UK Budget 2025:
What It Means For Working People
The latest UK Budget introduces higher minimum wages and uprated benefits alongside frozen tax thresholds, shifting the balance of take-home pay.
The 2025 UK Budget focuses on “stability, investment and reform”, with a clear political message of cutting the cost of living while keeping debt under control. For working households, the headline story is that wages and some state support are going up, but tax thresholds and new rules on salary sacrifice and benefits will quietly pull more money back to the Treasury over the next few years.
Key Budget Changes For Workers
National Living Wage Rise
The National Living Wage for workers aged 21 and over will rise by 4.1% in April 2026, from £12.21 to £12.71 an hour, worth around £900 a year extra for a full‑time worker.
Youth Rates Boost
Minimum wage rates for 18–20‑year‑olds and apprentices will increase by 8.5% and 6% respectively, giving younger workers a noticeable pay boost but also increasing employers’ wage costs.
Benefits & Pensions
Universal Credit and several working‑age benefits will be uprated in line with recent inflation, while the State Pension will rise by 4.8% under the triple lock, increasing the income of millions of low‑to‑middle earners and pensioners in work.
Taxes, Thresholds and Take‑Home Pay
Frozen Thresholds: Personal income tax and National Insurance thresholds will be frozen for three more years, which means pay rises will drag more workers into higher tax bands and increase what they pay, even though the basic tax rates are unchanged.
Salary Sacrifice Cap: A new cap on salary‑sacrifice schemes and the plan to charge employer and employee National Insurance on pension salary sacrifice above £2,000 from 2029 will reduce the tax advantage of some workplace benefits for middle and higher earners.
Wealth Adjustments: Alongside this, the government is tightening some reliefs and making targeted changes to property and investment taxes in the name of a “fairer” system, shifting more of the burden towards wealth and assets while still relying heavily on income from work.
Cost of Living, Bills and Public Services
- Energy & TravelThe Budget includes an average £150 reduction on energy bills, plus a one‑year freeze on regulated train fares and prescription charges, offering short‑term relief for commuting and household costs.
- NHS & TransportSignificant capital spending is planned for transport, energy and the NHS, with over £120 billion in additional investment and a commitment to more neighbourhood health centres.
- Business & JobsBusiness rates relief for many high street firms and extra support for skills and youth employment aim to protect jobs and local economies, although some sectors still warn that higher wage and tax costs could feed into prices or hiring decisions.
Pros and Cons For Different Workers
Low-paid Workers
Benefit most from the higher National Living Wage and uprated benefits, but they are also the most exposed if employers respond by reducing hours, slowing recruitment or passing on costs through higher prices.
Middle-income Earners
Squeezed by frozen tax thresholds, reduced tax breaks for home‑working and pensions, and ongoing high housing and childcare costs, so pay rises may not feel like real progress in take‑home terms.
Higher Earners
Face tighter treatment of salary sacrifice, some investment tax changes and pressure on high‑value property, narrowing the gap between how work and wealth are taxed but also increasing their overall liabilities.
How The Budget Affects Workers (At A Glance)
Low‑paid & Minimum Wage
Higher statutory pay and uprated benefits.
Risk of reduced hours, slower hiring, and higher prices.
Middle‑income Employees
Some support on bills and public services.
Frozen tax thresholds and reduced tax advantages.
Higher Earners
Clarity on rules and long‑term tax planning.
Tighter limits on salary sacrifice and asset‑based reliefs.
See how this affects you
Use our updated calculator to model your specific salary, tax code, and pension contributions.