As the country prepares for the implementation of the forthcoming Employment Rights Bill, employers are bracing themselves for a significant financial impact. The irony however is that it could lead to the UK's longstanding problem with low productivity being finally resolved.
According to the government’s own projections, the Employment Rights Bill is set to add up to an estimated £5 billion to employers’ costs nationwide. This comes on top of recent increases in employers’ national insurance contributions, which, according to figures from the Office for Budget Responsibility (OBR), have already increased business expenses by up to £18.3 billion.
The repercussions have been swift and severe: companies across the country have responded with sweeping redundancies, underscoring just how burdensome these additional costs have become.
Productivity
Faced with these mounting financial pressures, many businesses now see no alternative but to reduce headcount and to adopt strategies that keep staff numbers to an absolute minimum going forward. Ironically, this very response could hold the key to addressing one of Britain’s most persistent economic challenges: its longstanding low productivity problem. For years, UK productivity growth has lagged behind other developed nations. Since 2008, it has averaged a mere 0.27% per year, compared to 1% in the United States and 0.7% in Germany. Historically, British employers have sidestepped this issue by relying upon cheap labour from abroad rather than investing in efficiency or innovation.
However, as employment costs soar ever higher, that era appears to be coming to an end. With every additional pound spent on hiring and retaining staff, businesses are being forced to rethink their approach. Investing in new technologies and boosting productivity is fast becoming a necessity rather than a choice. The recent wave of redundancies was only the first sign of this shift. Now a new survey from the British Standards Institution highlights that the default position for employers is to look first at whether it is viable to invest in new technology and AI, as opposed to taking on a new employee.
New Survey
The new survey from the British Standards Institution has found that almost a third (31%) of employers look at artificial intelligence (AI) solutions before contemplating taking on a new employee, with 41% reporting that AI is now enabling them to reduce staff numbers. Hence, the business response to rising employment costs is not simply a matter of trimming headcount, but instead a wholesale reimagining of how work gets done, with the emphasis firmly upon investing in new technology and increasing productivity
The survey also found that:-
- 39% of employers said entry-level roles have already been reduced due to AI handling research, administrative, and briefing tasks.
- 43% expect further reductions in junior jobs within the next year as AI tools become more widely implemented
- A quarter of business leaders believe most or all entry-level tasks can be performed by AI, underlining automation's potential to replace rather than support human workers
- 55% of employers believe the benefits of implementing AI in terms of boosting productivity and reducing costs, outweigh the negative impacts on the workforce
- 76% of employers expect tangible benefits from AI deployment within the next year, mainly due to productivity increases and cost savings
- Large companies are twice as likely as SMEs to have dedicated learning and development programs for AI skills, highlighting a growing divide between business sizes.
Younger workers are likely to face the brunt of the job losses and of a considerable lack of employment opportunities going forward according to the survey, as employers are primarily targeting entry-level roles for automation, with employers of the view that AI is now capable of performing most tasks traditionally assigned to junior staff.
Promoting Economic Growth Without Leaving Workers Behind
The accelerating adoption of new technology and AI by employers offers an opportunity to tackle Britain’s chronic low productivity problem, positioning the nation to compete more effectively on the global stage. With productivity improvements now a necessity rather than an option, forward-thinking investments in innovation could finally close the gap with international competitors.
However, this progress comes at a steep societal cost. The unsustainable rise in employment costs by the Government threatens widespread job losses, particularly among young people striving to launch their careers, risking a generation left behind and deepening social divides.
To secure both economic growth and high levels of employment, government action is urgently needed to lower the costs of employing people while still incentivising employers to invest in productivity-boosting technologies. Striking this careful balance will be essential: only by making employment affordable and fostering ongoing technological advancement can the UK overcome its productivity challenges and build a future that works for all.
