Budget 2025: Wage increases and NI changes put employers in a very difficult position
Budget 2025: Wage increases and NI changes put employers in a very difficult position
Subscribe to the Businessin Wales daily newsletter for FREE here.
Months of uncertainty have abated as the much-anticipated – and feared – budget has been delivered by the Chancellor.
The rumour mill in the build-up has created great uncertainty, but now there is clarity it’s important to reflect on what this means for businesses in Wales.
There is a full appreciation of how pressured the public purse is right now, but that appreciation needs to be reciprocated – not taken for granted.
Early in November, before the budget, the Senedd approved a new approach to business rates that rebalances the pressure away from retail businesses to larger properties at the other end of the market.
However, the higher multiplier would not apply to properties occupied by the public sector, including hospitals, surgeries, schools, colleges, museums, universities, courts and police stations.
In the budget itself, there were increases to the National Minimum and Living Wage, ranging between 4% – 8.5%.
Most employers I know love being able to offer someone a job, a means to feed their kids and pay their mortgage. It’s one of the main privileges and sources of pride in running a business.
Private sector employers aren’t penny-pinchers trying to find ways to skirt the rules. They’re in touch with the reality of how tight margins are right now, and the pressure they’re seeing from customers who are at breaking point after years of brutal inflation.
The increase in the National Living Wage, but more punishingly the further changes to the NI contributions, put employers in a very difficult position – deciding whether to freeze hiring, cut their headcount, or pass on the cost to cash-strapped customers.
For our own business, our NI contributions in our 2025 financial year were more than 2023 and 2024 combined.
The changes to employer National Insurance are particularly acute. Since April 2025, the rate increases and the threshold drop combined means businesses now pay NI on significantly more of each employee’s earnings.
For a business with ten employees on the National Living Wage, this represents an additional cost of several thousand pounds annually – money that could otherwise go toward training, investment in equipment, or simply keeping the doors open during what remains a challenging economic climate.
The doubled Employment Allowance to £10,500 helps, but primarily benefits only the very smallest employers.
Since 2022, the National Living Wage has increased by 34%, so while the increase in 2026 is relatively modest, it is the cumulative pressure that is created in trying to make up the difference from the situation coming out of Covid.
Wages need to increase – the cost of living crisis has left deep scars across society, but this kind of wage growth is unsustainable.
If this approach is to continue, we need to see a bit of reciprocity – more public pension funds being invested into their communities to support the growth of the entrepreneurs that are staking their livelihood on the growth the economy needs rather than taking the safe bet of the secure pension and flexible work patterns in the public sector.
But most importantly is the sense that the private sector is carrying the burden right now – and with 62% of private sector employment in Wales being with SMEs (under 250 employees) it feels about time that there was more recognition of the role they’re being asked to take in building the nation for future generations.
My personal worry in all of this is the high likelihood that agentic AI will begin to create significant value for business owners in 2026, and that employers will be forced to question recruitment strategies at a time that a viable and cost-effective alternative emerges.
The vital public services that we rely on – health, social care, education, etc. – are not going to see a miraculous improvement in years to come and will likely only get tougher.
If we are to continue to seek to see these services directly funded by wealth and job creators, we need to have a more open and fair dialogue on how that risk is spread and shared.
Want more from Businessin Wales? Why not follow us on our socials
Listen to the Businessin Wales podcast
