The latest Salary Budget Planning survey from WTW suggests UK salary increase budgets for 2026 will remain stable at 3.6 per cent, matching 2025’s actual increases. Inflation expectations have regulated across many economies, reducing the need for reactive pay increases and instead allowing organisations to plan proactively.
Budgets expect to remain stable due to greater clarity, more disciplined prioritisation and understanding where compensation can drive meaningful impact.
For the current cycle, half of employers (51 per cent) have made no change to their projected pay budgets, since they were first set mid-way through the year. While only 10 per cent are increasing budgets, 27 per cent of employers will decrease pay budgets. For those making changes to their initial budget projections, inflationary pressures (28 per cent), anticipated stronger financial results (20 per cent), concerns over a tight labour market (20 per cent) and changes to compensation strategy (11 per cent) are factors influencing pay budgets.
“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.” said Paul Richards, UK Reward Data Intelligence Leader, WTW.
“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.”
The recent consistency in salary budgets reflects underlying changes in how leaders are approaching workforce planning and compensation decision-making, with many organisations reporting stronger governance around pay decisions, more sophisticated use of market data and segmentation and increased focus on affordability and maintaining internal equity. As such, only a fifth (22 per cent) of organisations have reported issues with attracting or retaining employees.
Staff voluntary turnover rates have also continued to drop (moving from 10.1 per cent to 8.6 per cent) over the last year, with companies directing limited budget capacity toward retaining critical talent and addressing pay compression where it is most acute. Other staff retention actions have included increasing use of training opportunities (52 per cent), improving the employee experience (51 per cent), making changes to health and wellness benefits (39 per cent), greater workplace flexibility (34 per cent), and changes to compensation programmes (28 per cent).
Gaby Joyner, Head of Employee Experience, Europe at WTW said “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, as organisations test new ways to improve productivity and operational efficiency, 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.”
