The latest Budget is about to reshape the UK labour market, and 2026 will feel the impact first. 📈

The 2025 Budget brings several changes that will shape the UK labour market over the coming years - particularly for workers, employers and the recruitment landscape.

While these policies were introduced under the 2025 Budget banner, their real impact lands next year and beyond, meaning now is the moment for employers and workers to get ahead of the curve.

From frozen tax thresholds to new rules around savings, pensions and travel, the changes arriving in 2026 will influence take-home pay, benefit structures, recruitment expectations and business planning across every sector. Some adjustments will feel subtle. Others will hit fast.

But together, they create a labour market that’s shifting beneath our feet.

If you’re preparing for 2026 workforce planning, then buckle up, here’s what’s coming.

1. Frozen Tax Thresholds – Continued Pressure on Earnings and Payroll

Income tax thresholds will remain frozen heading into 2026, extending fiscal drag for yet another year. This means that as wages increase, even modestly, more workers are nudged into higher tax bands.

How this affects 2026:

Workers:
Take-home pay may not feel the benefit of pay rises. Expect more conversations about wage increases that offset rather than improve net income.

Employers:
Pay pressure will increase. Businesses reliant on hourly labour or shift-based work could see rising wage expectations that push up operating costs.

Recruitment landscape:
Candidates may look for roles with stronger wage progression, overtime availability or more competitive total reward packages.

2. National Insurance on Pension Salary-Sacrifice – A Future Reform Worth Preparing For

Although the major shift to apply NI to pension salary-sacrifice doesn’t fully land until later in the decade, employers and workers will start planning for it throughout 2026.

Workers:
Pension contributions may feel less financially rewarding in the future, prompting some to re-evaluate participation.

Employers:
2026 will be the year benefits packages are reviewed and redesigned. Businesses offering clear, well-communicated pension support will stand out.

Recruitment implications:
The value of benefits, not just salary, will play a bigger role in candidate decision-making, particularly in competitive sectors.

3. Higher Taxes on Dividends, Savings and Property – Landing in April 2026

From April 2026, taxes on dividends, savings income and certain property earnings all rise and that financial squeeze will ripple straight into the workforce.

Why this matters for 2026:

• Contractors and self-employed workers may push for higher rates or switch to permanent roles for stability.
• Anyone topping up income through investments may feel the pinch, affecting spending and career decisions.
• Employers should expect tougher pay negotiations, as candidates look to offset rising personal tax bills.

These changes will put financial wellbeing and total compensation firmly at the centre of workforce conversations in 2026.

4. Electric Vehicle Mileage Tax – Changing Travel Costs for Working People

The new EV mileage tax (designed to replace reduced fuel duty revenue) will begin shaping travel budgets, employee expenses and mobility roles from 2026 onward.

What this means for 2026 workforce planning:

Workers:
Those using EVs for work travel may see new costs, potentially influencing job choices and commuting decisions.

Employers:
Travel costs are changing. Mileage reimbursement and budgets will need updating, especially for mobile teams in care, construction, field services, and logistics. This could create a major operational shake-up.

Recruitment:
Jobs that involve regular travel may become harder to fill as rising costs influence candidate decisions.

5. Regional Funding for Skills & Growth – Boosting Talent in 2026

In 2026, new "flexible" regional funding will start rolling out, helping businesses develop skills, grow teams, and train staff locally.

Why it matters:

• Employers can tap into funded training programs.
• Local talent pipelines strengthen in key sectors like manufacturing, logistics, healthcare, and green energy.
• Hiring locally becomes easier where funding is active.

If implemented well, this funding could be one of the biggest boosts to the UK labour market next year.

6. NHS Technology & Community Health Investment 

Significant investment is starting to flow into NHS technology and neighbourhood health centres, aiming to relieve pressure on hospitals and improve access to care.

How this shapes the 2026 labour market:

• More tech-enabled roles and community-based healthcare positions will emerge.
• Reducing long-term sickness and improving access to care benefits every employer, not just healthcare providers.
• Temporary staffing demand will likely remain strong, supporting flexible workforce needs.

Stronger health infrastructure, means a more resilient, available workforce, something the UK desperately requires.

7. ISA Reforms – Financial Wellbeing Becomes a Workforce Issue

Updated ISA rules are designed to encourage long-term saving, broaden access and simplify investment options. This may seem distant from HR or recruitment, but it isn’t.

In 2026, expect:

• Workers to focus more on long-term financial stability.
• Employers offering financial wellbeing support to gain a competitive edge.
• Employee benefits packages becoming a key retention tool.

Financial wellbeing is no longer a “nice to have.” In 2026, it becomes a core part of the employee experience.

Overview

The measures introduced under the 2025 Budget banner are not yesterday’s news, they’re next year’s reality. And as we move toward 2026, businesses that plan now will be the ones that stay competitive, attract the right talent and maintain operational stability.

At THOMAS Recruitment, we support thousands of workers and employers every week, and we’re already preparing our clients for the changes landing in 2026. As more detail becomes available, we’ll continue to share clear, actionable insights to help you stay ahead.

If your business needs support navigating workforce planning or recruitment strategy ahead of 2026:

📞 Contact our Central Sales team on 02920 393 444 today.

Let’s keep your business firmly in the driving seat for the year ahead.