How are 2026 pay budgets looking?
19th August 2025
Julia Hanna
Preparing for pay review
Many of you may be starting the budgeting process for your 2026 pay review.
Last month, we shared some useful data sources and predictions for the National Living Wage (NLW). So, we thought it would be helpful to provide an update of the early indicators of upcoming pay reviews we’ve seen so far.
Most sources are predicting continued restraint of pay budgets, with figures similar to last year at around 3%:
- IDR’s research shows 93% of participants anticipate a flat (63%) or reduced (30%) budget with about half in the 3% – 3.49% range, and 38% at 2% – 2.99%.
- There’s a similar picture for respondents to the Willis Towers Watson survey, reporting an average increase of 3.6%.
- Brightmine’s most recent Pay Trends Report predicts a continuation of the 3% headline award into 2026.
- As does the CIPD’s Summer Labour Market Outlook, forecasting 3% for both the private and public sectors, and a lower 2.5% in the voluntary sector.
Of course, the 3% headline budget figure has to cover the NLW increase for the lowest paid (predicted at 4.1% for the central estimate), so the actual increases for many others will be less than this.
The research consistently points to careful costs management driven by economic uncertainty, inflationary pressure and increased cost of employment. All against a tight labour market with employees themselves ‘job hugging’ and vacancies falling.
The most recent economic indicators are:
To gain most return on investment, employers are likely to target their salary budget’s where it’s most effective such as the lower paid, hot jobs, flight risks, high performers and where internal equity needs adjusting.
This all necessitates some careful reward management, including clear principles for awarding increases, and transparent communication.
How we can help
If you’d like help with pay benchmarking, or your pay and reward strategy, please do get in touch for an initial conversation.
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