The Budget – What does it mean for you
Rebecca Ah-Chin-Kow · Posted on: December 5th 2025 · read
The 2025 Budget places a heavier financial burden on many employers, with employment costs likely to increase across the board. The National Living Wage (NLW) and National Minimum Wage (NMW) increases directly raise payroll costs for employers staffed by lower-paid workers, with the likes of retail, hospitality and care sectors being amongst the most affected.
Beyond wages, the Budget extends the freeze on income tax and National Insurance Contribution thresholds (for both employers and employees) until 2031. This means that as nominal wages increase over time (e.g. with inflation), more salaries will fall under NIC / tax brackets, increasing the effective marginal costs of wages.
On the incentives and benefits side, the Budget re-works long-standing pension-savings advantages. The Government will cap the amount of salary-sacrificed pension contributions exempt from NICs to £2,000 per employee from April 2029. For employers offering generous pension schemes via salary sacrifice, this represents a major shift. Contributions above the cap will attract both employee and employer NIC’s, increasing costs for both parties and reducing the relative attractiveness of pension sacrifice as a benefits tool.
That said, the Budget does offer some structural support to firms looking to recruit, grow and incentivise staff.
For example, the Enterprise Management Incentive (EMI) scheme which allows companies to grant share-options to employees on favourable tax terms will be made available to larger firms by raising the employee limit from 250 to 500 and raising the asset threshold considerably. This may help growing or scaling businesses to offer competitive compensation packages without solely relying on high salaries.
Also, the ongoing government investment in skills and training may help firms by widening the talent pool and making it easier to recruit, particularly in growth sectors.
What should you do now to prepare
Reassess both short- and medium-term financial plans.
Update payroll forecasts, particularly for businesses with many minimum-wage or low-paid staff, to account for the NLW and NMW increases, and the fiscal drag from threshold freezes.
Employers who have relied heavily on salary-sacrifice pension schemes (or other benefits structured via salary sacrifice) should begin modelling how the 2029 cap will affect net comparison and take-home pay. It may be prudent to redesign benefits packages soon, to preserve competitiveness and manage long-term costs.
For firms pursuing growth, the expanded EMI scheme presents an opportunity to retain and attract talent without disproportionately increasing wage bills. This could make share-based compensation more attractive, although firms should review whether their structure and growth plans align with new thresholds and rules.
For growth-oriented firms, particularly in competitive sectors, the expanded EMI scheme presents an opportunity to retain and attract talent without disproportionately increasing wage bills. This could make share-based compensation more attractive, although firms should review whether their structure and growth plans align with the new thresholds and rules.
Lastly, businesses should keep an eye on their financial modelling and cash flow forecasts. The combined effects of higher wages, rising NICs, and altered pension-tax treatment could constrain margin, especially for SMEs or firms operating on tight budgets. Reviewing hiring plans, investment timelines, and pricing strategies may help mitigate the impact.
