The recent autumn budget, presented by Chancellor Rachel Reeves, has drawn significant attention not only for being the first Labour-led budget in over a decade but also for the sweeping changes it proposes. With a core focus on economic stability and a substantial £40 billion tax increase aimed largely at businesses, the budget has left many organisations evaluating the impact on their costs, workforce, and operations.
Below, we explore the most significant changes and their potential impact on the people profession.
Key Highlights
1. National Living Wage Increase: From April 2025, the National Living Wage (NLW) will rise to £12.21 per hour, a 6.7% increase, marking one of the largest boosts in recent years. Additionally, the National Minimum Wage for younger workers (18-20) will increase by 16%, which will likely strain employers, especially those in sectors with tight profit margins such as hospitality and retail. This increase aligns with Labour’s commitment to supporting “working people,” though many experts caution about the financial impact on smaller businesses.
2. Employers' National Insurance Contributions (NIC): The budget outlines an increase in employers' NIC from 13.8% to 15% and lowers the threshold at which businesses must pay NIC on employee salaries. However, employment allowance will be increased for smaller employers, aiming to alleviate some of the cost pressures.
3. Employment Rights and New Protections: The Employment Rights Bill introduces stronger protections for workers, part of Labour’s promise to enhance job security and improve working conditions. These regulatory changes could increase operational complexity for businesses, particularly with the cumulative effects of wage increases and NIC hikes.
4. Initiatives to Increase Workforce Participation: The "Get Britain Working" plan is another budget highlight, aimed at addressing economic inactivity by supporting individuals with disabilities or health conditions to enter and remain in the workforce. The budget also includes funds for expanding government-supported childcare and increasing the earnings threshold for carer’s allowance, recognising the challenges faced by workers balancing employment and caregiving.
5. Pension Protections and Limitations: The state pension triple lock remains in place, ensuring pension payments keep up with inflation, though experts note the lack of broader retirement savings support in the budget.
Implications for HR
HR professionals and employers may face immediate challenges in balancing cost pressures with employee demands for better wages and protections. The likely rise in operational costs could lead to hiring freezes, layoffs, or reductions in hours to manage budgets effectively. Strategic adjustments may be needed, particularly in industries heavily affected by wage increases, such as retail and hospitality, where these changes could lead to inflationary pressures and operational shifts.
This budget underscores a tension between enhancing worker protections and the operational realities businesses face. HR departments should prepare for potential adjustments in hiring strategies, compensation planning, and employee support programs as they navigate these new regulations and financial commitments.
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