Autumn Budget Brings Few Hopes for Employees

The Autumn Budget brought a raft of headline-grabbing announcements, mostly because of the biggest increase in taxation in 30 years and a £70 billion boost to public spending. 

There has been a lot of debate about the fairness and likely impact of the proposed changes on many different groups, from farmers to private schools to GPs and charities. But the impact of the Budget changes on employees has been less discussed, even though they affect almost 1.3 million people in Wales.  

Increase in minimum wages 

The Chancellor announced an increase in all minimum wage rates.  The National Living Wage, for all employees aged 21 and over, rises to £12.21 an hour from April 2025, a 6.7% increase.  The uplift brings the statutory minimum closer to the real Living Wage rate of £12.60 an hour.  There are increases for younger workers too, with the rate for 18-20 year olds rising to £10 an hour and that for under-18s and apprentices set at £7.55 an hour.   

There should be welcome extra cash in pay packets as a result, with a full-time worker set to gain £1,400 in extra wages over the next year.  The Bevan Foundation has estimated that around one in ten employees will gain from the increase in the National Living Wage. 

Employee taxes 

It was no surprise that the Chancellor maintained the freeze on personal tax allowances set by the previous government until March 2028 and fulfilled the manifesto pledge to hold the rate of income tax at current levels. The thresholds at which employees pay National Insurance Contributions and the contribution rates have also been frozen until the same date. As is widely recognised, this is a tax rise by the back door, albeit fairly modest and one that people have got used to, as rising earnings mean that a greater proportion of pay is subject to tax.  From April 2028, the outlook is rosier as personal tax allowances are set to start to rise with inflation.  

Knock-on from higher employer National Insurance Contributions 

In a surprise move, the Chancellor lowered the threshold at which employers pay NICs to £5,000 and increased the contribution rate to 15%. At the same time, she eased some of the pressure on small businesses by increasing the employment allowance to £10,000.   

The increase in employer NICs ought not to worry employees, as it is for their employer to find the extra £900 a year each full-time minimum wage worker will cost them. It is a moot point how much of the increase employers will pass on to their workers – although for minimum wage earners their headline hourly rate is protected even if any other benefits are not.  

In-work social security benefits 

In Wales, around one in ten employees receives a top-up to their wages from the social security system, mainly Universal Credit, because their income from work is not enough to meet their needs. For them, the Chancellor’s decision to increase the rate of Universal Credit by inflation must be a relief after it was frozen for several years, although the extra £13.77 a month will not go far.   

So what does all this mean? 

All increases in earnings, taxes and benefits need to be considered against longer-term trends in inflation, which can hugely erode the buying power of earnings.  The outlook to the end of the decade is pretty challenging.  The Office for Budget Responsibility forecasts that real earnings are set to rise by 2.5 per cent in 2025, but then growth will be zero to 2029/20. The Resolution Foundation has forecast that by 2028 real wages are expected to have grown by just £13 a week over the past two decades. The pressure that employees have felt is by no means over.  

Economic forecasting is rarely right, and any forecast can be upset by global or national events.  That said, it is sobering indeed that the Budget could bring so few benefits to Wales’s 1.3 million employees.