How the Autumn Budget wage increases will affect small businesses

The Chancellor’s latest Autumn Budget has struck small businesses once again with the increase to the National Living Wage (NLW) and National Minimum Wage (NMW).

These reforms are a welcome boost for workers, but for small businesses, they present financial and operational challenges.

With the increase coming into effect in 2026, businesses need to stay informed on how the changes affect them and how to prepare.

What are the new wage rates?

From April 2026, the increase in employee wages includes:

National Living Wage (for 21 and over) – £12.71 per hour (up 4.1 per cent)
National Minimum Wage for 18-20 year olds – £10.85 (up 8.5 per cent)
National Minimum Wage for 16-17 year olds and apprentices – £8.00 per hour (up 6 per cent)

For small businesses, these changes will significantly affect payroll costs and may result in employers having to reassess their staffing needs.

How will this affect small businesses?

Small businesses, especially in the hospitality and retail sectors, typically employ a high percentage of minimum-wage staff and are expected to face increased financial pressure.

Higher labour costs can increase overall expenses and may force some businesses to raise prices of goods or services, potentially affecting competitiveness.

With entry-level wages rising, employers may face increased wage costs across a range of roles and may need to adjust the pay of more experienced staff to maintain fairness.

Small businesses should seek financial support early on to review their financial budget and forecast and prepare a plan.

How can small businesses prepare for the reforms?

The Chancellor’s reforms will affect many small businesses and may bring National Insurance implications, so understanding the effects can allow for early decision-making.

Businesses should assess their operational efficiency and reduce any unnecessary spending and research new revenue streams.

Employers can potentially improve workforce efficiency with performance management and investment in technology to benefit their operations.

Employee retention will become increasingly important to save on recruitment costs and help businesses maintain continuity in these challenging times.

Employee incentives, such as share options or non-cash benefits, are also valuable as they may be more tax-efficient than raising base salaries.

The upcoming wage increase can lead to difficult decisions being made, but reaching out for financial advice can help businesses understand what the best next steps are.