Key budget takeaways: Careers 

The recent budget introduces new measures that will significantly affect employment costs for the employer, an attempt to increase the talent pool and economically active population, as well as skills development funding and share incentives.

Here’s a breakdown of how the budget impacts the workforce, and some steps businesses can take in response. 

One of the headline changes is the increase in employer National Insurance contributions, bringing the rate to 15%, with a particular impact on the cost of employing low-wage workers which will significantly impact firms with large workforces. This rise, coupled with the reduction in the threshold to £5,000, creates a notable financial burden for most businesses. 

George Lawley, Director of Government Relations at Marsh McLennan, notes: “The Office for Budget Responsibility has cautioned that this increase may discourage job growth in lower-paid sectors, reducing economic participation from 2025 onward.”

Employers should evaluate current workforce models to mitigate this cost increase and create the required workforce agility and flexibility. Maura Jarvis, Workforce Transformation Leader at Mercer, suggests exploring flexibility in hiring approaches: “We may see more businesses turn to more self-employed contractors, right shoring and automation as ways to keep costs manageable, while still meeting demand.” We believe that redesigning work will be an innovative way to optimise employment and automation.

Other businesses may opt for cost-effective hires such as degree apprentices where they can access funding from the Growth and Skills levy. Economic growth for the UK rests on a skills system that is fit for the future. Skills England will play a pivotal role in ensuring that employers have access to skills funding in the areas where skills are in scarce supply.

The budget also raises the National Living Wage by 6.7% from April, alongside a 16% increase to the National Minimum Wage for workers aged 18-20. 

While this also increases employment costs, it may also boost workforce participation, particularly among economically inactive groups, including women who have left work due to childcare costs. The £1.8 billion investment in childcare will help support this shift, making employment more feasible for parents balancing family and career. Industries including hospitality and retail may also benefit, as higher wages may help attract talent back to these labour-short sectors and address the high vacancy rate

For businesses, the salary increases present an opportunity to attract a broader talent pool. “Companies can look at adjusting talent acquisition processes to re-engage with those who have left the workforce,” Jarvis suggests. 

Employers may consider new pathways that make returning to work more viable. Government resources – such as the Growth and Skills Levy, a reform to the Apprenticeship Levy, which has historically been under utilised – can help businesses develop the skills they need for the future at a reduced cost. 

The raising of capital gains tax (CGT) – from 10% to 19% for basic-rate taxpayers and 20% to 24% for higher-rate – will affect employees participating in equity-based rewards programs. This may lead to a reduced interest in share plans, which have long been used to increase staff commitment to positive business outcomes. 

Steve Sands, Private Wealth Leader at Mercer, says: “Companies should guide employees on ways to maximise allowances and have a clear divestment strategy to help them manage the impact of CGT on their investments.” Other tax-efficient options including ISAs and pensions may become more popular. 

The new budget landscape offers challenges but also opens doors to rethinking the traditional work models, talent acquisition and skills development. . By acting on these insights, businesses can better support  the need for flexibility, agility and productivity. and position themselves for success.