As the dust settles on Chancellor Rachel Reeves’ budget, HR and employment experts have been analysing the impact of the measures taken. The run up to her speech signalled diverse and, for many, worrying possibilities, and it seems the reality does not inspire great enthusiasm either.
“The Chancellor has further raised employment costs for business but not done enough to articulate how to encourage growth and investment and boost productivity across the economy,” said Peter Cheese, chief executive of the CIPD. “Measures to boost growth and support businesses have never been more important, in light of strong headwinds to recruitment and investment in workforces.
“Employment costs have increased across the board in the past year but there is still no coherent plan from the Government on how it will work with employers to improve productivity across the economy, to help businesses invest in skills and support technology adoption,” he added.
Cheese welcomed the Chancellor’s support for the UK industrial strategy’s key high growth and green energy sectors but said there was little in the way of support for employers to improve skills development, opportunities and productivity outside these chosen industries. “Unless this is addressed, it’s hard to see how there will be sustained improvement to economic growth or living standards,” he said.
Cheese also said the 8.5% rise in the National Minimum Wage for young workers, risked further reducing job opportunities for the group, who were already hard hit by last year’s Budget changes.
The main event for HR remains the Employment Rights Bill.”
“The announcement of additional support for SMEs to take on an apprenticeship through subsidising the cost of training is welcome and should encourage more small firms to take on an apprentice,” he said. “The further support set out for the Government’s Youth Guarantee is also a positive step. However, these measures are still not enough to address the collapse in apprenticeship provision for young people in recent years or tackle high and rising levels of young people not in employment, education or training. With long-term unemployment for young people at a 10-year high, we need bolder action on skills to prevent a lost generation,” he said.
Rising costs
Laura Darnley, partner at Ward Hadaway also noted the additional costs for employers as a result of the increase to the National Minimum Wage to £12.71 per hour for workers aged over 21.
She added that changes to salary sacrifice rules for pension contributions represented another significant revision, with the cap on tax free pension contributions of £2,000 being effective from April 2029. “According to the BBC, a third of private sector employees and a tenth of public sector workers use salary sacrifice for their pension savings,” said Darnley. “This could discourage pension savings. Many employers will need to assess whether they need to change their pensions arrangements with employees which is likely to require contractual/policy changes. Employers will need to think carefully about how these changes are communicated and implemented to avoid complaints/disputes.”
Nikki Lidster, Head of SME at Zurich was also concerned about the impact the Chancellor’s moves would have on pension take up. ”Whilst today’s announcement will land in 2029, the prospect of paying national insurance on employer pension contributions for the country’s SMEs will force some businesses to look at how they can improve efficiencies and costs,” said Lidster. “As the increases announced in the 2024 Budget are just starting to feed through to their balance sheets, one of the key catalysts pushing insolvencies to a 30-year high, so planning ahead will be crucial for businesses across the country. This, coupled with mounting supply chain costs and ongoing cost-of-living increases, continues to weigh heavily on consumer confidence. This is a challenging time for small business owners across the UK.”
ERB remains main act
While these issues will cause some need for action and consideration from HR, Darnley – and others – are still clear that the main event for HR remains the Employment Rights Bill. Darnley says there is still an amount of anticipation for both the final Act and the enacting legislation/full regs to be published. She adds that employers would like certainty over what the changes will be and when they will be enacted, so they can plan effectively.
Finally, Michael Carter, Partner and head of incentives team, Osborne Clarke has identified some good news from the budget in the form of the expansion of EMI (Enterprise Management Incentive) employee share schemes, which he says is one of the most effective tools for attracting and keeping talent. “Up until now, companies that had more than 250 employees and/or gross assets of over £30 million were excluded from benefiting from EMI,” he notes. “With effective from 6 April 2026, these limits will be increased to 500 employees and £120 million respectively, significantly increasing the number of growing companies that can benefit from this vital incentive.”
At least there may be one aspect of the budget HR can use to make their employees feel better.
