What the 2026 Budget means for employers

Background

The Government published its Budget 2026 report on 28 October 2026. While much of the Budget focuses on energy costs and support for households and businesses, it also includes several measures affecting employers and their workforce.

As with any Budget, these are statements of policy rather than law. Most of the measures will be brought into effect through the Finance Bill 2026-27 or secondary legislation, while non-compete reform will require new primary legislation.

What the guidance covers

For most employers, the headline change is the annual increase to minimum wage rates. The National Living Wage (NLW) will go up by 3.9%, to £13.21 an hour, on 1 April 2027. The rate for 18 to 20 year olds will rise to £11.27, and the rate for 16 and 17 year olds, and for apprentices entitled to the apprentice rate, to £8.31. The gap between the 18 to 20 rate and the NLW has not narrowed further, despite a manifesto commitment to bring the two rates into line.

The Budget also confirms the Government’s plan to legislate on non-compete clauses. These clauses restrict an employee from working for a competitor for a period after leaving. The aim is to stop these clauses holding back recruitment by start-ups and growing businesses, or preventing workers from changing jobs, and the changes are intended to cover all sectors. The Government also plans to consult soon on how restrictive practices are used more broadly across the workforce, and expects to publish its full proposals early in 2027.

Looking further ahead, from April 2029 self-employed fathers, partners and adopters who meet the qualifying conditions will be able to receive parental pay for the first time, through a new Parental Allowance. It will also help those who miss out on statutory paternity or adoption pay because of recent, broken or irregular employment, as long as they have enough of a record of work and earnings. This comes ahead of the Government’s wider review of parental leave and pay, which is due to conclude in early 2027.

On employment taxes, headline rates of income tax and National Insurance contributions stay the same. From 6 April 2027, however, employers will need to report medical benefits, company cars and vans, and fuel benefits through payroll, with most other benefits in kind brought into payroll a year later. The Finance Bill will also clarify the tax treatment of termination payments, taking effect on 28 October 2026.

Learning points for employers

None of these announcements is legally binding until implemented, but several already have firm dates, so there is value in planning early.

Employers should build the April 2027 increases into pay budgets now. It is also worth checking pay structures for any erosion of differentials, and reviewing salary sacrifice and deduction arrangements so that they do not take pay below the new rates.

Employers using non-compete clauses should monitor the forthcoming consultation and the Government's detailed proposals, expected in early 2027.

For more information or advice, please get in touch with Philip Mahboobani in our Employment team.