Spring Budget 2025

The Spring Budget has sent shockwaves through the business community, confirming a significant increase in Employer National Insurance Contributions (NICs) set to impact organisational finances and reward strategies.

Andrew Insley, CFO of Advania UK, highlighted the broader implications: "The Employer NICs increase from 13.8% to 15% on salaries above £5,000 is particularly challenging. Businesses have re-budgeted, paused investments, and are feeling substantial pressure. This broad-brush approach disproportionately impacts SMEs, the backbone of the UK economy."

The upcoming business rates change will significantly impact Retail, Hospitality and Leisure (RHL) sectors, with relief dropping from 75% to 40% on 1 April 2025, effectively increasing costs for these businesses after a period of pandemic-era support. This reduction means businesses will face higher tax bills, potentially challenging their financial recovery and operational sustainability.

Matt Russell, CEO of Zest, comments: "Increased National Insurance costs are pushing businesses to the brink. Currently, 18% of hospitality firms are planning redundancies. Many are pivoting to more cost-effective reward strategies, focusing on comprehensive employee benefits packages instead of salary increases."

Pensions: A Missed Opportunity

The budget drew significant criticism from the pensions sector for its lack of meaningful reform.

Lisa Picardo from PensionBee expressed disappointment: "It’s disheartening to see pensions sidelined. There’s growing evidence that millions of Britons are not saving enough for retirement, yet the government has overlooked potential reforms that could help individuals build long-term financial security."

Key Pension reform proposals left unaddressed include the 10-day pension transfer switch guarantee, expansion of auto-enrolment for younger and lower-paid workers, and universal rate of tax relief to support lower earners.

Zoe Alexander from the Pensions and Lifetime Savings Association (PLSA) offered a more measured response: "While this Spring Statement didn’t focus on pensions, we expect the upcoming Pensions Investment Review and Pension Schemes Bill to address these critical issues."

Welfare and Economic Challenges

Paul Mason, CEO of Lantern, raised concerns about welfare cuts: "The government’s welfare reductions, such as cutting the health element of Universal Credit, will hit society hard. At a time of volatile living costs and interest rates, we need a collaborative approach to tackle the personal debt crisis."

Despite challenges, there were positive signals for technology sectors. Andrew Insley noted encouraging developments in AI: "It’s positive to see the government backing its ambition to make the UK an AI powerhouse with concrete actions. The targeted incentives and investment commitments are the bold moves the industry has been calling for."

The focus for Reward and Payroll will be preparing for increased employment costs due to NIC changes. Mitigating these costs might include exploring more flexible, non-salary compensation strategies and a renewed focus on comprehensive benefits packages. Supporting employees through economic uncertainties will also remain a challenge.

The 2025 Spring Budget presents a complex situation for reward, HR, and pensions. While challenges are evident, opportunities also exist for strategic, innovative approaches to employee compensation and support.