BUDGET 2026

The minimum wage rises 3.9%, thresholds stay frozen and employer National Insurance is untouched. The bigger story for business owners is what's already on its way.

A Budget that leaves payroll largely alone…thankfully…

Today's Budget was John Healey's first as Chancellor and was signposted to be light touch and constrained given the fiscal rule challenges. The government had already ruled out raising income tax, employee National Insurance and VAT.

The most useful headline for businesses and worker payroll is what didn't change. The employer National Insurance rate stays at 15%, the secondary threshold stays at £5,000 and the Employment Allowance stays at £10,500. However, none of lobbying for youth-specific cuts appears to have made the final budget.

That means the cost base employers have been living with since April 2025 is now the settled position for the foreseeable.

Minimum wage increased by 3.9% including younger workers

The National Living Wage for workers aged 21 and over will rise from £12.71 to £13.20 an hour from April 2027, a 3.9% increase. The rate for 18 to 20 year olds rises by the same percentage, from £10.85 to £11.27. Final rates for under-18s and apprentices should be confirmed in the Budget documents.

Two things stand out. First, the increase lands slightly above the Low Pay Commission's own central estimate of £13.18, but well below the 5.5% some had feared. Second, applying the same percentage to the youth rate effectively ends the manifesto commitment to bring the 18 to 20 rate into line with the adult rate during this Parliament. After last year's sharp rise in the youth rate, that's a concession to employers worried about hiring young people, and it will be read by others as a broken promise.

For a full-time worker on 37.5 hours a week, the new rate adds roughly £955 a year to gross pay. Once employer National Insurance and a 3% auto-enrolment pension contribution are added, the cost to the employer is closer to £1,130 per head, before holiday pay. So whilst the increase is less than had been feared by business, it’s still another major cost increase.

Thresholds stay frozen, and fiscal drag keeps working

The personal allowance and the National Insurance thresholds remain frozen until April 2031, as set out in last year's Budget. In practice this means that every pay rise, including the minimum wage increase, will pull more earnings into tax and National Insurance. A full-time worker on the new National Living Wage will earn around £25,740 a year, comfortably above a personal allowance that hasn't moved since 2021. Workers will see a bigger gross figure in April 2027 and a smaller rise in take-home pay than they might expect. Always an interesting question for payroll teams to answer come April.

The Miles Add Up

The tax-free mileage rate of 55p a mile for the first 10,000 business miles, raised temporarily in May, is now permanent, and the rate above 10,000 miles rises from 25p to 35p.

The trading allowance rises from £1,000 to £3,000 from April 2027, which will help people earning small amounts on the side of their main job.

There was also a commitment to fund more HMRC compliance work and to strengthen its powers to collect overdue tax from those who ignore repeated contact, alongside a reform of Self Assessment so that people make smaller, more regular payments. Neither will change how PAYE is run day to day, but both mean you can expect HMRC to have more resources and less patience.

The Budget is quiet, the employment regulation calendar is not

There was little new on employment law today, and that's partly because so much is already moving. The Employment Rights Act 2025 is being implemented in stages. Statutory Sick Pay became a day-one entitlement in April 2026 with the lower earnings limit removed. The Fair Work Agency was set up on 7 April 2026 and is taking on enforcement of minimum wage, holiday pay and sick pay. From January 2027 the cap on unfair dismissal compensation is due to be removed.

For the temporary labour market, the bigger shifts have already happened or are arriving soon. Since April 2026, recruitment agencies, or the end client where there's no agency, have been responsible for PAYE on workers supplied through umbrella companies. Next comes regulation of umbrella companies themselves, which the Employment Rights Act brings within the definition of employment businesses and under the Fair Work Agency's remit from 2027. A minimum wage rise of this size, enforced by a better-resourced agency with powers over holiday pay, increases the risks and consequences for anyone in the supply chain whose pay calculations don't stand up.

What business owners and employers should do now

• Start with the numbers. Work out what the April 2027 minimum wage increase will cost your business once employer National Insurance, pension contributions and holiday pay are included.

• Build the increases into budgets, pricing and client rates now, rather than absorbing it in April.

• Check which roles sit close to the new floor, particularly where hours are averaged or deductions for uniforms or accommodation apply, because those are the cases most likely to slip below the minimum without anyone noticing.

• If you use agencies, umbrella companies or other intermediaries, ask now for evidence of how they calculate holiday pay and sick pay, and who is accounting for PAYE, because the Fair Work Agency will be asking the same questions and the liability can land with you.

  
  

This was a Budget that mostly confirmed the direction set last year….
For employers and business owners, the absence of new costs is welcome but the total cost of employment cost increases will add up. The coming year is less about new tax rules and more about making sure the existing ones are being followed, by you and by everyone in your supply chain.
For workers, the minimum wage rise is real but will be partly eaten by frozen thresholds and inflation.