News & Events
Budget predictions: Pay-related changes
9th October 2024
As we approach the upcoming Budget announcement, businesses and individuals are preparing for potential changes that could impact wages, taxes, and pensions. Pay-related issues are always a focal point of any Budget, and this year is no exception. With the current economic landscape, a competitive job market, and ongoing cost-of-living concerns, there is heightened anticipation around measures the government might introduce. In this article, Rowleys Payroll Manager, Rebecca Gotch, shares some key predictions for the pay-related changes that could be announced in the Budget, and the potential implications for both employers and employees.
1. National Living Wage increase
Labour has expressed its commitment to increasing the National Minimum Wage, aiming to turn it into a genuine living wage. The Low Pay Commission currently projects that the National Living Wage will rise to £11.89 (with a range of £11.61–£12.18) from April 2025.
For businesses, particularly those in sectors reliant on minimum-wage employees, this increase could lead to higher staffing costs. SMEs, in particular, will need to carefully consider the financial impact and may need to adjust budgets and staffing strategies to accommodate the rise.
2. Pension contributions & auto-enrolment
Workplace pension schemes are likely to see changes aimed at improving retirement outcomes, this might include:
- Removing the qualifying earnings threshold, which will increase the employee and employers pension contributions.
- Increasing minimum contribution rates, which would mean higher costs for both employers and employees.
- Decrease the earnings trigger – which would bring more lower-paid employees into auto-enrolment
These changes could represent an additional burden on businesses, but they would also be crucial for ensuring employees have better pension outcomes in the future. Both employers and employees should start preparing for the likelihood of higher contribution rates, and businesses may need to factor in these increased costs when planning for the long term.
3. Public sector pay increase
The public sector has faced significant pressures in recent years, and many are expecting a pay rise for key workers, such as those in the NHS, education, and policing. Inflationary pressures, alongside the need to retain and attract talent in critical public services, make a pay increase likely.
However, any significant pay increases could place additional pressure on public finances, which may lead to cuts or shifts in funding elsewhere. Employers in the private sector might also need to consider how rising public sector wages could affect wage expectations across the economy.
4. Tax threshold adjustments
Another key prediction relates to tax thresholds, such as the personal allowance and higher-rate threshold. There is a possibility these thresholds may either be frozen or adjusted.
If the government opts to freeze thresholds, more individuals could be pushed into higher tax brackets as wages rise, effectively increasing their tax liability. This would reduce take-home pay and could affect disposable incomes, which would be particularly challenging for those already struggling with the cost of living.
5. Payrolling benefits in kind
The Conservative Government had introduced a change to mandate the payrolling of benefits in kind from April 2026. While this has been on the horizon, Labour’s plans for the future of P11D filing and payrolling are yet to be clarified.
We predict that Labour will confirm these changes, bringing further certainty to employers about how benefits in kind should be reported and taxed. Payrolling benefits in kind can simplify the tax process for both employers and employees, but it’s important for businesses to understand the implications and prepare for this change in advance.
Find out more about payrolling benefits in our guide for employers.
The October Budget promises to bring significant changes to the landscape of pay, with potential implications for wages, pensions, and taxation. The expected rise in the National Living Wage will increase costs for many businesses, while changes to pension contributions may add to this financial burden. Public sector pay rises could have a wider economic impact, and adjustments to tax thresholds could reduce take-home pay for many employees. Finally, the future of payrolling benefits in kind looks set to be clarified, providing businesses with the certainty needed to comply with new tax regulations.
For information on other areas that might also be featured in the Budget read our Predictions for the October 2024 Budget article.
As always, Rowleys will continue to monitor developments and provide guidance to help businesses navigate these changes effectively. Now is the time to review your payroll strategies, prepare for potential cost increases, and ensure compliance with any new regulations that may emerge. Our Payroll Health Check is the perfect way to do this.
Our CIPP-qualified payroll experts manage all aspects of payroll. We work with hundreds of clients of different sizes To find out more about our payroll services, please contact Rebecca Gotch, either by email: rebecca.gotch@rowleys.biz or call: 0116 282 7000.