nicholls, chief executive of UK Hospitality, which represents pubs, restaurants and cafes across the country, added tax rises would be a “brake on growth” for the UK.

“Businesses on paper-thin margins are already grappling with big increases in employment costs – we are seeing jobs and hours cut, investment slashed and business viability undermined as well as prices going up,” she added.

The government is pledging to be both “pro-business” and “pro-worker” in its policy decisions and Reeves confirmed Income Tax, National Insurance for employees and VAT would not be increased.

Callum Thompson is director of Business Energy Claims, a small law firm based in Newcastle which helps businesses recover losses from being mis-sold energy contracts. He estimated the National Insurance rise announced in the Budget will cost his firm between £18,000 and £19,000.

Mr Thompson, who employs 30 people, is planning to open a new office near Liverpool, but said the company was now going to review its “aggressive plans” to expand and more hire staff.

Kate Lester, the founder and boss of Diamond Logistics in Guildford agreed that higher costs would “make us think twice about employing additional people”.

She added that tax rises would “add tens of thousands” to her wage bill, and said while not opposed the minimum wage rises, it was another cost mounting for her business.

But Pip Murray, owner of natural nut butter company Pip & Nut, said the Budget announcements were “light relief”, adding the changes were “pretty moderate and sensible”.

She said the 1.2% in National Insurance would not be a “significant cost” for her company, which has 30 employees.

“It could have been a lot worse,” she added.

While inflicting the pain of tax rises on businesses, the chancellor offered some relief to small firms, by uplifting the amount they can claim back off their National Insurance bill.

But the chancellor also said the 75% relief on business rates, which are charged on most non-domestic properties such as shops, offices, pubs and factories and were due to expire in April, would be replaced by a 40% discount for retail, hospitality and leisure companies next year.

The average shop will see business rates jump from from £3,589 to £8,613 next April, while costs for pubs will increase from £3,938 to £9,451. Restaurants will see their average business rates bill rise from £5,051 to £12,122, according to commercial real estate intelligence firm Altus Group.

Additional reporting by Josh McMinn.