How the Autumn Budget Will Impact HR
On the 30th October 2024 the new labour government delivered its first budget to the House of Commons. Chancellor Rachel Reves described it as a budget to ‘rebuild’ Britain. The budget is set to raise public spending, tac and government borrowing compared to the previous government’s plans. For HR professionals, understanding the implications of these budgetary changes is essential as the could reshape business strategies, hiring practices and employee management.
Key Changes and Implications for HR
- Employers’ National Insurance Contribution (NICs) Increase: From April 2025, the rate of employers’ NICs will rise from 13.8% to 15%, with the threshold for contributions dropping to £5,000. Reeves said that “she doesn’t take this decision lightly” and acknowledged that there will be impacts felt outside of business with this decision. However, it was confirmed that to aid smaller businesses, employment allowance will be raised from £5000 to £10,500. This will mean that 865,000 employers will not pay NI at all next year, and over one million will pay the same or less than they did last year. While the adjustment aims to address fiscal shortfalls, HR leaders need to anticipate potential budget reallocations and prepare for possible impacts on staffing and operational expenses.
Impact: Higher employer NICs may lead to hiring slowdowns or freezes with businesses potentially seeking cost-cutting measures to offset the increase. This change could also pressure HR departments to balance workforce needs with tighter budgets and maintain productivity without adding financial strain.
- National Living Wage (NLW) and Minimum Wage Increases: in April 2025, the National Living Wage will rise to £12.21 per hour from £11.33 per hour, while the NLW for 18–20-year-olds will climb to £10 per hour from £8.60 and is the largest increased rate at 16.3% on record. While these wage increases are a positive for employees it will place a heavier financial burden on employers. The government said this marks a significant move towards delivering a genuine living wage.
Response from the Sector: Industry voices such as those from the Chartered Institute of Payroll Professionals, caution that smaller businesses particularly in sectors like retail and hospitality, may struggle to absorb these costs. For HR, this could mean re-evaluating compensation structures and workforce planning to manage increased payroll expenses.
- Employment Rights Bill and Regulatory Shifts: Alongside fiscal policies the Chancellor also reiterated Labour’s commitment to strengthening employee rights, including enhancements through the Employment Rights Bill. While these changes are intended to bolster job security and fair treatment, they add to the compliance workload for HR teams, necessitating updated training, policies, and procedures to align with new legislation.
Considerations for HR: With potential hiring freezes or layoffs that may occur, ensuring that any workforce reductions comply with the evolving new labour laws will be crucial.
- No Further Freeze on Personal Tax Thresholds: Contrary to many pre-budget predictions, Reeves announced that there will be no extension of the freeze on income tax and national insurance thresholds. Instead, these thresholds will be adjusted in line with inflation starting from 2028-29. This decision will help to avoid taking more money from working peoples pay slips.
Impact: This move will signal relief for employees, which could positively influence job satisfaction and retention. HR leaders may view this as a buffer against potential workforce discontent related to pay and benefits.
- Abolishment of Non-Dom Tax Status: They announced that from April 2025, non-dom tax status will be abolished and replaced by a new residence-based scheme for temporary workers. Reeves stated that: “If you make Britain your home, you should pay taxes here too.”
Implications: For HR professionals managing global mobility and expatriate staff, this change necessitates revisiting tax planning strategies and compliance protocols. Companies with a significant number of international employees will need to prepare for the potential impact on talent attraction and retention.
- State Pensions Uprated: In a bid to support retirees, Reeves committed to a 4.1% increase in the basic and new state pension for 2025-26, maintaining the triple lock. This translates to a £470 annual increase for over 12 million pensioners.
HR Perspective: For HR departments managing pension schemes, this upholding of the triple lock offers some continuity and assurance for employees nearing retirement. However, the introduction of inheritance tax on pensions may require adjustments to financial planning advice provided by staff.
7. Boost for Productivity and Targeting Economic Inactivity The ‘Get Britain Working’ initiative is set to inject £240 million into 16 local ‘trailblazer’ projects designed to support people who are economically inactive, including those with disabilities and long-term health conditions. These projects aim to offer tailored work, health, and skills support to help people re-enter the workforce.
What This Means for Recruitment: The push to reduce economic inactivity could increase the available talent pool, providing new recruitment opportunities. HR and recruitment teams may need to collaborate with these local initiatives to tap into this newly mobilized workforce and offer roles that align with their skills and needs.
8.Appointment of a Covid Corruption Commissioner To address fraud linked to Covid-related schemes, Reeves announced the appointment of a Covid corruption commissioner. This role will collaborate with HMRC, the Serious Fraud Office, and the National Crime Agency to recover an estimated £7.6 billion lost to fraud.
Relevance to HR: While not directly impacting HR operations, the focus on fraud recovery could influence public trust in businesses and government-funded support. Companies may need to ensure they remain compliant and transparent with any Covid-related funding or benefits they have utilized.
Strategic Adjustments for HR Leaders
Navigating Cost Pressures With significant budgetary pressures ahead, HR leaders should proactively work with finance teams to explore innovative cost-management solutions. This might include leveraging technology for operational efficiencies, reassessing benefit packages, or exploring flexible working models that could reduce overhead costs.
Preparing for Workforce Implications The increase in employer NICs and wage hikes could prompt employers to re-examine their staffing models, leading to a stronger emphasis on productivity improvements. HR teams may need to advocate for investment in training and development programs that can enhance employee output without proportionate increases in headcount.
Enhancing Employee Engagement Despite cost challenges, maintaining high morale and retention will remain a priority. Implementing non-monetary incentives, such as career development opportunities and wellness programs, can help offset the pressures of financial constraints.
Reeves budget has addressed the broad economic needs, it presents a mixed landscape for HR professionals. The increased financial commitments for some businesses will require strategic adjustments, particularly for small employers. For HR teams, adapting to these changes will mean staying agile, advocating for policies that balance employee well-being with business sustainability and preparing for new regulatory challenges on the horizon.
