Summary: WTW’s Salary Budget Planning survey of 1,264 UK organisations reveals salary increase budgets are stable at 3.6% for 2026. Half of employers (51%) made no changes to projected pay budgets, while 27% decreased and only 10% increased them. Voluntary turnover has dropped from 10.1% to 8.6%, with organisations investing in training (52%), employee experience (51%), and health benefits (39%) to retain talent. The shift reflects a move from reactive pay responses to strategic workforce planning.
According to WTW’s latest Salary Budget Planning survey of 1,264 UK organisations, salary budgets for 2026 remain at 3.6% – the same level as 2025’s actual increases.
What’s driving this stability? With inflation expectations now regulated across many economies, employers are no longer forced to respond reactively to economic shocks. Instead, organisations can plan proactively, bringing greater clarity and discipline to compensation decisions.
Are UK employers changing their salary budgets for 2026?
Most aren’t. Half of employers (51%) made no changes to their projected pay budgets since they were first set mid-year. Among those making adjustments, 27% decreased budgets while only 10% increased them.
What’s influencing these decisions? For organisations making changes, the key factors were:
- Inflationary pressures (28%).
- Anticipated stronger financial results (20%).
- Concerns over a tight labour market (20%).
- Changes to compensation strategy (11%).
Paul Richards, UK Reward Data Intelligence Leader at WTW, explains the shift: “Employers are entering 2026 with clearer pay priorities and stronger discipline, using salary budgets not simply as financial inputs but as strategic levers.”
He adds: “In the year ahead, success will depend not on how much budget organisations have, but on how effectively they direct it.”
How have UK salary increases changed over the past five years?
UK salary budgets have followed a dramatic trajectory, reflecting the economic turbulence of recent years:
- 2021: 2.4%
- 2022: 3.2%
- 2023: 5.3% (peak inflation response)
- 2024: 4.3%
- 2025: 3.9%
- 2026 (planned): 3.6%
The spike in 2023 reveals how organisations scrambled to respond to soaring inflation. Now, with that pressure easing, there’s a shift toward more sophisticated decision-making – stronger governance around pay decisions, better use of market data and segmentation, and increased focus on affordability and internal equity.
Surprisingly, only 22% of organisations report issues attracting or retaining employees. Voluntary turnover has dropped noticeably too, from 10.1% to 8.6% over the past year. The talent crisis many feared hasn’t materialised in the way predicted.
What are employers doing instead of raising salaries?
With tighter budgets, organisations are redirecting resources toward retention strategies that extend beyond base pay. The top five actions are:
- Training opportunities (52%): Upskilling and development programmes.
- Employee experience improvements (51%): Better workplace culture and engagement.
- Health and wellness benefits (39%): Enhanced wellbeing support.
- Workplace flexibility (34%): Remote work and flexible arrangements.
- Compensation programme changes (28%): Bonuses, equity, and total rewards adjustments.
This shift reflects a crucial recognition: employee satisfaction and retention depend on more than just salary. As Gaby Joyner, Head of Employee Experience, Europe at WTW, puts it: “As pay budgets stabilise, we’re seeing just how important it is to focus on honing the employee experience.”
Her observation about AI is particularly telling. While organisations have invested heavily in AI and automation pilots over the past two years, this hasn’t yet translated into actionable labour-cost savings. “It’s key that organisations proactively plan how to make the best use of their budgets for employee satisfaction and productivity.”
How should HR leaders approach salary budgets in 2026?
The stabilisation of salary budgets presents you with both challenge and opportunity. Limited increases mean you’ll need to work harder to ensure pay remains competitive and equitable. But the shift toward strategic planning opens space for more thoughtful workforce decisions.
The question isn’t ‘How much can we afford to pay?’ It’s ‘How can we deploy our resources to attract, retain, and motivate the talent we need?’
Three priorities for navigating this landscape:
- Move beyond one-size-fits-all approaches: Generic salary increases won’t cut it anymore.
- Use market data intelligently: Direct resources where they’ll have real impact.
- Address pay compression strategically: Focus on the areas where it matters most.
Total rewards – not just salary – shape the employee experience. In a year defined by stability, strategy becomes your differentiator. How you allocate limited resources will matter more than how much you have to spend.
