UK salary increase budgets for 2026 stand at 3.6% and match 2025’s actual pay rises, according to research by Willis Towers Watson (WTW).
Its Salary budget planning survey, which surveyed 36,960 organisations across 156 countries, including from 1,264 UK organisations, found this is lower than planned UK salary budget increases in previous years, which stood at 3.9% in 2025, 4.3% in 2024 and 5.3% in 2023.
For the current cycle, 51% of respondents have made no change to their projected pay budgets, because these were set mid-way through the year. While 10% will increase pay budgets, 27% will decrease them.
For those changing their initial projections, inflationary pressures (28%), anticipated stronger financial results (20%), concerns over a tight labour market (20%) and changes to compensation strategy (11%) have influenced pay budgets.
One-fifth (22%) have reported issues with attracting or retaining employees, and staff voluntary turnover rates have continued to drop over the last year, falling from 10.1% to 8.6%.
To improve staff retention, employers have increased use of training opportunities (52%), improved the employee experience (51%), and made changes to health and wellness benefits (39%). They have also boosted workplace flexibility (34%) and changed compensation programmes (28%).
Paul Richards, UK reward data intelligence leader at WTW, said: “Employers are entering 2026 with clearer pay priorities and stronger discipline, using salary budgets not simply as financial inputs but as strategic levers. Yet beneath the steady medians lie meaningful shifts in how organisations allocate pay, manage complexity, and plan for a workforce that continues to evolve faster than traditional budgeting cycles.
“In the year ahead, success will depend not on how much budget organisations have, but on how effectively they direct it. Stability may be the story at year-end, but strategy will define what comes next.”
Gaby Joyner, head of employee experience, Europe at WTW, added: “As pay budgets stabilise, we’re seeing just how important it is to focus on honing the employee experience. While we’ve seen a surge of investment in AI and automation pilots in the last two years, this hasn’t yet translated into actionable labour-cost savings. So, it’s key that organisations proactively plan how to make the best use of their budgets for employee satisfaction and productivity.”
