The 2025 Autumn Budget introduces several important measures that will affect employers over the next few years. Some of these Budget measures will increase staffing costs, while others are intended to support recruitment and skills development, particularly for younger workers. This article summarises the main employment law implications of the Budget and what they mean in practice.
Key Points for Employers
- National Living Wage rising to £12.71 from April 2026
- Salary-sacrifice pension NI exemption capped at £2,000 from 2029
- Fully funded apprenticeship training for under-25s at SMEs
- Sickness and disability benefit spending projected to reach £109bn by 2030–31
- Overall, the Budget measures will increase employment costs and likely accelerate adoption of automation and AI, thereby increasing unemployment
Increases to the National Living Wage and National Minimum Wage from April 2026
As we highlighted in a previous post, the Government has confirmed ahead of the Budget that the National Living Wage (paid to workers aged 21 and over) will rise from £12.21 to £12.71 per hour from 1 April 2026. This is an increase of £0.50 per hour (4.1%).
Younger workers will see larger percentage increases:
- 18–20-year-olds: rising from £10.00 to £10.85 per hour (an 8.5% increase)
- 16–17-year-olds and apprentice rate: rising from £7.55 to £8.00 per hour (a 6% increase)
In addition, the accommodation offset, used by some employers who provide accommodation as part of the job, will increase to £11.10 per day.
These changes mean employers will need to review pay structures, budget for higher wage costs and ensure they remain compliant when the new rates take effect. Employers should also consider the impact of these increases on pay differentials between junior and more experienced staff.
National Insurance to Apply to Larger Salary-Sacrifice Pension Contributions from 2029
One of the main changes announced in the Budget is that from April 2029, the rules around salary-sacrifice pension contributions will change. Currently, both employers and employees save National Insurance (NI) on all pension contributions made through a salary-sacrifice arrangement. Under the new rules, only the first £2,000 of such contributions will remain exempt.
Any amount sacrificed above this limit will be subject to NI at the usual rates:
- Employer NI: 15%
- Employee NI: 8% on earnings up to £50,270
- Employee NI: 2% on earnings above that level
This change could make salary-sacrifice schemes more expensive for both employers and staff. Employers who use these schemes to enhance benefits packages should review their policies well before the changes come into force and update employees on how their take-home pay may be affected.
Full Funding for Apprenticeship Training for Under-25s in SMEs
A significant and positive measure for smaller businesses that was announced in the Budget relates to apprenticeship funding. From the 2025/26 financial year, the Government will fully cover the training costs of apprentices under the age of 25 who are employed by small and medium-sized enterprises (SMEs). This removes the previous requirement for SMEs to pay a proportion of training fees for apprentices aged 22–24.
This extension builds on existing support:
- Training costs for apprentices aged up to 21 have already been fully funded since April 2024, and this support will now include those aged 22–24.
- Employers do not pay employer National Insurance for apprentices under 25, provided the apprentice earns below £50,270 a year.
- SMEs can still receive £1,000 incentive payments for apprentices aged 16–18, and for 19–24-year-olds with an Education, Health and Care (EHC) plan or who have been in care.
- Large organisations can transfer up to 50% of their unused apprenticeship levy funds to help SMEs cover training and assessment costs.
This enhanced support is designed to make it easier for SMEs to recruit and train young people. Employers who previously found the cost of apprenticeship training too high may now wish to revisit the scheme as a practical route to addressing skills shortages.
Rising Welfare Costs and What This Means for the Labour Market
One of the most shocking revelations that came out of the Budget was that spending on sickness and disability benefits is projected by the Office for Budget Responsibility (OBR) to now reach an absolutely incredible £109 billion by 2030–31. That is an increase of £32.2 billion (41.93%) compared to the 2024/25 financial year (£76.8 billion), highlighting the fact that these benefits are running completely out of control. Moreover, the Office for Budget Responsibility expects the number of people claiming these benefits to continue rising yet further.
This is totally unsustainable economically. That figure of £109 billion is so large, that in excess of 30% of revenue generated by income tax alone will be required to fund these benefits. The Government should therefore revisit its earlier attempts at welfare reform, abandoned in June 2025, and introduce stricter eligibility criteria alongside robust support for those transitioning back into employment. This will not only reduce public spending but also increase workforce participation rates, whilst promoting individual self-sufficiency and economic resilience.
It is also worth noting that almost a third of the total £30 billion tax rise announced in the Budget is being allocated to increased welfare spending, with the OBR confirming that an additional £9 billion will go directly towards funding higher benefits payments.
Conclusion
The 2025 Autumn Budget represents a colossal missed opportunity for the reasons set out in previous articles (articles 1, 2, & 3). Rather than easing the burden upon employers, the Government have yet again ramped up the cost of hiring. These additional costs make recruitment even less affordable for businesses already struggling to stay competitive, and will simply serve to accelerate the shift towards automation and AI as cheaper long-term alternatives to recruitment
Recent data also illustrate the wider challenge: 257,000 British nationals left the UK in 2024, far higher than previously estimated, while only 143,000 returned, leaving a net loss of 114,000 people. The rate of emigration is increasing year on year, and critically, many of those departing are highly skilled, experienced professionals in sectors such as technology, engineering, healthcare and financial services, roles that are already difficult to fill domestically. This growing outflow of hard-to-replace talent, essentially a brain drain, suggests an increasing reluctance among taxpayers, and particularly the most economically productive individuals, to remain in a high-cost, high-tax environment.
Unless the Government introduces policies that genuinely make hiring affordable and supports business investment, the UK risks far more than a period of slow growth / recession. The likely outcome is a stagnating economy marked by rising unemployment, weakened competitiveness and dwindling opportunities for both employers and employees. Without decisive action, the country could face long-term economic decline that becomes increasingly difficult to reverse.
