UK Businesses Misallocate £10 Billion Annually on HR Expansion
New research from the Policy Exchange think tank has revealed that British companies are misallocating as much as £10 billion in capital each year due to disproportionately large human resources departments. The study suggests that equality, diversity and inclusion (EDI) agendas have driven this expansion, creating significant financial burdens for firms across the country.
HR Sector Twice the Size of European Counterparts
The report highlights that the UK's human resources sector has grown to become twice the size of the European Union's equivalent. Analysis shows that 1.6 percent of the UK workforce is employed in HR roles, compared to just one percent in the United States and approximately 0.8 percent in EU nations. This substantial difference represents what researchers describe as a "misallocation of resources" within British businesses.
"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," the Policy Exchange analysts stated. "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."
EDI Policies Drive Corporate Bloat
The research paper specifically examined the impact of equality, diversity and inclusion policies on business operations and costs. The report received endorsement from prominent political figures including shadow business secretary Andrew Griffith and Baroness Cash, former commissioner at the Equality and Human Rights Commission.
Griffith criticized current EDI approaches, stating: "[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."
Additional Costs from Diversity Training
Beyond HR department expansion, the report identified additional financial burdens from diversity training programs. Researchers found that approximately three quarters of UK companies have implemented EDI training initiatives. By extrapolating from United States data on similar programs, Policy Exchange estimated that EDI training costs British businesses over £1 billion annually.
The study also criticized specific corporate practices, highlighting companies including Sky News, Unilever, Nestle and Mars for what it termed "inefficient procurement" due to their commitments to purchase resources from diverse suppliers. The report further identified recruitment practices, free speech suppression concerns, and internal lobbying as additional productivity drawbacks affecting British businesses.
Government Regulations Under Scrutiny
Policy Exchange researchers took aim at government legislation and regulation that they argue compounds corporate burdens. The report specifically mentioned wording on 'positive action' in equality legislation, EDI requirements for corporate boards, and public procurement targets as contributing factors to increased business costs.
Zachary Marsh, Research Fellow at Policy Exchange and co-author of the report, emphasized: "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."
The comprehensive analysis suggests that reducing HR department bloat and streamlining EDI requirements could free up substantial capital for more productive business investments, potentially boosting corporate profitability and economic growth across the United Kingdom.
