Pay rises set to remain steady in 2026

Most employers consider that pay will grow at much the same rate next year as it has done so in 2025. Almost two-thirds (63%) of the 92 organisations that took part in IDR’s recent survey, ‘Planning for pay in 2026’, anticipate that their 2026 pay award is likely to be at the same level as this year’s, though a further 30% are forecasting a slightly lower increase. This is in contrast to the findings of last year’s survey, in which 63% of respondents planned a lower award for 2025, and may reflect the increased inflationary pressures that have arisen over the course of this year. Meanwhile only 7% of employers believe that next year’s pay outcome will be higher than in 2025, something that is most likely connected to the more difficult economic conditions overall.

Pay intentions for 2026

As with last year, the greatest proportion of anticipated pay awards are found in the 3% to 3.99% bracket (52% overall this year, with the majority of these falling between 3% and 3.49%, compared with 45% of respondents predicting outcomes at this level last year).[1] However, many more awards are forecast to fall in the region of 2% to 2.99% (38%, compared with 22% last year) while the proportion of awards that are likely to fall between 4% and 4.99% is much lower this time – just 8%, down from 26% in last year’s survey.

As always, affordability remains a key concern for survey participants, with 98% reporting that this will have a bearing on pay outcomes in 2026. The future business outlook is also an influential factor, for 86% of organisations, while just under three-quarters anticipate that increases to the statutory wage floor, for which the Low Pay Commission last month issued updated projections, equating to a 4.1% increase based on its central estimate of £12.71, will affect the level of their awards. Meanwhile 69% and 70% of respondents respectively cite inflation and the cost of living as influential factors, and market benchmarking (70%) and changes to the ‘going rate’ for pay rises (65%) are also likely to be key considerations.

The future business outlook is likely to have a greater bearing on outcomes next year than it has done in 2025, while several factors, including the recent increases in employers’ National Insurance contributions, market benchmarking, cost-of-living considerations, and changes to the ‘going rate’ for increases could be less influential in 2026 than they were this year. The comparatively marked change in the importance of this last factor may reflect the shift to lower awards and the greater weight given to both ability to pay and trading conditions.

In terms of the factors that are likely to place the greatest upward or downward pressure on pay, 44% of respondents indicated that this was likely to come from cost-of-living considerations. However, for a fifth of respondents, pressure from boards to reduce wage costs is likely to be the most influential factor. And although many report that the recent increases to employers’ National Insurance is likely to be less influential on pay outcomes in 2026, for 13% of organisations this is still likely to bear the greatest weight. By contrast, few respondents anticipate that the greatest pressures are likely to arise from recruitment or retention challenges, employee calls for improved pay, trade union claims or efforts to boost employee engagement.

2025 pay outcomes

Around half (49%) of survey respondents report that the level of the pay increase awarded in 2025 was the same as that originally planned. However, more than a third (36%) awarded a lower increase than previously intended, with just 15% of organisations paying a higher increase. The most common reason for a different pay outcome was the increase in employers’ National Insurance contributions (cited by 48% of the 44 respondents that awarded a different increase from that originally planned) while around a quarter (27%) attributed the difference to lower profits. Although 23% cited inflation as a factor, only 11% reported that cost-of-living considerations had an impact on revisions to pay awards. Meanwhile labour market pressures or higher profits had little or no bearing on such decisions. In most cases, the process for deciding this year’s pay outcome has followed the same timescales as previously (63% of respondents), although around a quarter (26%) report that it took longer than usual.

Regardless of respondents’ original intentions for pay awards in 2025, in practice the majority of actual outcomes, at some 71% of organisations, were (or if not yet agreed are likely to be) lower than last year’s. Only a tenth of survey participants report having made a higher award, while increases at 19% of organisations are the same as in 2024.

Survey participants were asked how they have responded to pay pressures in 2025. The most common steps, taken by around a quarter (24%) of organisations in each case, were pay increases targeted at either specific groups of staff or specific roles. Some 14% have increased recruitment salaries for hard-to-attract roles and a tenth of organisations have implemented market or retention supplements. No organisations have sought to address pay pressures by offering one-off payments. Meanwhile more than a quarter (28%) of respondents have not taken any specific steps to respond to pay pressures and a fifth report that they are not experiencing pay pressures currently.

Inflation and pay-setting

With inflation currently running higher this year compared to 2024, it is not surprising that many employers examine inflation when making pay decisions. Some 55% of participants of our survey said they reference inflation informally, 25% said they reference inflation formally (for example as part of long-term pay agreements) and only a minority – 20% – said they do not reference any inflation measure in pay decisions. More organisations report referencing the Consumer Prices Index (CPI) in pay setting than either the Retail Prices Index (RPI) or the Consumer Prices Index including owner occupiers’ housing costs (CPIH). Of those employers that do examine inflation when making pay decisions, whether formally or informally, 88% use the CPI; 51% the RPI; and 43% reference the CPIH, which includes an estimate of housing costs, based on rents. The prominence of the CPI may be due to major media insistence on presenting it as ‘inflation’, despite the CPIH being the ONS’ actual headline measure. This is because the CPI is the target for the Bank of England’s macroeconomic management function. But it excludes housing costs and as such is less representative of the average household’s experience of inflation.

Recruitment, retention and staffing levels

Despite evidence of softening in the labour market, findings on staffing levels are relatively optimistic with most survey participants anticipating that these will remain static or even rise in 2026. Although a tenth of organisations have frozen recruitment for some employee groups, three-fifths of survey participants predict that their permanent staffing levels will remain the same and 69% expect temporary/agency staff numbers to stay stable. Meanwhile around a quarter (24%) think that permanent staffing levels will increase (the same is true of temporary/agency staff at 16% of respondents). Just 15% expect headcounts to decrease. The most commonly cited reasons for changes in headcount are business expansion (25%) and increased productivity (20%).

At the same time, recruitment and retention problems have eased. Recruitment is ‘not a problem’ for 57% of organisations, while 40% are finding it ‘fairly difficult’. Just two respondents report that recruitment is ‘very difficult’. The most common reason for recruitment difficulties is a lack of suitable skills or experience on the part of applicants (57% of respondents with recruitment difficulties) while around two-fifths (41%) feel that pay and conditions for specific roles may not be attractive to applicants. Competition from other firms and a shortage of applicants are contributing to recruitment difficulties at 38% and 35% of respondents respectively. Only around a fifth (22%) of survey participants attribute difficulties to the fact that pay is lower than at competing organisations.

Slightly fewer survey participants report difficulties with staff retention, with 31% describing this as ‘fairly difficult’ and only one organisation advising that retention is ‘very difficult’, while 68% report that it is ‘not a problem’. Among this subset of respondents, the underlying problems are chiefly higher pay on offer at competitors (all highlighted this as a reason) and a relative lack of opportunities to develop and progress (around half – 52% – of the subset). Less commonly, respondents cite competitors’ superior benefits and issues relating to the organisational culture or management style as factors in their retention difficulties (both 22%). Few attribute retention problems to a lack of flexible working provision.

Pay transparency

As part of this year’s survey we also sought to understand how transparent organisations are with staff when it comes to pay. While 37% do not include salary information in external job advertisements, around half (51%) provide details of salary ranges/pay scales and a fifth (20%) advertise spot rates. (These combined figures exceed 100% because some respondents operate both spot rates and ranges/scales.)

A similar proportion (39%) of survey participants do not actively share pay information with existing staff. But the same proportion of respondents share pay and grading structures with employees, 37% include details of salary ranges in internal job advertisements and 16% do so for spot rates.

Just under two-fifths of the sample (38%) have already carried out an equal pay audit while a further 29% plan to do so next year. Meanwhile a slightly higher proportion (41%) have calculated their ethnicity pay gaps and 30% intend to do this in 2026. Far fewer respondents (just 18%) have taken steps to calculate their disability pay gaps but almost half the sample (48%) will do this next year. Only 9% of the sample have already undertaken all three activities.

[1]The combined values cited here differ from those in the chart due to rounding.

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