How should SMES prepare for a possible National Living Wage increase in the Autumn Budget?

The Autumn Budget is fast approaching, with the Government set to announce its plans on 28 October 2026.

While many business owners will be focused on potential tax measures, employees are likely to be watching closely for any announcements regarding the National Living Wage (NLW ).

An increase in the living wage would undoubtedly be welcomed by many workers. However, for SMEs, any rise in wage costs could create additional financial pressures that require careful planning and consideration.

What could a rise in National Living Wage mean for businesses?

The National Living Wage is reviewed annually, with recommendations made by the Low Pay Commission before the Government confirms any changes as part of the Budget process.

For employees, a higher living wage can provide greater financial security and help ease the pressure of rising living costs. For employers, however, the impact can be more complex.

Businesses that rely heavily on entry-level or lower-paid employees may see a significant increase in their overall payroll costs. Sectors such as retail, hospitality and leisure are often among the most affected, as wages represent a substantial proportion of their operating expenses.

An increase can also create challenges beyond those employees directly earning the living wage.

Many businesses choose to maintain pay differentials between junior and more experienced staff, meaning salaries across several levels of the organisation may need to be reviewed.

For smaller businesses operating on tighter margins, higher employment costs can reduce profitability if additional expenses cannot be offset elsewhere.

Though it isn’t all negatives, better pay can improve employee morale, increase productivity and support staff retention.

Lower turnover can reduce recruitment and training costs, helping businesses retain valuable knowledge and experience within their workforce.

What can businesses do to prepare for an increase?

Although the details of any changes will not be known until the Budget announcement, there are several practical steps businesses can take now to assess their position and prepare for potential increases.

Some of these include:

• Review payroll processes – Assess which employees could be directly affected by a rise in the NLW and calculate the potential increase in payroll costs. Businesses should also consider associated costs, such as employer National Insurance contributions and workplace pension payments.
• Pricing reviews – Rising wage bills may place pressure on profit margins. Reviewing prices in advance can help businesses determine whether adjustments may be needed to maintain profitability.
• Cash flow forecasting – Scenario planning can be an effective way to understand the financial impact of possible wage increases. Modelling different outcomes can help businesses prepare for changes before they take effect.
• Keeping an eye on the Budget – Staying informed is essential. Once any changes are announced, employers should assess how the new rates will affect their workforce and what adjustments may be required to their payroll budgets.

For businesses operating with limited financial flexibility, acting now can help reduce the risk of unexpected cost pressures and provide greater confidence when planning for the months ahead.

How can we help?

Although there is still uncertainty surrounding what the Autumn Budget may contain, businesses do not need to delay reviewing their financial position.

If you are concerned about the potential impact of rising wage costs, speaking with your accountant before the Budget can provide valuable insight and help you develop a strategy that supports long-term growth.

For support with the Autumn Budget, get in touch with a member of our team!