The 2025 Budget introduces several key changes that will influence how HR, reward and leadership teams support their workforce. While much of the Budget focuses on economic stability, a number of the proposals directly affect pay, benefits, skills development and people strategy.

Here’s a clear overview of the measures most relevant to larger employers.

1. Income tax thresholds frozen

Tax thresholds are now frozen until 2030/31. As salaries rise in line with pay reviews, more employees – particularly in management and specialist roles – will move into higher tax bands. Many will feel worse off, even as wages increase.

This may shape pay expectations, increase requests for salary adjustments and place pressure on internal equity. HR teams may also see rising interest in financial wellbeing support, salary benchmarking or flexible benefits.

2. Significant minimum wage rises in April 2026

The confirmed increases are:

• National Living Wage (21+): up 4.1% to £12.71
• 18–20-year-olds: up 8.5% to £10.85
• 16–17-year-olds and apprentices: up 6% to £8

These increases place the UK among the highest minimum wage countries globally.

For larger employers with diverse workforces, the implications go beyond base pay:

• Compression between entry-level and supervisory roles
• Increased pressure to adjust internal pay frameworks
• A potential shift in how organisations attract younger workers
• Increased staff turnover if external competitors move more quickly on pay uplift

This is a key moment for HR and reward teams to review workforce data and assess risks.

3. Salary sacrifice changes from 2029

NICs relief on pension salary sacrifice will be capped at £2,000 per year from April 2029. Higher contributions will attract NICs for both the employer and the employee.

This is likely to affect:

• Total reward perceptions
• The design of senior reward packages
• The cost of offering enhanced pension benefits
• Uptake of wider salary sacrifice schemes

Larger employers may need a phased communication plan to support understanding and engagement.

Other Budget measures affecting employers

• Dividend tax increase: An additional 2 percentage points from April 2026.
• Apprenticeships: SMEs benefit from fully funded under-25 apprenticeships, but larger employers will gain flexibility through the Growth and Skills Levy from 2026.
• Growth and Skills Levy: Allows levy funds to be used for shorter, targeted training—an opportunity for upskilling at scale.
• Business rates: Reductions for high street sectors; increases for large distribution centres.
• Employee Ownership Trusts: CGT relief will reduce from 100% to 50%.
• Welfare and sickness: Government intends to work with employers to support people with long-term ill health and create a “Youth Guarantee” to address youth unemployment.

5 actions for HR teams

1. Reassess pay structures – Model the impact of minimum wage rises and review how compression affects pay bands.
2. Review the value of current benefits – Assess which benefits remain competitive once the salary sacrifice cap comes into force.
3. Support senior leaders facing higher tax – Revisit reward elements such as allowances, incentives or long-term reward.
4. Plan how to use the Growth and Skills Levy – Identify where modular training could support capability building or career pathways.
5. Track employment law reforms – Upcoming changes, including day one unfair dismissal rights and adjustments to zero-hour contracts, will require policy and training updates.

How Vista can support HR and leadership teams

The changes set out in the Budget, along with the upcoming Employment Rights Bill, will shape how organisations plan, support and develop their people. For HR teams, this means reviewing reward strategy, supporting managers through change and ensuring policies reflect new legal requirements.

At Vista, we help HR teams manage these people and culture implications with clarity and confidence. From strategic workforce planning to leadership development and people-centric change management, we can support you as you prepare for the year ahead.

If you’d like to discuss what these Budget measures mean for your organisation, please get in touch. 

Contact: 0330 053 9345.