Reeves’s salary sacrifice scheme tax would force job cuts, say two-thirds of UK firms

More than two-thirds of UK employers say a tax on salary sacrifice pension contributions included in last year’s budget would force them to take action by cutting jobs, offshoring roles or reducing other investments.

A survey of more than 2,600 firms by the Confederation of British Industry (CBI), shared exclusively with The Observer, found that ending a tax exemption on the schemes – which allow employees to forgo some salary in exchange for benefits or pension contributions – would disproportionately affect the finances of young people entering the job market and those returning to the workforce.

From April 2029, employers and employees will be required to pay national insurance contributions if the amount of salary sacrificed for pension contributions exceeds £2,000. The proposal was made as part of Rachel Reeves’s autumn budget, which “backloaded” several revenue-raising measures for the fourth or fifth year of this parliament. The measure is expected to raise £2.5bn for the exchequer in 2030-31.

The CBI’s analysis found that 2.5 million people earning less than £30,000 a year, and another 4.9 million earning under £40,000, benefit from salary sacrifice pension schemes. The Office for Budget Responsibility’s own analysis of the reforms last year revealed that 76% of the cost was likely to be passed through via lower contributions, lower wages or lower bonuses.

“This policy will damage savings – particularly for younger people,” said Alice Jeffries, CBI’s tax policy manager. “This couldn’t come at a worse time, when the government’s own Pensions Commission is considering how to boost pension adequacy. They should be given the time to consider the impact of this proposal.”

The research arrives in the same week that Alan Milburn, the former health secretary under Tony Blair, released a report warning that the number of 16- to 24-year-olds could rise from 1 million today to 1.25 million within five years – equivalent to one in six. More than a quarter of the employers surveyed with more than 250 staff members said they expected to freeze hiring as a result of the changes.

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