Autumn Budget 2025: what you need to know

While most of us are already familiar with the key issues, here’s a brief recap.

With employers still feeling the impact of last year’s budget, which brought a significant rise in National Insurance contributions and an increase in the National Living Wage, hitting sectors such as retail, hospitality and care the hardest, the Autumn Budget has sparked much debate.

Predictions of further redundancies, a reduction in recruitment, and consequently a further rise in economic inactivity have followed.

The Autumn Budget, announced on 26 November 2025, introduces a range of measures that will have further impact on employers.

While the government’s focus is said to be on stabilising the economy, supporting growth and “making work pay”, the changes will inevitably affect payroll budgets, benefits and workforce planning. Here’s the main “highlights”.

Minimum Wage increases from April 2026

• The National Living Wage (NLW) for workers aged 21 and over will increase from £12.21 to £12.71 per hour (4.1% increase).
• 18–20-year-olds: From £10.00 to £10.85 per hour (8.5% increase).
• 16–17-year-olds and apprentices: From £7.55 to £8.00 per hour (6.0% increase).

This move has been widely quoted as increasing the gross annual earnings for a full-time worker on the NLW by £900 – benefiting around 2.4 million employees.

And the increases are more significant with the National Minimum Wage (NMW) for younger workers:

• 18–20-year-olds: From £10.00 to £10.85 per hour (8.5% increase).
• 16–17-year-olds and apprentices: From £7.55 to £8.00 per hour (6.0% increase).

Why?

This approach is intended to:

• Ensure full time workers on the NLW can meet basic living costs.
• Boost pay for the lowest earners.
• Reduce labour turnover.
• Reduce the disparity in pay for older and younger workers carrying out the same job.
• Reduce the tendency for lower paid workers to rely on overtime pay – reducing the risk of burnout and improving work-life balance.

But at what cost?

• Payroll costs will rise, particularly in retail, hospitality and care sectors (again).

• These will include rises in holiday pay, overtime, and pension contributions.
• Many employers may need to revisit pay structures and budgets, and critics are already questioning whether this could fuel more redundancies or push some SMEs to the brink.

Pension salary sacrifice cap

From April 2029, the NI savings on salary sacrifice pension contributions will be capped at £2,000 per employee per year. Contributions above this threshold will attract standard NI rates.

How will this affect employees and employers?

• Employers offering generous pension schemes will face increased National Insurance (NI) contributions, raising overall employment costs.

• With less tax benefit for making additional pension contributions, employees may choose not to contribute extra, resulting in a reduction in pension income in the future.
• Employees who continue making additional contributions will see an immediate fall in disposable income.
• And of course, reduced income has a knock-on effect on consumer spending and the wider economy.
• Employers may need to review their benefits packages, which could mean consulting with existing employees and managing the knock-on impact.This may increase turnover risk and reduce the appeal of salary sacrifice benefits for attracting and retaining new talent, potentially weakening competitive advantage.