Employment Law Coffee Break: What does the Budget 2025 mean for employers and reform to non-competes?

What does the Budget 2025 mean for employers?

The chancellor delivered her Autumn Budget on 26 November, which confirmed that April 2026 would see increases to the statutory national living wage and national minimum wage rates. It also announced extending the freezing of the income tax thresholds until the end of the 2030/31 tax year, three years longer than planned, and changes to salary sacrifice for pensions from April 2029.

Alongside the Budget papers, the government has published a working paper seeking views on different options to reform non-compete clauses in employment contracts "to support their growth mission". The working paper closes for responses on 18 February 2026. 

Increase to statutory minimum wage rates

The government has announced that from 1 April 2026, the national minimum wage rates will increase as follows:

• Workers aged 21 and over: an increase from £12.21 to £12.71.
• Workers aged 18 to 20: an increase from £10.00 to £10.85.
• Workers aged 16 to 17 and apprentices: an increase from £7.55 to £8.00 per hour.

The government has accepted the Low Pay Commission's recommendations, with Baroness Philippa Stroud, chair of the LPC, stating "Our advice balances the government's ambitions with the need to protect the economy and labour market, with rates that are fair and realistic. In our discussions this year with workers and employers alike, it has been clear that no one is having an easy time. Despite sustained real increases in the minimum wage, low paid workers are still challenged by the cost of living crisis. At the same time, employers, particularly small businesses, are under real pressure, exacerbated by this April's national insurance changes."

Concerns have been expressed that the rise in the 18 to 20 year old rate in particular could discourage hiring and exacerbate the increasing numbers not currently in education, employment or training; the Low Pay Commission is already planning to extend the national living wage rate to those aged 20 in 2027 and to 18 and 19 year olds in 2028 or 2029, subject to economic conditions and government policy at the time.  

Freezing of the personal income tax thresholds

The Budget extends the freezes of personal tax thresholds for a further three years from 2028-2029 to 2030-2031 meaning:

• The income tax personal allowance, the higher-rate threshold and additional-rate threshold are frozen at £12,570, £50,270 and £125,140, respectively, until 2030-31.
• The national insurance contributions (NIC) secondary threshold is frozen until 2030-31. This threshold was reduced from £9,100 to £5,000 as part of the changes to employer NICs announced at Autumn Budget 2024.

Together, the freezes to personal tax thresholds are expected to raise £8.3 billion in 2029-30, £7.6 billion of which relates to income tax threshold freezes. Overall, the freeze to the employer NICs secondary threshold is forecast to yield around £11 billion in 2030-31, of which £0.9 billion is from the freezes announced at this Budget.

Changes to salary-sacrificed pension contributions

The Budget also states that from April 2029, the government will charge national insurance on salary-sacrificed pension contributions above an annual £2,000 threshold, meaning that salary-sacrificed pension contributions above £2,000 will be treated as ordinary employee pension contributions in the tax system and therefore be subject to both employer and employee NICs. Ordinary employer pension contributions will remain exempt from NICs.

This policy is estimated to raise £4.7 billion in 2029-30 and £2.6 billion in 2030-31. The government has published a guidance paper on this change with the Budget papers.

Our Pension team looks in more detail at the changes and suggested actions for employers.

Expansion of EMI

In some welcome news for employers and smaller businesses, the chancellor announced significant improvements to the enterprise management incentive (EMI) regime.

For EMI contracts granted on or after 6 April 2026, the government will increase:

• the employee limit from 250 to 500;
• the gross assets test from £30 million to £120 million; and
• the company share option limit from £3 million to £6 million.

These changes significantly extend the number of companies that will be able to take advantage of EMI. 

Read more in our Insight.

Reform of non-compete clauses in employment contracts

Alongside the Budget, the government published a working paper seeking views on different options to reform non-compete clauses in employment contracts. The paper, which closes for responses on 18 February 2026, is intended "to support discussions, to determine whether and how to take proposals forward, as opposed to a formal consultation". It highlights the role non-compete clauses play in restricting employee movement, limiting knowledge spillovers and undermining incentives for innovation. It is also concerned about the behavioural effect of including a non-compete clause in an employment contract which, even if broadly drafted and unlikely to be enforceable, may be perceived as binding, leading an employee to comply for fear of legal repercussions.

Options for reform included in the paper are:

• A statutory limit on the length of non-compete clauses and which could provide some protection for workers by limiting the time they are unable to work in their area of expertise and could promote competition, upwards mobility and wage growth.
• A statutory limit on the length of non-compete clauses according to company size. One option could be that for companies with more than 250 employees the statutory limit for non-compete clauses could be three months, while for companies with fewer than 250 employees, the statutory limit could be six months.
• A ban on non-compete clauses.
• A ban on non-compete clauses below a salary threshold. The aim would be to eliminate non-compete clauses for lower-paid workers who are often not in a financial position to challenge the enforceability or to spend an extended period out of the labour market.  
• Combining a ban below a salary threshold and a statutory limit of three months. Such an approach would ensure that non-compete clauses are eliminated for lower-paid workers while also ensuring that restrictions on non-compete clauses apply to those at the higher end of the income distribution.

As part of the working paper, the government looks at the approach of other jurisdictions to the regulations around the use of non-competes and also whether the threat of high legal costs presents an obstacle to bringing claims on restrictive covenants, including non-compete clauses and if so, how any changes might be implemented.

The previous government launched a consultation on similar reforms and while it announced that it would introduce a statutory limit of three months on non-compete provisions, this was not progressed due to the current government coming into power at the last general election. The current government acknowledges this and discusses considerations around this in the paper.  

What does this mean for employers?

Employers will now need to factor in the increases in the statutory minimum wage rates from April 2026, as well as be prepared for employees looking to offset the freezing of the personal tax thresholds by negotiating a higher basic salary where a higher threshold is triggered.

The decision to publish a working paper on the reform of non-compete employment clauses to reflect the government's "growth mission" sits with the OBR's findings that the unemployment rate is set to stay close to its current level of around 5% in the coming quarters and then fall gradually to its estimated equilibrium rate of 4.1% from 2027, which it notes seems to be due to "subdued demand for hiring… and ongoing weakness in labour demand".

The working paper recognises that non-competes affect both lower paid and higher paid workers, although the options for reform set out in the working paper highlight the potential for a different approach depending on employer size and salary threshold with the government noting that it is non-competes in the higher paid sectors, including tech and AI, "where we hear that non-compete clauses create frictions and hold back competition and innovation".

Potential reform to non-competes may also be strategically linked to the ongoing parliamentary battle over day- one unfair dismissal rights. The Employment Rights Bill is currently in parliamentary "ping-pong", with the House of Lords repeatedly voting for a six-month qualifying period for unfair dismissal protection while the House of Commons is holding firm on a day-one right with an initial period of employment during which a lighter-touch dismissal process would apply.

In a House of Lords debate, Lord Pitkeathley suggested that non-compete agreements pose a particular challenge for tech and AI workers, who are more focused on how easily people can move between companies and start their own ventures. By pursuing both reforms simultaneously, the government appears to be seeking to forward its stated agenda of creating a more dynamic labour market.

While reform of non-competes will inevitably take time, the publication of this working paper places a spotlight on the use and enforceability of non-competes (and other restrictive covenants). Employers should ensure any restrictions are drafted for the specific role and risk and are regularly reviewed to take account of changes in the business or promotions. Employers should also consider what alternative protections could be introduced to mitigate against unfair competition and whether creating loyalty through incentives may be more effective than seeking to restrict behaviours.