UK manufacturers have warned that a combination of restricting tax relief on salary sacrifice for pensions and National Living Wage increases could have long-term ramifications – especially on the country’s job market.
The warning forms part of the latest Make UK Executive Survey, published in association with PwC UK. The annual survey captures the views of senior manufacturing leaders on the opportunities, risks, and challenges ahead, as well as their outlook for the UK and global economies. This year’s findings point to a sector that is cautiously optimistic but facing mounting cost pressures.
The report specifically singles out two changes made in the Autumn Budget as points of concern.
“Currently, employees can contribute unlimited amounts to their pension via salary sacrifice without incurring National Insurance contributions (NICs). From April 2029, only the first £2,000 of sacrificed contributions will remain NICs exempt, with any excess subject to both employee and employer NICs,” the group said.
“Though this change is three years away, it will significantly impact businesses offering enhanced pensions as an employee benefit. Coupled with the planned increase to the Living Wage (up 4.1% to £12.71 per hour from April 2026) and the previous Budget’s rise in employer NICs, these factors will squeeze margins and could further slow hiring.”
Still hopeful
While costs are a repeated concern throughout the report, there is also hope of growth in 2026. Manufacturers see real opportunity ahead, with many continuing to invest in innovation, digital transformation, and expansion into new markets. A majority of companies still believe the UK remains a competitive place to manufacture.
“Manufacturers have demonstrated their resilience over and over again in recent years, and those that remain innovative and are prepared to invest in new technologies, expanding markets and, most crucially, their people will continue to thrive,” said Stephen Phipson CBE (CEO of Make UK).
“But, they can only do this if they are operating in the most favourable business environment and, despite the commitment to an industrial strategy, not only is growth anaemic but the warning lights are now flashing red on the UK as a competitive place to manufacture and invest. The Government promised significant change, now is the time to deliver it.”
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