Ailsa King
Chief Commercial Officer, Marsh McLennan, UK
The Autumn Budget 2025 was delivered amid economic uncertainty, tempered by cautious optimism, signalling steady fiscal continuity but limited potential for strong growth.
It is likely to be remembered as much for the unprecedented and chaotic circumstances surrounding its release – when the full list of proposals was leaked just an hour before the Chancellor’s speech – as for the content of the measures themselves. Key changes included adjustments to salary-sacrificed pension contributions and Individual Savings Account (ISAs), the freezing of income tax thresholds, and the removal of the two-child benefit cap.
In our Autumn Budget and Spending Review 2025 webinar for risk managers, we explored these themes in depth, examining their implications across pensions, personal finance, workforce skills, risk management, and sector-specific impacts.
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Below are the key highlights.
Economic factors: Rupert Watson, Global Head of Economics and Dynamic Asset Allocation, Mercer
- Amid ongoing uncertainty, the budget signals steady continuity, maintaining a cautious fiscal path through a challenging economic environment.
- A key feature is the increase in fiscal headroom – the buffer against the government’s self-imposed rules – rising from around £10 billion to about £20 billion-£22 billion. Near-term spending rises include child benefits and electricity subsidies, while significant tightening – mainly through frozen income tax allowances – is planned later in the parliamentary term.
- The budget deficit is forecast to fall from 4.5% to 3.5% of GDP next year, keeping the debt-to-GDP broadly stable. However, the budget offers little to boost long-term growth, lacking substantive policies to drive investment or productivity, with some measures potentially slowing progress. While other growth-supporting initiatives are promised outside the budget – such as planning reforms – the budget itself does not deliver on this front.
- Gilt markets have struggled this year, with the UK facing the highest long-term borrowing costs among developed economies. Despite bailout rumours, the debt position – just under 100% of GDP – appears manageable.
- Nonetheless, risks persist from political pressures and unforeseen economic events that could disrupt fiscal targets.
Key takeaway: Overall, the budget sets a stable fiscal outlook but offers limited opportunity for strong growth.
Political analysis: George Lawley, UK Director of Government Relations, Mercer
- Cutting NHS waiting lists, tackling the cost-of-living crisis, and in favour of reducing debt, the budget reflects a commitment to necessary fiscal choices, steering clear of austerity and reckless borrowing. A notable surprise was that the so-called “black hole” in public finances was smaller than anticipated, thanks to higher tax revenues and upward revisions to wage growth, which offset a significant downgrade in productivity forecasts.
- Key measures to close fiscal gaps include freezing income tax thresholds, capping salary sacrifice pension schemes, introducing additional charges on high-value properties, implementing a road charging scheme for electric vehicles, increasing taxes on remote gambling, empowering elected mayors to levy charges on hotels and self-catering accommodation, applying new tax multipliers on certain commercial properties, and raising tax rates on property savings and dividends.
- On spending, some energy costs will be removed to ease the cost-of-living crisis. The planned scrapping of the two-child benefit cap aims to win backbench support. Investments in NHS centres, maintaining the state pension triple lock, freezing fuel duty, and commuter support are also expected to please certain constituencies.
- Whether these decisions will translate into tangible improvements in voters’ financial well-being remains uncertain. Household disposable income is projected to grow by just 0.25% annually, weighed down by slower wage growth and higher taxes.
Key takeaway: The fundamental issue of the UK’s persistently high levels of public spending remains unresolved, which, unless decisively addressed, will continue to pose a risk of future fiscal crises.
Pensions and investments: Tessa Page, UK Wealth Strategy Leader and Partner, Mercer
- There are no changes to pension tax-free cash – a well-understood and valued feature. Despite speculation, no restrictions were introduced, providing relief to members concerned about this potential change. Pension tax allowances remain unchanged, with no reintroduction of the lifetime allowance or fundamental changes to tax relief rates.
- A significant change is that from April 2029, for employee contributions made via salary sacrifice, the amount that is exempt from National Insurance contributions (NICs) will be capped at £2,000 a year. This long run-in period to implementation allows employers, employees, and payroll providers time to prepare for administrative challenges, such as tracking contributions across multiple employments.
- Employers are expected to reassess the attractiveness of salary sacrifice offerings and may seek to optimise benefit packages accordingly. They could try to offset these changes by adjusting salary growth or pension contributions. However, the OBR’s report highlighted that certain formal agreements would require workforce consent, making widespread adoption unlikely.
- Members can maximise existing salary sacrifice benefits before the 2029 changes take effect. Those who can pay bonuses into pensions tax-free will still have access to this option, but will need to consider total pension contributions in light of the £2,000 cap. The Treasury has stated that many basic rate taxpayers will not be affected, but the cap will still impact a large number of savers.
- Concerns have emerged that these changes might discourage pension saving, with some mistakenly believing pensions will no longer be tax efficient. Clear communication is crucial to reassure members that pensions remain highly tax efficient.
- For trustees and employers, the key challenge is managing these changes. Salary sacrifice arrangements are complex, so clear communication is vital to reassure members that tax relief remains. Early planning for the 2029 changes, involving payroll providers and scheme administrators, is essential for smooth implementation.
Defined benefit news
- The government announced that it will index pre-1997 pensions in line with CPI up to a maximum of 2.5% p.a. for members of the Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS), for schemes where the original scheme provided indexation for pre-1997 accrual. This strengthens the safety net.
- Well-funded defined benefit (DB) pension schemes will also be allowed to pay surplus lump sums to members over their normal minimum pension age, subject to scheme rules, enabling earlier distribution of surplus without increasing liabilities.
Key takeaway: Salary sacrifice arrangements are already complex, and clear communication is essential to reassure members that their pensions remain highly tax-efficient and that these changes do not undermine overall tax relief. The DB news on surplus offers a potential opportunity to safely make use of surplus to improve member outcomes, while balancing the needs of different stakeholders.
Personal finance: Russell Douglass, Senior Regional Leader, Chartered Financial Planner, Mercer Private Wealth
- With limited scope to raise major taxes like Income Tax, National Insurance, or VAT – which make up around 60% of tax revenues – the government focused on smaller tax increases and new levies in the Autumn Budget. Key measures included extending the freeze on personal tax thresholds, raising “sin” taxes (such as a modest increase on online gambling), and introducing the anticipated “mansion tax” on high-value properties.
- The ongoing freeze on tax allowances, until April 2031, will push even more people into higher tax brackets. It is expected to push nearly a million more UK taxpayers into the 40% bracket, with thousands entering the 45% additional rate. A greater number of individuals will also face an effective tax rate of 60% if their income is above £100,000.
- The income tax rate on dividends will increase by 2% (except for additional rate taxpayers) from April 2026. Likewise, from April 2027, the tax rate applying to savings income and property income will increase by 2% (to 22%, 42%, or 47%).
- ISA limits remain at £20,000 annually, but a new £12,000 cap on cash ISA contributions will apply to those under 65. This aims to encourage younger savers to invest rather than hold cash and promote long-term investment confidence, supported by a commitment to provide greater education and guidance.
- Despite widespread speculation, inheritance tax remains unchanged, providing some certainty for those who wish to pass assets tax efficiently to their heirs. However, there was no U-turn on either the inclusion of unused pension funds in an estate for inheritance tax purposes (from April 2027) or the restriction of the amount that qualifies for the full rate of Business Relief or Agricultural Relief to £1 million per person (from April 2026).
- To mitigate tax changes, financial planners recommend that individuals consider increasing pension contributions, as this will reduce income tax. If this is done via salary sacrifice, it will also save National Insurance until April 2029. Additionally, income sharing between spouses or civil partners, where possible, can aid tax efficiency.
- For business owners, using dividends and employer pension contributions may reduce taxable income, as will income sharing if a spouse or civil partner is a director shareholder.
Key takeaway: With the overall tax burden set to rise to 38% of GDP – an historic high – it is more important than ever that individuals structure their income and assets as tax efficiently as possible. Taking sound financial advice will help individuals navigate these changes and optimise their outcomes.
Workforce skills: Marcus Downing, Workforce and Organisational Transformation Partner, Mercer
- The recent budget and UK economic indicators highlight significant challenges in workforce skills, productivity, and growth, with productivity forecasts for 2026 to 2029 downgraded from 1.8% to 1.5%. This decline reflects growing scepticism about the economy’s ability to leverage skills effectively, increasing the need for agile and strategic talent management.
- In response, government and industry bodies are mapping national skills gaps to provide clearer insights into the capabilities essential for economic growth. This wider perspective enables organisations to better align their workforce planning with the evolving needs of the economy.
- Today, organisations focus on ensuring they have the right skills in the right roles, deployed swiftly to maintain competitiveness. Rather than simply adopting agile talent models, business leaders are prioritising the identification of key skills that drive performance, assessing their cost, availability, and demand, and finding ways to move talent flexibly rather than hoarding it.
- Many organisations face cost pressures after overestimating growth and underestimating expenses. This has renewed emphasis on optimising and streamlining work processes, often through increased use of technology. As routine and repetitive tasks become automated, the labour market is shifting towards uniquely human skills – such as relationship building, trust, and storytelling – that technology cannot easily replicate.
- Cybersecurity is a key factor affecting productivity. High-profile cyberattacks in the UK have disrupted operations and shown the economic impact of breaches. Around 90% of incidents stem from human error, highlighting the need to equip the workforce with skills and foster a strong risk culture. Effective cyber risk management requires both technical training and cultivating a culture of risk awareness and responsibility.
- Tax threshold freezes extended until 2031 are pushing more people into higher tax brackets, reducing discretionary income and affecting perceptions of total rewards. Employers must segment their workforce by needs and motivations, tailoring value propositions accordingly – for example, younger employees may prioritise salary and career growth, while older workers value flexibility and healthcare.
Key takeaway: Organisations should take a strategic approach to workforce planning, investing in key skills that drive growth while managing risks like cyber threats and well-being, enabling them to navigate challenges and seize opportunities.
Sector perspectives: Retail, manufacturing and automotive, construction, and financial services: Charles Beresford-Davis, UK Industries Leader, Marsh McLennan
The Autumn Budget has sparked wide-ranging discussions about its impact on businesses across key sectors, especially concerning risk and workforce challenges. In response, businesses must strategically adapt by balancing their growth ambitions with careful risk management and workforce planning, taking into account both the budget and broader economic trends. Additionally, exploring alternative risk financing solutions – such as the forthcoming UK captive regime – could provide valuable opportunities to navigate an increasingly complex risk landscape.
Four key sectors – retail, manufacturing and automotive, construction, and financial services – clearly illustrate the budget’s impact within the broader economic landscape.
Retail
- For retail, the sector faces increased operational costs, including business rates and people-related expenses such as National Insurance and minimum wage rises. And while some relief was offered, many retailers expected more. Retail accounts for 5% of the UK economy but pays over 20% of business rates, highlighting the sector’s cost pressures.
- The upcoming Employee Rights Bill will further increase people-related costs through expanded employee benefits and reduced eligibility ages, likely impacting absenteeism and overall operational efficiency. Given these pressures, retailers must carefully assess people-related risks and invest strategically in employee well-being to maintain productivity.
Manufacturing and automotive
- In manufacturing and automotive, the news was more positive. The Employee Car Ownership Scheme remains unchanged until 2030, enabling 80,000 workers to purchase cars via benefits, which subsequently fuels the UK’s second-hand market for low- and zero-emission vehicles.
- The government's £1.5 billion investment in EV adoption and £200 million for charging infrastructure is a signal for growth, but it is then overshadowed by a new per-mile road charge. To combat high energy prices, the government aims to reduce electricity costs for 7,000 manufacturers and their direct supply chains.
- Manufacturers are encouraged to review employee benefits arrangements and supply chain resilience, particularly around cyber via risk management or effective insurance programmes.
Construction
- Construction benefited from significant infrastructure spending commitments in the budget, including funds for major projects like the Lower Thames Crossing, rail upgrades, and nuclear developments. This increased investment is expected to drive growth but also intensify competition and demand for resources.
- Firms must focus on robust risk allocation, project assurance, and supply chain resilience to succeed. Innovative approaches such as integrated project insurance and collaborative planning models are gaining traction to reduce project failures and improve outcomes.
Financial services
- Financial services faced speculation before the budget but largely avoided negative surprises. The sector welcomed no changes to the LLP tax status and the extension of the stamp duty holiday on UK-listed stocks. Banks must monitor mortgage risks amid rising rates, with increased demand expected for quality financial advice as individuals navigate tax and investment changes.
Key takeaway: The budget does not fundamentally alter the UK’s risk landscape but serves as a timely reminder for businesses to refresh risk registers, challenge assumptions, stress-test vulnerabilities, and review workforce stability and cost management.
Conclusion
Effective risk management – particularly in relation to cyber threats – is essential, as many risks originate from people-related issues. Organisations must prioritise strategic workforce planning by identifying and developing the critical skills needed to enhance productivity in a rapidly evolving technological landscape.
While productivity forecasts remain uncertain, emerging technologies like artificial intelligence present promising opportunities for growth. Investing in AI and innovation across sectors should be a key focus to unlock future productivity gains.
Although the Autumn Budget does not significantly alter the risk environment, businesses can benefit from favourable insurance conditions and should review risk financing strategies, including captives, to manage costs amid ongoing volatility.
Successfully navigating this complex landscape requires clear communication, strategic workforce and risk management, and collaborative efforts across HR, finance, risk and operations to build resilience and support sustainable progress.
