A recent survey by Towers Watson reveals that a third of UK employers plan to scale back pay rises in 2025, citing rising employment costs following last year’s budget changes. The National Insurance Pulse Survey showed that salary budgets fell by approximately 1% among businesses that opted to reduce salary increases this year.
From April, employer National Insurance contributions will increase to 15%, while the threshold at which these contributions apply will drop from £9,100 to £5,000. Industry bodies warn that these changes could make it harder for companies to recruit and may force some businesses to cut jobs to manage costs.
According to Towers Watson, planned salary increases will average 3% next year. To offset the financial burden, 41% of employers plan to tighten hiring scrutiny, 28% anticipate workforce reductions, and 8% intend to impose hiring freezes. Other cost-saving measures include adjustments to pension salary sacrifice schemes and reductions in non-salary benefits.
“We were starting to see salary budget increases moving down towards pre-pandemic levels, and the change to the employer national insurance contributions has accelerated this. Employers will need to be smart about how they allocate the salary budget increases, ensuring key and high-performing talent is being rewarded effectively, ” said Lindsey Clayfield, senior director for work and rewards at Towers Watson.
Towers Watson’s findings align with Brightmine’s recent pay award analysis, which reported a median annual pay rise of 3% in the three months to January.
The British Retail Consortium has raised concerns about the impact on part-time workers, warning that the lower employer NIC threshold will make hiring part-time staff more costly. The organisation predicts that up to 10% of part-time retail positions could be at risk due to these tax hikes.