This is in the wake of a half-decade of change, including Brexit, a pandemic, wars in Eastern Europe and the Middle East and a cost-of-living crisis contributing to widespread industrial action.
4. Increase in Employer National Insurance Contributions
Steve Herbert homed in on the most notable Budget change: the rise in employer National Insurance contributions from 13.8% to 15%. This will markedly drive up costs for businesses, especially as there is a reduced threshold for employees to be eligible for this increase. Those with a high proportion of low-paid employees will be particularly affected.
Employers should consider strategies to offset this increase, such as implementing salary sacrifice schemes. Rachel Reeves has acknowledged that, “businesses will now have to make a choice, whether they absorb through efficiency or productivity gains, whether it will be through lower profits or perhaps lower wage growth.”
The Office for Budget Responsibility suggests that 60 per cent of the increase will be passed on either via higher wage costs or via lower returns for the consumer. Either way, UK companies are facing critical decisions as a result.
However, there have been improvements to the Employment Allowance. This will increase to £10,500 in April 2026 and the £100k eligibility threshold is being removed. 50 per cent of employers will not see any National Insurance increase. Salary sacrifice is still possible and even more beneficial to employers now, to counter these rate increases.
5. Changes to Inheritance Tax on Pensions
Steve made the point that this Budget is the biggest expansion in taxes in modern times – at around the same level as it was after the Second World War.
Starting in April 2027, pensions will be included in inheritance tax calculations, a change likely to impact employee retirement planning. This adjustment may also affect employee share plans, which employers often use to enhance loyalty and retention so employers should clearly communicate these changes to employees.
Steve also noted that unpopular policies introduced by Labour over the summer, including the winter fuel allowance, meant that they have had to park other measures around pensions.
