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UK Budget 2025 impacts for STEM Skills and Recruitment - by Gattaca Plc and Matchtech CEO, Matthew Wragg

The Autumn Budget 2025 although designed to bring about growth is likely to increase workforce costs, reshape employment structures, and put pressure on overall incentive packages linked to pensions and benefits.

The economic outlook continues to look weak, with OBR forecasts expecting the economy to grow by average of 1.5pc per year until the end of the decade, a downgrade of 0.3 percentage points compared to March due to weaker than expected productivity.
 
The key points of note for recruitment and hiring within 2026
· Income Tax Threshold Freeze: The income tax threshold has remained frozen since April 2021, and with the freeze now extended, businesses and employees alike have a clearer picture of the tax landscape for the next several years. While thresholds staying static means more workers may gradually move into higher tax bands, this long-term consistency also brings a degree of stability. With both the income tax freeze and salary sacrifice environment now effectively set for the next 2–3 years, employers have a more predictable framework to plan within. This certainty can help boost confidence, enabling organisations to make informed decisions and potentially encouraging continued and even increased hiring activity despite the wider economic pressures.
· Salary Sacrifice Pension Tax Relief: Salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from National Insurance from April 2029. This is increasing the cost of salary sacrifice into Pension schemes at the marginal rate of NIC contribution for both employee and employer. As a result of the increased cost burden employers may reduce the level of employer pension contributions, impacting recruitment and retention strategies.
· Income From Savings, Property and Dividends: There will be a 2% point increase in the basic, higher and additional rates of income tax for savings and property income and a 2% increase in the basic and higher rates of tax on dividends. As a result people who earn income in addition to work may be required to seek additional earnt income.
 
Sector-Specific spending commitments
There was little mention of spending commitments, which had been covered in the June 2025 government spending review.
The budget did include a commitment to accelerate delivery of growth-enhancing capital investment, bringing forward £4.2bn of spending into the period 2026 to 28. Accelerating spending on major infrastructure projects will drive demand for engineers and skilled project delivery talent.

Major projects which would fall under this accelerated spending are those under the Rebuilding Britain programme:
- The Lower Thames Crossing, specifically mentioned in relation to this accelerated investment
- Other major transport projects including Transpennine route rail upgrade, East – West rail project, Structures & Roads Renewal Fund and DLR Thamesmead extension
- Clean Energy projects such as Sizewell C, UK SMR deployment programme, Carbon Capture Projects and the Grid infrastructure upgrades
- Public housing investment
- AI & industrial strategy capital support

 · Defence Spending: Government commitments to Defence spending remain. It is forecast that Defence spending will be 2.6% of GDP by 2027, with an aim to reach 3% of GDP in the following years. The investment in defence capabilities, is framed as part of a broader defence industrial strategy, aiming to support UK defence industry, create jobs, and spur regional economic growth via R&D, manufacturing, and “cutting-edge” capabilities. We expect that the increased defence investment and innovation programmes will boost recruitment needs in engineering, advanced manufacturing and defence-tech skills with demand for cyber, autonomous systems and R&D roles is expected to rise significantly.

· Skills investment: The budget committed over £1.5bn over the spending review period for employment and skills support. Targeted investment in long term skills development will strengthen the future talent pipeline, particularly in skills short areas such as Engineering. These programmes will support upskilling across engineering, digital and technical roles critical to the UK's industrial strategy, and we can support via our LEAP programmes.
 
In summary, the Autumn Budget sets the stage for a more expensive and competitive labour market. Rising employment costs, frozen tax thresholds and tighter pension rules will squeeze take home pay and increase pressure on employers to rethink their reward strategies. At the same time, long-term investment in infrastructure, energy, defence and skills will continue to drive strong demand for specialist talent. The challenge for 2026 will be balancing higher costs with the need to attract and retain the people who will deliver the UK’s growth ambitions.
 

 

This was posted in Bdaily's Members' News section by Moya Galal .