Following extensive media coverage of potential tax and spending reforms, the Chancellor of the Exchequer, Rachel Reeves, has delivered her Autumn Budget.
Whilst many of the changes announced yesterday do not come into effect immediately, the Budget contains several measures which employers will undoubtedly need to consider over the next few months, our Employment Lawyers explain.
National Minimum Wage Increases
The most significant change for many employers will likely be the increases to the National Living Wage and National Minimum Wage as part of the Labour Government’s commitment to “Make Work Pay”.
From 1 April 2026, the following rates will apply:
- For workers aged 21 and over: £12.71 per hour (previously £12.21) – 4.1% increase;
- For workers aged between 18 and 20: £10.85 per hour (previously £10.00) – 8.5% increase; and
- For workers aged 16 and 17 (and workers on apprenticeships): £8 (previously £7.55) – 6% increase.
The National Minimum Wage increase equates to a further £900 a year for workers aged 21 and over, and a further £1,500 a year for workers aged 18 to 20 who work 37.5 hours per week.
Following the announced increases, the National Living Wage has risen by over 40% in the past five years, from £8.72 per hour in 2020. A full-time 21-year-old, earning the National Living Wage, can expect to earn £24,784.50 from April 2026, whereas in 2020 this was £17,004.00.
This increase has had a sharply divided reaction with critics arguing that younger workers are being priced out of the job market and causing others’ wages to stagnate, whilst supporters have suggested that increasing rates can only benefit younger workers.
Fiscal Drag
The Chancellor also announced that income tax thresholds will be frozen until the 2030/31 tax year. These thresholds have been frozen by successive Governments since 2022.
The tax thresholds are as follows:
- Personal Allowance before earnings are taxed – £12,570;
- Basic Rate – 20% – Earnings between £12,571 and £50,270;
- Higher Rate – 40% – Earnings between £50,271 and £125,140; and
- Additional Rate – 45% – over £125,140.
‘Fiscal drag’ is caused by employees' pay rises moving them into the higher tax bracket, which does not rise at the commensurate rate or, in the case of recent Budgets, not at all. Until 2021, the UK income tax thresholds were typically increased each year in line with inflation.
Based on the 2022 National Living Wage rate of £9.50 (£18,525.00 for a full-time worker), 32.15% of their income would have been taxed at the basic rate. In 2025, this has increased to 49.28%.
Whilst tax rates may not have risen, employees will undoubtedly be paying more tax due to fiscal drag.
Implications for Employers
The changes proposed in the Autumn Budget will undoubtedly hit the budgets of employers, particularly for employers in tight-margin sectors or in labour-intensive industries, who also have to pay 15% Employer National Insurance on top of the wage rises following last year's Budget.
Speak to Our Employment Law Experts Today
Ensure your business is prepared for the forthcoming changes.
Contact our Employment team for tailored guidance on managing wage increases, budget pressures and workforce planning.
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James Banks
Trainee Solicitor
James joined as a Trainee Solicitor at Myerson in 2024. Prior to joining the firm, James graduated from Durham University with a First Class Honours LLB. He is currently completing the SQE qualification with BPP University in Manchester.
About James Banks