Budget 2025 Unpacked

The most surprising thing about the latest Budget was that someone at the Office for Budget Responsibility appears to have pressed the wrong button and published its report about 40 minutes before the Chancellor stood up, rather than just after she sat down. This meant that the pundits were discussing the contents of the Budget before it had been delivered, which was unprecedented.

All this meant that many of the main measures were well known in advance. However, the Treasury document that was only released at the end of the speech contained a mass of detailed measures, some coming into effect immediately, others deferred for one, two, three or even more years.

In case you missed it, here’s a breakdown of all the key announcements, and our analysis of which shifts are likely to have the biggest impact on recruitment businesses and the temporary labour market. 

Significant Points

• Personal tax allowances and rates on general income frozen for a further three years to April 2031
• Also frozen: NICs employer threshold and upper earnings limit, and IHT nil band, to April 2031; Plan 2 Student Loan repayment threshold to April 2030
• From April 2026, the NLW for workers aged 21 and over will rise to £12.71/hour, a 4.1% increase.
• For 18‑20 year olds, the NMW will increase to £10.85/hour (up 8.5%), and for 16‑17 year olds/apprentices to £8.00/hour (up 6.0%
• No immediate changes to reliefs on pension schemes, but salary sacrifices above £2,000 to be subject to National Insurance from April 2029
• Increases in income tax rates on dividend income from April 2026, and on rental and savings income from April 2027
• Removal of the ‘two-child benefit cap’ with effect from April 2026, increasing the entitlement to Universal Credit for claimants with more than two children.
• Only minor changes to Inheritance Tax rules announced last year
• ISA investment limits and rules remain the same, but from April 2027 new £12,000 limit for cash within the £20,000
• Corporation tax rates unchanged, but Writing Down Allowances reduced from April 2026; new FYA from 1 January 2026
• Council tax surcharge on properties worth over £2 million to apply from April 2028

Key takeaways for recruitment businesses

Changes to NLW / NMW

The rise in NLW and NMW will increase costs for all employers, especially for roles at the lower end of the pay scale. For agencies making these placements, margin pressure will increase and assignment rates may need to be adjusted. 

As a result, minimum umbrella assignment rates will also change to ensure all employment costs are covered, guaranteeing that workers receive at least the National Living Wage.

The good news is that Liquid Friday is already fully prepared for these changes. Our 2026/27 umbrella pay calculator is already available in the Stride dashboard. If you’re not yet using Stride, contact us and we’ll provide you with a login.

Salary Sacrifice Pensions

The Budget also introduced National Insurance on salary sacrificed pensions from 2029. From that date, contributions over £2,000 per year in such schemes will incur NI contributions for both employers and employees. While this gives businesses time to plan for the change, it effectively reduces the incentive for higher pension contributions and may make salary sacrifice less attractive as a benefit.

Recruitment agencies should take this as a prompt to review their benefits packages, especially where they use pension salary sacrifice arrangements as part of attraction and retention strategies. Clients may also seek advice from agencies on competitive employer offerings, so understanding the long-term implications is essential.

Threshold Freeze: A Slow-Burn Cost Riser

One of the quieter but most consequential items in the Budget is the continued freeze on tax thresholds and allowances until 2031. While this isn’t a new policy, its extension means fiscal drag remains in place for the rest of the decade.

For recruitment businesses, this has two effects:

1. Workers will feel the pinch as more of their income is pulled into higher tax bands, putting further pressure on take-home pay expectations.
2. Employers may face upward pressure on pay rates as workers seek higher pay to offset real-terms reductions, making negotiations around temporary and permanent placements more challenging.

Agencies should prepare for more conversations about pay expectations and may need to support clients in understanding these long-term cost pressures.

Clampdown on Tax Avoidance & Umbrella Non-Compliance

The Budget reaffirmed the government’s commitment to tackling tax avoidance structures, particularly within labour supply chains. While many measures are technical or HMRC-focused, the direction of travel is clear: non-compliant umbrella models are firmly in the crosshairs.

Although formally introduced under the previous Budget (2024), the shift in responsibility for PAYE/NIC compliance from umbrella companies to recruitment agencies or end-clients comes into force in April 2026. This represents one of the most significant structural changes the sector has seen in years.

For agencies, this demands::

• Tighter due diligence on umbrella providers
• Reviewing and potentially restructuring existing contracts
• Ensuring full transparency of employment costs and PAYE/NIC reporting
• Partnering only with fully accredited, compliant umbrella companies

While this introduces operational risk, it also creates an opportunity for compliant operators to differentiate themselves, and for agencies to build more trusted, dependable supply chains.

In summary…

Overall, the 2025 Budget continues the government’s approach of slow, steady fiscal tightening combined with targeted interventions on wages, pensions and tax compliance. For recruitment agencies, the message is clear: prepare early, review supply chains carefully, and stay ahead of regulatory changes. Those who plan proactively, especially around wage increases, benefit structures and PAYE risk transfer,  will be best placed to support clients and thrive in a more regulated labour market.

If you’d like help understanding how these changes may impact your contractor workforce or supply chain, Liquid Friday is here to support you.