Employment taxes: Cumulative impact and workforce considerations 

The Chancellor’s Autumn Budget contains several measures that will significantly affect payroll, employment costs, and net pay for employees across the UK.

Beyond pensions, three areas stand out: the National Minimum and Living Wage increases, frozen Income Tax and NIC thresholds, and frozen Plan 2 student loan repayment thresholds. These changes are set to have cumulative effects over the next several years, and businesses should plan accordingly.

National minimum and living wage increases from April 2026 

As announced yesterday and confirmed in the Chancellor’s Autumn Budget today, significant increases to the National Minimum Wage and National Living Wage will take effect in April 2026. 

Age group / category	Current rate	April 2026 rate	% Increase
21+ (National Living Wage)	£12.21	£12.71	4.1%
18–20	£10.00	£10.85	8.5%
16–17	£7.55	£8.00	6.0%
Apprentice rate	£7.55	£8.00	6.0%

Employer implications: 

• Increased wage bills, particularly in sectors with large numbers of low-paid or entry-level staff, including retail, hospitality, care, logistics, and leisure. 
• Potential need to rebalance pay bands and maintain pay differentials above the new minimum. 
• Requirement to reforecast total payroll costs to accommodate both the minimum wage uplift and associated NICs. 

Employee perspective: 

• Genuine uplift in gross pay for low-paid and younger workers. 
• Helps mitigate cost-of-living pressures, particularly for part-time and younger staff. 

Income Tax and NIC thresholds frozen until 2031 

The Budget confirmed that Income Tax and National Insurance thresholds will remain frozen for an additional three years from 2028. 

Implications: 

• Employees with rising salaries will see more of their income taxed at higher marginal rates, even if rates remain unchanged. 
• Employers must update payroll projections and monitor cumulative NIC costs. 
• Communication with employees is key, as net pay growth may appear smaller than expected, potentially affecting morale and retention. 

Plan 2 student loan repayment thresholds frozen 

The Plan 2 student loan repayment threshold is also frozen for the next three years. 

Key implications: 

• Graduates will start repaying sooner as salaries rise, resulting in higher absolute deductions from take-home pay. 
• Payroll systems must continue to calculate repayments accurately under the frozen thresholds. 
• Employees may perceive a larger drag on net pay, reinforcing the need for clear internal communications. 

Cumulative impact and workforce considerations 

Measure	Employer effect	Employee effect
Minimum / Living Wage	Higher payroll costs, possible rebanding of pay scales	Higher gross pay for low-paid workers
Income Tax / NIC threshold freeze	Gradual rise in employer NICs	Lower net pay growth for rising earners
Plan 2 student loan freeze	Minimal direct employer cost	Higher repayments for graduates as salaries rise

Strategic considerations: 

1. Total reward modelling: Review how gross pay, net pay, and benefits interact across the workforce. 

2. Pay band review: Consider rebanding or restructuring pay scales to maintain internal equity and career progression. 

3. Payroll forecasting: Model impacts on total payroll costs, NIC liabilities, and employee take-home pay. 

4. Communication strategy: Employees should understand why gross pay increases may not fully translate to net pay growth. 

5. Engagement and retention planning: Pay and benefit transparency is increasingly important in a market with multiple cost pressures. 

Our view 

The combination of minimum wage increases, threshold freezes, and student loan repayment rules will affect both employers and employees in nuanced ways. 

• Low-paid workers will benefit from higher gross pay. 
• Mid to higher earners may see net pay growth eroded due to frozen thresholds. 
• Employers must plan for increased total employment costs while ensuring pay structures remain fair, competitive, and compliant. 

Businesses that model these changes now and communicate clearly with their workforce will be better prepared to maintain engagement, manage cost pressures, and ensure reward strategies remain effective.