There was a profound sense of disappointment following the Autumn Budget, as many had expected some seismic announcement only to find a ‘death by a thousand cuts’ approach to tackling economic challenges.
Though there was a clear emphasis on creating breathing room (the Chancellor reportedly said the phrase 13 times), many businesses may need additional support to find that space to breathe.
Employment costs are likely to remain a core pressure and understanding how to mitigate the impact is vital for long-term business success.
Innovators and the next generation of business founders are likely to be the clear winners from the Autumn Budget, given the clear focus on driving growth by having a wave of fresh talent galvanised in the UK.
Established businesses faced a more mixed picture, with some sectors receiving more love than others.
An additional 70,000 retail, hospitality and leisure businesses are set to pay no business rates at all after the Small Business Rate Relief threshold was changed from £12,000 to £18,000 and those above the threshold may benefit from the rates being frozen.
Yet rising employment costs come for all businesses that have a team in the end and not all sectors were given the necessary relief to offset these expenses.
An extension of the 5p fuel duty cut might have taken the sting out of some of the harrowing moments at the petrol pump, but an increase in wages may swiftly outpace this slight reprieve.
Both the National Living Wage (NLW) and National Minimum Wage (NMW) are set to increase by 3.9 per cent, resulting in 18- to 20-year-olds being paid £11.27 an hour and those over 21 earning £13.21 an hour.
In terms of annual salary, a person working the standard 37.5-hour week under the NLW will be paid £25,759.50 a year and could earn £27,476.80 if they work 40 hours.
While it is good news that no further additions have been made to Employer National Insurance Contributions (NICs), the fact that they remain at the 2025 rates means that employers will need to pay 15 per cent on over £20,000 of an NLW worker’s salary.
Adding together the wage itself, the NICs and pension contributions, employers could be looking at bills of around £29,500 a year for a person on NLW working 37.5 hours a week.
Employment costs are notoriously difficult to tackle as the NLW sets the tone for how other people in society expect to be paid.
While businesses that typically pay the NLW are those that are likely most supported by the Autumn Budget, it is those businesses that rely on graduates, experienced people and higher-skilled individuals that could face more of a strain.
People expect to be paid based on their skills and qualifications, so graduates may not accept being paid marginally more than someone new to the profession or engaging in ‘unskilled’ work.
Difficulties in maintaining pay structure can cause issues with retention, as businesses that can afford to absorb more of the costs become a more attractive place for ambitious people to work.
Concerningly, the Chartered Institute of Professional Development (CIPD) found in the summer that just “57 per cent of employers in the private sector plan to recruit over the next three months, which is the lowest figure since we began collecting this measure in 2016 (outside of the pandemic).”
Reflecting on the Autumn Budget, a CIP spokesperson noted that the “additional cost pressures [were] likely to further dampen hiring, particularly among smaller employers.”
Knowing how to manage the rising costs of employment will be necessary for businesses looking to recruit or retain talent and this can only come from having a clear understanding of your financial position.
Having reviewed each detail of the Autumn Budget, our expert team of accountants is ready to support your business and help you understand how the changes could impact your business.
Understanding what reliefs may be accessible to you or how to operate more tax-efficiently could allow you to create the much-touted breathing room your business needs without sacrificing your employees in the process.
Alternative forms of compensation can also be explored and having clear financial forecasts lets you find the right fit for your situation.
Before long, the 2027 tax year will be here, so taking the time now to get prepared allows you to face it with confidence.
Get in touch with our team for expert support in offsetting some of the rising employment costs to keep your business growing.
