UK firms ‘misallocate £10bn’ on HR departments, report says
The UK’s human resources sector is twice the size of the EU’s and has led to firms misallocating as much as £10bn in capital, new research has suggested.
A paper on the cost of diversity and equality agendas on businesses has argued that HR departments have grown at a disproportionate rate, with the UK having one of the highest share of people employed in HR anywhere in the world.
Policy Exchange researchers have found that 1.6 per cent of the UK workforce is employed in HR, compared to one per cent for the US and around 0.8 per cent for the EU.
Analysis suggested that the extra cost incurred by UK businesses from hiring more HR workers amounted to some £10bn a year.
“Not only is this a direct cost on firms, but there is also an opportunity cost associated with this, and it leads to a misallocation of resources within these firms,” analysts at the think tank said.
“It is money which cannot be spent on hiring people to work in more productive roles which would help to increase the profitability of their firm.”
The report, which focused on the effects of equality, diversity and inclusion (EDI) policies on business costs, received the backing of shadow business secretary Andrew Griffith and Baroness Cash, the former commissioner at the Equality and Human Rights Commission (EHRC).
Griffith said: “[EDI] makes businesses more risk averse, slower, less likely to take a chance on recruiting new staff and focused upon ticking bureaucratic boxes rather than delivering for their customers.
“The primary beneficiaries have been bloating non-jobs in HR or corporate responsibility departments and in some places a string of unaccountable staff networks.”
EDI training ‘costs firms £1bn’
Authors behind the report also suggested that firms were taking on additional burdens from diversity training, with research indicating that three quarters of companies had an EDI programme.
By considering US data on EDI training, think tankers estimated the cost of EDI training in the UK to exceed £1bn.
Companies including Sky News, Unilever, Nestle and Mars were singled out for “inefficient procurement” given their commitments to buy resources from diverse suppliers.
Recruitment practices, free speech suppression and internal lobbying were highlighted as other drawbacks for productivity across businesses.
The report also took aim at government legislation, regulation and state-backed initiatives adding to pressure on companies, including wording on ‘positive action’ in the equality act, EDI requirements for boards and public procurement targets.
Zachary Marsh, Research Fellow at Policy Exchange and an author of the report, said: “If the government is serious about growth, it should start by getting its own house in order and scrapping burdensome EDI rules and guidance that has created a mass of shadow regulation that businesses feel obligated to follow.”