Throughout November, many discussions circulated regarding the Autumn Budget presented by Labour’s Chancellor of the Exchequer, Rachel Reeves. While the Budget brought significant change for workers as promised; including increased pay and enhanced rights, this development was reported as having placed business owners, in particular SMEs, at a disadvantage.
With SMEs accounting for 61% of UK employment, many are anticipating how these changes will impact the UK’s economy moving forward. Now that the dust has settled, we’ll look at opinions expressed by business leaders, including our CEO James Calder, with predictions for the new year.
Recapping the Autumn Budget
Presenting the first Labour Budget in 14 years, Reeves stated she was “deeply proud to be Britain’s first ever female chancellor of the exchequer,” pledging improved living standards and “more pounds in people’s pockets.” The previous day, Reeves had confirmed that over 3 million workers would receive a pay increase as of April 2025:
- The National Living Wage (for those aged 21 and over) will increase by 6.7%, to £12.21 an hour. For eligible full-time workers, this is equivalent to £1,400 more annually
- For workers aged 18 to 20, the National Minimum Wage will also rise from £8.60 to £10.00 an hour. For full-time workers in this bracket, this equals a salary boost of £2,500 annually.
Senior political correspondent Peter Walker, writing for the Guardian, observed: “paying people more is usually seen as a vote-winner, but ministers will also be wary of business voices warning about the impact this could have on job creation.”
Effective April 6th 2025, the Autumn Budget outlined other significant changes for employers:
- Employer’s National Insurance Contributions (NICs) will increase to 15% (a rise of 1.2%)
- The threshold for employers to start paying NICs will be lowered from £9,100 to £5,000
- In line with these changes, Employment Allowance will increase from £5,000 to £10,500
- The £100,000 eligibility threshold for Employment Allowance will be removed, meaning all employers with NICs bills will become eligible from 6th April 2025
The increased NICs are projected to generate £25 billion annually, representing over half of the projected £40 billion in additional tax revenue, as part of Labour’s effort to “restore financial stability” to the UK.
Immediate reactions from business leaders
Though GOV.UK emphasised that these measures reflect Labour’s long-term commitment to being a “pro-business, pro-worker, pro-growth Government,” many business leaders expressed mixed reactions and concerns.
Prior to the Chancellor’s Budget speech, Dr. Roger Barker, Director of Policy at the Institute of Directors (IoD), noted that business leaders’ confidence “had hit its lowest level since December 2022.” Their subsequent poll of 702 UK respondents found 34.9% viewed the changes ‘very negatively’ with an additional 32% ‘somewhat negatively’.
Bea Montoya, UK COO at Simply Business, noted the move will “further squeeze the margins of many other SMEs, who are already operating under enormous pressure”. However, she acknowledged that “the extension to business rates relief and the removal of the income tax freeze are big wins.” With the freeze on income tax and National Insurance thresholds set to end in April 2028, this may help alleviate fiscal drag – a pressing concern for many employers.
Our CEO, James Calder shared his thoughts on the Autumn Budget;
“As with many businesses, Distinct has faced challenges from rising inflation and the cost of living. Through resilience and careful decision-making, we fortunately have been able to navigate these hurdles, allowing us to continue growth across the UK and US. That said, the Autumn Budget appears to place much of the burden of economic recovery on SMEs, which employ a significant portion of the UK population. While the increased Employment Allowance is a step in the right direction, my concern is, it may not provide enough support for business owners to manage these ongoing pressures.”
Predictions for 2025
Taking these points into account, here are our predictions for the year ahead.
- Increased reliance on finance teams
Key decisions around hiring, profit and loss will increasingly depend on the expertise of internal finance teams, whose accurate assessments and reporting. However, rising workloads and pay rates may challenge employers’ ability to expand their teams. In this context, temporary and contract staffing could play a pivotal role, offering a flexible solution for businesses cautious about committing to long-term employment amid escalating costs.
For additional insights, we’ve created a short guide detailing the benefits of hiring temporary workers.
- No tax rises for 2026
Reeves emphasised that the current tax changes are a one-off measure, aiming to prevent the need for additional increases next year. As she explained, “I wanted to do this all at once so we could wipe the slate clean”. This approach offers business owners some reassurance that, following an initial period of adjustment, 2026 will not bring significant new tax changes.
- Impact on salary increases
Bea Montoya noted that “while the minimum wage hike is fantastic for workers, it’s a headache for small employers.”
The rise from £8.60 to £10.00 an hour will be the largest increase on record. Though this is a positive step for workers, employers may face additional challenges. Significant wage increases often lead to a ‘spillover effect’ where salaries at all levels rise to maintain pay differentiation. However, Reeves has warned that workers may need to adjust expectations for future pay raises due to the financial strain placed on businesses by increased NICs.
- Potential hiring freezes
As April approaches, SMEs may find themselves in the difficult position of assessing whether they can afford to hire more workers at these increased rates of pay. Joanne Moseley, Senior Associate Solicitor at Irwin Mitchell, predicted “it’s also possible that employers will need to reorganise their workforces to accommodate these increased costs and that may, ultimately, lead to redundancies.”
While the outlook poses challenges, it also highlights the importance of strategic workforce planning to balance rising costs with business sustainability.
- Navigating PAYE and umbrella company compliance
As part of an action plan to tackle tax avoidance by April 2026, HMRC has updated its list of tax avoidance schemes, promoters, enablers and suppliers. Notably, a significant portion of this list includes umbrella companies that employ temporary and contract workers. BDO remarked, “clearly, tackling tax non-compliance in the umbrella company market has become a high priority for the Government.”
We anticipate that workers and business partners unaware of this non-compliance may soon seek specialist advice to navigate these changes and where necessary, end affected contracts. For those in need of support, our Divisional Director and temporary recruitment expert, Claire Fletcher is on hand to offer guidance on compliance and help you prepare for the months ahead.
Partner with Distinct
As a leading recruitment agency in the East Midlands and London, we pride ourselves on staying informed about the latest economic developments and their impact on the world of work. Whether you’d like to discuss the current market, including job opportunities, or connect with talented professionals, contact us today to see how we can support your business and career goals.
