If you’re anything like me, you’ll probably find watching the release of the budget in real time difficult, sometimes because of what is being announced or potentially the antics that occur in the Commons (usually a combination)!

It’s worth mentioning that whilst there were announcements within the budget that could impact you as a  business owner depending on what sector you are in, our focus is on the announcements that are likely to have an impact on HR strategy, specifically for SMEs.

The most obvious impact is that from April 2026 the living wage will increase to £12.71 per hour, therefore businesses may see a direct increase in their wage bills. In terms of the minimum wages for next year, we’ll be looking at the following:

	NMW rate	Increase (£)	Increase (%)
National Living Wage	£12.71	50p	4.1
18-20 year olds	£10.85	85p	8.5
16-17 year olds	£8.00	45p	6.0
Apprentice rate	£8.00	45p	6.0

There are a couple of potential knock on effects to consider as a result of the increase in minimum wage. The first is the increases to wages for those who are already paid above the minimum wage either to preserve internal pay structures or due to expectations from the wider workforce.

Employers will also need to review their salary sacrifice schemes to ensure that any existing schemes don’t take employees below the minimum wage threshold after salary sacrifice deductions are made. The new announcement made on Wednesday was that from 2029, the tax and National insurance contributions on salary sacrifice will be capped at £2,000 per person, per year. Any amounts over this will be subject to employer and employee national insurance contributions.

It has been confirmed that income tax levels will remain frozen for a further three years, taking us to 2031. A reminder of the thresholds for England, Wales and Northern Ireland (Scotland sets its own) are:

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	Over £125,140	45%

There were two other announcements that may be of particular interest. The first being that the government has committed £820 million towards a new ‘youth guarantee’ over the next three years which promises to give access to every 18-21 year old in England to apprenticeships, training and education opportunities or help in finding employment. They also announced funding to make training for people under 25 years old on apprenticeships, free for SMEs.

What this means for SME HR strategy in practice

For a typical SME, the Budget is likely to mean higher staffing costs affecting decisions around:

• Recruitment
• Pay reviews or salary increases
• Benefit packages
• Workforce planning

What should you focus on in your HR Strategy?

• You should review your pay structures carefully, especially if your employees earn minimum wage or near to minimum wage. You’ll need to consider how failing to increase pay for those who earn above national minimum wage already, could cause tension or higher turnover of employees.
  
• You may want to re-evaluate your benefit packages and pension offerings. For firms offering generous pension contributions via salary sacrifice, consider whether this is the best solution for the long term given the reduced national insurance contributions relief that will be coming into force in 2029. You might want to explore non salary benefits as one alternative.
  
• Communicate with your employees transparently. Employees may expect wage rises but with rising costs on the employer side, SMEs need to manage expectations realistically. Consider explaining the broader cost environment and emphasising other benefits e.g. flexible working or upskilling.

Whilst not included in the budget and fairly hot off the press, it was announced last night that the government has u-turned on their commitment to offer all workers protection against unfair dismissal from day 1. Instead, they are looking to introduce the right at the 6 month stage, a reduction from the current 24 months.

So, that’s a whistlestop tour of the budget and some ideas about how it will impact SMEs in terms of their HR strategy. Ultimately a lot of the changes that will affect SMEs and their HR strategy will come from the Employment Rights Bill however, there is still plenty of food for thought from this recent budget.