Budget 2026: key employment aspects

Non-compete clauses: further reform confirmed

The Government has confirmed that it intends to legislate to limit the impact of non-compete clauses in employment contracts, with the aim of making it easier for start-ups and scaling businesses to recruit talent and for workers in the “everyday economy” to move between jobs. These reforms are expected to apply across the economy.

However, the final shape of the reforms remains unclear. The Government has indicated that it will consult on the wider use of restrictive covenants, consider how best to protect intellectual property while encouraging labour-market mobility, and publish further details in early 2027 before legislation is introduced.

Businesses that rely on non-compete clauses should monitor developments closely. If these reforms proceed as expected, employers may need to revisit their approach to post-termination protections and place greater emphasis on confidentiality obligations, intellectual property provisions, garden leave and other restrictive covenants. 

National Living Wage and National Minimum Wage to increase from 1 April 2027

One of the headline employment measures announced in the Budget is a 3.9% increase in statutory minimum wage rates from 1 April 2027.

The National Living Wage will rise to £13.21 per hour, with the Government estimating that around 2.3 million workers will benefit. According to Government projections, a full-time worker aged 21 or over could see gross annual earnings increase by approximately £910. The rate for 18 to 20-year-olds will increase to £11.27 per hour, while the rate for 16 and 17-year-olds and eligible apprentices will rise to £8.31 per hour.

While these increases will be welcomed by many workers, they will also increase employment costs for organisations with staff paid at or near statutory minimum levels. Employers should factor the changes into workforce and payroll planning well in advance of April 2027.

Wider access to parental pay

The Budget also included plans to expand eligibility for parental pay, extending support to working parents who currently fall outside the scope of the existing regime.

The proposed changes, expected to take effect in April 2029, are anticipated to benefit more than 150,000 additional parents, including self-employed fathers and partners who have historically been unable to access these entitlements.

Eligible parents will receive two weeks’ pay, currently worth up to £194 per week.

The announcement comes ahead of the government’s wider Parental Leave and Pay Review, which is expected to conclude in early 2027.

Immigration

The Budget also contains a number of immigration-related proposals, including changes to skilled worker salary requirements, visa curtailment provisions and graduate visas.

Read more in an article by Emily Heinrich, Senior Associate.

Apprenticeships, skills and recruitment

The Budget includes a range of measures aimed at supporting skills development and youth employment, including funding for apprenticeships, incentives for employers recruiting young people and apprentices, and an expanded Jobs Guarantee for eligible young adults.

In addition, large government construction and infrastructure projects will be required to ensure that at least 3% of their workforce are apprentices.

These measures reflect the Government’s continued emphasis on skills development and may create new opportunities for employers looking to address skills shortages or strengthen talent pipelines. 

What should employers be doing now?

For most organisations, the most immediate employment implication of the Budget will be the increase in minimum wage rates and the associated impact on labour costs.

The proposed parental pay reforms are further away, but they form part of a broader trend towards strengthening family-related workplace rights.

Employers should keep developments under review, as further detail and consultation is expected across a number of areas.