The Autumn Budget 2025 has landed, and while it promises stability and growth for the wider economy, its impact on the social sector is more complex. For employers in this space, already operating under tight margins and facing workforce challenges, the measures announced could significantly reshape the financial and operational landscape.
Key Budget Highlights Affecting Social Sector Employers 
1. National Living Wage Increase
The government reaffirmed its commitment to ensuring the National Minimum Wage (NMW) remains at least two-thirds of median earnings. From April 2026, the NMW for those aged 21 and over will rise from £12.21 to £12.71, a 4.1% increase. Those aged 18-20 will see an increase of 8.5% to £10.85 per hour. Considering that an estimated 12% of people working in the charity sector are on or close to minimum wage, the increase will have a significant impact on future financial budgets.
2. Limit on Salary Sacrifice
Starting from 2029, the limit on salary sacrifice arrangements will be reduced to £2,000 per year. This includes pension contributions, which are typically deducted from gross pay and thus count towards the £2,000 limit. This change will likely impact employers in the sector who use salary sacrifice schemes to offer additional benefits to employees (e.g., pensions or cycle2work). With these limits in place, as salary sacrifice may not be as attractive once the change comes into effect.
3. National Insurance Thresholds Frozen
The government has confirmed that National Insurance (NI) thresholds for employers will remain frozen until 2031. While this freeze is undoubtedly a blow to employers, it’s important to note that the NI rate itself will remain at 15%, but the thresholds for contributions won’t rise with inflation. As a result, the proportion of employees’ earnings that are subject to NI rates will grow, contributing to the increasing costs faced by employers, particularly those with large workforces.
4. Employment Rights Reforms
From April 2026, significant changes to employment rights will take effect, including a Day 1 Right for Paternity Leave and Sick Pay. Under the new regulations, sick pay will be available to all employees regardless of their weekly income, with employees receiving 80% of their weekly pay or the Statutory Sick Pay (SSP), whichever is lower.
What Does This Mean for Employers?
1. Financial Pressures Intensify
Rising wage bills and increased tax costs may further erode margins, especially for smaller organisations. Trustees and senior teams should start thinking strategically about the financial picture of their organisation to ensure they remain financially viable despite the increased costs as a result of the budget.
2. Recruitment and Retention Challenges
While higher wages may help attract staff, especially in a competitive market, the sector’s ability to absorb these costs remains a significant challenge. Many employers may struggle to raise wages without corresponding increases in funding or other additional income, and without this, we may see an increase in service reductions or closures.
Employers should explore innovative ways to attract and retain staff, such as offering non-financial benefits, improving training opportunities, and fostering a supportive workplace culture. With recruitment challenges facing the sector, offering flexible working arrangements and career development opportunities could also be key differentiators.
3. Strategic Planning Is Critical
Employers must engage in proactive scenario planning. This includes factoring in wage increases, higher National Insurance contributions, and the broader employment rights reforms. Adapting to these financial and regulatory changes will require careful management and strategic decision-making.
Long-Term Outlook
The measures outlined in the Autumn Budget 2025 will have a lasting impact on the social sector. With the freeze on National Insurance thresholds lasting until 2031, and other cost-increasing measures, employers should start modelling their long-term financial plans with a focus on sustainability. Those that are proactive in preparing for these changes will be better positioned to navigate the evolving regulatory and financial landscape.
Final Thoughts
The Autumn Budget 2025 brings mixed news for employers in the social sector. While it signals progress in terms of workforce rights and pay, the financial implications could be overwhelming, particularly for smaller and underfunded organisations. The priority for employers is to seek more sustainable funding and income streams to prepare for a future where cost pressures and regulatory demands will only increase. The time to plan and adapt is now.
