Today, Rachel Reeves, Chancellor, delivered what has been described as her “high-stakes” Budget. However, in a strange turn of events, just before Keir Starmer went into PMQs, the Office for Budget Responsibility released early, “in error,” the report which sets out Reeve’s plan; this, understandably, caused uproar during PMQs and subsequently whilst Reeves stood up to deliver the Budget. To cut through the confusion and given there is a lot to digest, we have put together a bite-sized summary of important changes which may affect employees.
Income Tax
A highly anticipated aspect of the Budget was whether the Government was going to increase income tax rates. However, it has now been confirmed that there will continue to be a freeze on income tax and National Insurance thresholds until 2031 (following on from the freeze of the same thresholds the Conservative government made in 2021 until 2028). As a reminder, the rates are as follows:
| BAND | TAXABLE INCOME | RATE |
| Personal allowance | First £12,570 earned | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | £125,140 | 45% |
Personal allowance is then reduced by £1 for every £2 earned between £100,000 and £125,140.
Please also note that the above is only relevant to England, Wales and Northern Ireland, as Scotland sets its own.
Pension
Some employers offer what are known as “salary-sacrifice” pension schemes. These schemes allow employees to ‘sacrifice’ a portion of their monthly salary directly into their pension (before tax), which the employer will often match. Salary sacrifice schemes also mean that employees pay less National Insurance as their take-home pay is lower.
However, the Budget has set out that from April 2029, salary-sacrificed pension contributions of over £2,000 per year will be subject to National Insurance contributions. This is currently how other employee pension contributions are taxed. The aim of this policy is, of course, to increase National Insurance contributions. Essentially, there will now be a tax on saving into your pension if you are part of a salary-sacrifice pension scheme and are over the annual £2,000 threshold.
National Minimum Wage
From April 2026, there will be the following increases in the National Minimum Wage:
| Over 21s | £12.71 per hour (an increase of 50p) |
| 18-20 year olds | £10.85 per hour (an increase of 85p) |
| Under 18s and apprentices | £8 per hour (an increase of 45p) |
There have also been increases in the National Living Wage. Whilst there will be these increases, Reeves confirmed there will be no change to National Insurance contributions, which were increased in last year’s Budget.
Apprenticeships – Youth Guarantee Scheme
It has been confirmed that the Government will be investing in a new Youth Guarantee Scheme over the next 3 years, which aims to get young people who have not been in education or a job for 18 months, guaranteed a paid work placement. Small to medium-sized companies will also be eligible for free funding for the training of apprentices under the age of 25.
This blog was written by Beatrice Young, Solicitor at didlaw.
