- Around 1.6 per cent of the UK workforce is employed in HR roles.
- Researchers estimate the extra cost to businesses at about £10 billion a year.
- EDI training alone could be costing firms more than £1 billion.
The size of the UK human resources sector is drawing fresh scrutiny after new research suggested companies could be misallocating as much as £10 billion a year, fuelling debate around HR sector UK costs and the financial impact of EDI policies on businesses.
A report from think tank Policy Exchange argues that HR departments have expanded at a much faster rate than in other major economies, raising questions about whether resources are being used efficiently as companies face pressure to manage rising costs.
According to the research, about 1.6 per cent of the UK workforce is now employed in HR roles, compared with around one per cent in the US and roughly 0.8 per cent across the EU. Analysts suggested the higher share translates into an additional cost of about £10 billion annually for UK businesses.
The report argued that this represents not just a direct expense but also an opportunity cost, reportedly said in a news report, suggesting that money spent on HR roles could otherwise be used to hire staff in more productive positions that might boost profitability.
The paper focused heavily on the financial impact of equality, diversity and inclusion programmes, claiming HR teams have grown disproportionately alongside the expansion of EDI initiatives.
Debate over the price of inclusion
Researchers also estimated that diversity training alone could be costing UK companies more than £1 billion, based on comparisons with US data and the finding that around three quarters of firms now run some form of EDI programme.
The report received backing from shadow business secretary Andrew Griffith and Baroness Cash, a former commissioner at the Equality and Human Rights Commission. Griffith argued that EDI initiatives can make firms more risk averse and focused on bureaucracy rather than customers, reportedly said in a news report.
Some large companies, including Sky News, Unilever, Nestle and Mars, were highlighted in the report over what it described as inefficient procurement linked to commitments to diverse suppliers. Recruitment practices, internal lobbying and concerns around free speech were also cited as potential productivity challenges.
The authors also pointed to government legislation and regulatory requirements as adding pressure on companies, including provisions around positive action in the Equality Act and diversity expectations for boards and public contracts.
Zachary Marsh, a research fellow at Policy Exchange and one of the report’s authors, said the government should consider rolling back what he described as burdensome rules if it wants to boost growth, as quoted in a news report.
The findings are likely to add to an already heated debate over the balance between promoting inclusion and managing costs, with supporters and critics continuing to disagree on the broader economic impact of EDI policies.
