In October 2024, we heard a Labour government’s first Budget Statement since 2010. A historic moment, in that it was also a Budget announced by the first ever female Chancellor of the Exchequer, Rachel Reeves.
On 30th October, the Chancellor tweeted:
“I am delivering the first Budget of a Labour Government in 14 years. One that will fix the foundations and delivers change.”
She also stated that this is a Budget that she does not want to repeat and that growth is her core mission. For the public, she said the Budget would give people more pounds in their pockets as well as improved living standards and public services.
The OBR (Office for Budget Responsibility) predicts the UK economy will grow by 1.1% this year, 2% next year and 1.8% in 2026.In 2027 and 2028 a growth of 1.5% is predicted.
Inflation is predicted to average 2.5% this year, 2.6% next year and 2.3% in 2026.
One of the most leaked Budget Statements, ever, employers were no doubt making assessments about how they might be affected in the coming years before the Budget announcements were even made.
But let’s take a look at the main points that might affect employers in various industries. As with all Budget announcements, it is a case of wait and see but we can draw a few conclusions from what we heard.
Big Tax Rises
The tax rises announced in the Budget announcement were significant in that they are the biggest tax rises since 1993.
These tax rises are worth £40 billion and the amount raised will be used to fund NHS and public services.
Business Taxes
As an employer, the business taxes are where you might be directly affected and where you might have already been making any necessary adjustments to your finance strategies to cover any changes to your taxes.
National Insurance
Currently, businesses are paying National Insurance at a rate of 13.8% on salaries above £9,100.
From April 2026, this will change and businesses will need to pay National Insurance for employees at a rate of 15% on salaries from £5,000.
This will affect employers who have employed part time staff and who previously needed to cover the National Insurance.
Chancellor Rachel Reeves says this rise in employer National Insurance payments will raise an additional £25 billion a year.
Some businesses say this could potentially hurt wages and future recruitment because employers will already be paying more for the staff they have. Other critics also say this could lead to around 50,000 jobs being lost and that this tax burden might make it harder for businesses to invest and grow.
As an employer, perhaps you are already looking at ways to offset the costs of having to cover increased National Insurance costs?
SMEs And The Retail, Hospitality & Leisure Sector
Whilst the National Insurance increases for employers might not be welcome news for all, there is some good news for employers who are operating in retail, hospitality and leisure businesses.
These are sectors that have faced challenging times of late and Chancellor Rachel Reeves has offered some potential respite by announcing that permanently lower business rates will be introduced from 2026-27.
And until that time, if you are an employer in this sector, there will be a 40% relief on business rates up to a cap of £110,000.
For employers in smaller companies, there is also some good news for you, too. Employment Allowance will increase from £5,000 to £10,500. This will allow you to reduce your National Insurance liability and could give you room for growth and the ability to recruit more staff.
Chancellor, Rachel Reeves, claims the increase in Employment Allowance will ease some of the pressures faced by small businesses. According to her, up to 865,000 employers will be able to enjoy relief from National Insurance next year, whilst over 1 million will be able to reduce or maintain current payments without facing the increase.
Other Taxes
- Tax paid by private equity managers on share of profits from successful deals will rise from 28% to 32% from April 2025.
- Corporation Tax paid by businesses on taxable profits over £250,000 to stay at 25% until the next election.
- With regards to Capital Gains Tax, the lower rate will increase from 10% to 18%, whilst the higher rate will increase from 20% to 24%. The Chancellor said this will bring in more funds from people selling assets like second homes and investments.
The changes to Inheritance Tax have been controversial in some quarters as it has been said they could affect family farms and agricultural businesses.
How Do Changes To Wages, Benefits & Pensions Affect Employers?
For young people who are working in roles which are entry level jobs and who are typically paid the National Living Wage, it is great news for them to be getting a pay rise.
However, if you are an employer who owns a small business, wage increases for staff will need to be covered and this can be challenging for some. Employers may need to adjust their finance structures to be able to cover the increase in their wage costs. Some critics say it could also lead to smaller pay rises in the future.
- The National Living Wage for over 21s is set to increase from £11.44 to £12.21 from April 2025. For someone on a 37.5 hour working week, this equates to an annual salary of £23,870.60.
- For 18-20 year olds, the hourly wage will increase from £8.60 to £10 with a view to heading towards a single National Living Wage for all adults.
- Apprentices will get the biggest increase. They will be entitled to a minimum wage of £7.55 per hour from April 2025. This is up from £6.40 per hour. Some employers already pay their Apprentices above the minimum wage.
How Will This Affect Employers?
Obviously, employers will have decisions to make. And for many small businesses, those decisions will need to be made quickly.
Some small businesses, of course, will find themselves better off with regards to payments of National Insurance for employees and the lower business rates for those operating in the hospitality and leisure sectors.
This could offer respite for the coverage of increases in staff wages. For other employers in general, the effects of the announcements made in the Autumn Budget might be:
- Employers might need to reassess their cost management strategies to cover the National Insurance contributions and National Living Wage increases. Critics state that some of the steps you might need to take as an employer is increasing the prices of goods and services. Some employers may also need to make cuts elsewhere in the business to reduce expenses to cover the wage increases that staff will be entitled to.
- When it comes to recruitment, critics have said that some employers might feel reluctant to recruit more full time staff because of the costs involved. They might opt instead for part time or temporary staff.
- The rise in the National Living Wage is aimed at reducing the burden of the cost of living for workers in traditionally lower paid roles. And, whilst this is a good thing, it obviously increases the burden for employers who will need to find the extra funds to pay those extra wages. Critics also argue that staff working in more senior positions may also want a pay rise to differentiate their work and responsibilities from staff in entry level positions.
Other Autumn Budget Statement Announcements That Could Affect Employers
Whether directly or indirectly, let’s take a look at some of the other Budget announcements made by Chancellor Rachel Reeves that could affect employers.
- Basic and new state pension payments will go up by 4.1% next year (2025) due to the ‘triple lock.’ This is more than working age benefits.
- Eligibility has been widened for full time carers. The maximum earnings threshold goes from £151 per week to £195 per week. If you employ young people who are paid the National Living Wage and who are also carers, this means they can still work similar hours for you with the wage increases they will be given, without going over the threshold.
Transport
Fuel Duty
Chancellor Rachel Reeves announced that the 5p cut in fuel duty that was due to end in April 2025 will be kept for another year because of global uncertainty and the high cost of living.
This is particularly good news for employers operating in sectors where transport costs are a big part of the budget. Distribution and logistics, for example.
For small businesses, where local deliveries need to be made, the continuation of the 5p cut in fuel duty will be a welcome relief.
Air Passenger Duty
If you or your employees need to fly as part of their role then this will obviously affect you.
- Air passenger duty will increase in 2026. For short haul economy flights, the increase will be £2. For long haul flights, the increase will be £12.
- And if you make use of private jets, then the duty will increase by 50%. This is the equivalent of up to £450 per passenger per flight.
Potholes
Again, if your business is in the field of transport and distribution, you will welcome any good news that could help with your business costs.
Time wasted or damage caused to your vehicles because of the nation’s potholes might be relieved as the Chancellor announced an extra £500 million next year to be used for pothole repairs.
Vehicle Excise Duty
Vehicle Excise Duty will double in the first year for all but the most efficient new petrol cars. This is intended to encourage a move towards a wider use of electric vehicles.
Drinking
The Chancellor announced that the tax on draught alcoholic drinks will be cut by 1.7%. This could be good news for employers in the hospitality industry. The tax cut works out at a penny off the average pint in the pub.
Housing Sector Announcements
For employers in the construction industry, the Chancellor’s Budget announcements on housing could be good news and a boost to businesses.
Between 2025 and 2026, the government will spend £5 billion on housing investment and on increasing the supply of affordable housing. This could provide a good boost for the construction sector.
The Chancellor also pledged £3.4 billion for the Warm Homes plan. This is a plan to upgrade buildings so that energy bills can be lowered. Again, this might give a boost to the construction industry.
Public Investment Announcements
Employers in the following sectors will see injections of investment from the Government.
The Government will invest:
- £1 billion in the aerospace industry.
- £2 billion in the automotive industry to encourage a further move towards the use of electric vehicles.
- £500 million for Life Sciences.
- Government Research & Development spending will reach £20.4 billion in 2025-26. This includes £6.1 billion in sectors like engineering, biotechnology and medical sciences.
- £3.9 billion of funding will be assigned to green technologies. This could open new doors for employers operating in renewable energy businesses.
Budget announcements inevitably prompt reaction and predictions about the effect on businesses, employment and the economy.
The coming months and years will reveal to us how the most recent Budget statement will affect employers and young people coming into the workplace.
If you are looking to recruit students, graduates or Apprentices to your workplace, whether for full time or temporary positions, get in touch with us at e4s to see how you can target the best audience for your vacancies.
