Cost of employing people unsustainable, firms warn

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Businesses have warned that their ability to develop staff and grow their companies has become difficult due to the increased cost burden of employment

Nearly three-quarters (72%) of firms report the cost burden of employment has increased compared to five years ago, according to research by the British Chambers of Commerce (BCC) and Indeed.

A third (33%) of businesses said this cost burden has increased significantly. When asked what’s preventing their company from investing more in employee training, more than a fifth (22%) blamed other employment costs.

The research stated that although firms support policies such as pensions auto-enrolment, the National Living Wage, National Insurance contributions, and the apprenticeship levy, these create a cumulative cost burden that is difficult for many to cope with.

As businesses wait to find out who will be the next prime minister, the BCC warned that against a backdrop of historically-high labour shortages, sluggish economic growth and ongoing Brexit uncertainty, the escalation in employment costs is unsustainable for many firms. Higher costs negatively affect organisations’ bottom lines and reduce their ability to invest in people and scale up their businesses, the research stated.

Jane Gratton, head of people policy at the BCC, said: “The cumulative cost of employment has become unsustainable and the government cannot expect businesses to carry on shouldering this ever-increasing burden. Firms are creaking under the combined strain of wage increases, employment taxes, skills levies and a myriad of administrative and reporting responsibilities, and the costs have not been offset elsewhere."

Gratton added that organisations should receive greater support to further their people agendas: “At a time of significant change and uncertainty in the economy firms should be supported to invest in people development and innovation. Instead this rising cost burden is damaging competitiveness and we risk pricing people out of jobs and driving firms out of business. Many businesses feel there is no recognition from the government of the difficulty of juggling these obligations while trying to operate and make a profit.”

The government should also focus on reducing other costs for employers, she added. “Rising employment costs are just part of the up-front burden on business. Business rates, Insurance Premium Tax and other expenses undermine the competitiveness of the UK as a place to do business. The next government must commit to preventing any additional costs and take immediate action to reduce the burdens crushing our business communities.”

Pawel Adrjan, UK economist at Indeed, confirmed that rising costs adversely affect businesses' ability to invest in training and development programmes. “A tightening labour market, higher costs and political uncertainty have created tough conditions for many businesses," he said.

“A business can only be as successful as the workforce it hires and trains. The fear is that the perception of a rising cost burden will force employers to batten down the hatches and cut investment; not only in product development and equipment but in people and training too."

He added: “It should be noted that not all changes have a negative economic impact and some of the most eye-catching benefit workers. Pension auto-enrolment helps provide workers with an element of security for later life and increases to the National Living Wage ensure pay rises for the lowest-paid workers."

The research surveyed more than 900 businesses between 29 April and 16 May 2019.

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