The steep tax hike announced in the UK’s recent budget is forcing businesses into “damage control” mode, with many reconsidering hiring plans and contemplating job cuts. 

According to Rain Newton-Smith, CEO of the Confederation of British Industry (CBI), the measures are hitting employment and investment strategies hard, leaving firms scrambling to manage rising costs.

Speaking at the CBI’s annual conference this week, Newton-Smith said: “Tax rises like this must never again be simply done to business. Too many businesses are having to compromise on their plans for growth.”

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The Labour government’s budget included a £40bn tax increase, largely driven by higher employer contributions to national insurance. 

This has sent shockwaves across the business community, with a CBI survey revealing that nearly half of the 266 responding firms are now considering reducing headcount. Close to two thirds are also rethinking their hiring strategies in light of the increased tax burden.

High-profile business leaders are raising concerns. Salman Amin, CEO of McVitie’s maker Pladis, highlighted the growing difficulties posed by the tax hikes: “It is becoming harder to understand what the case for investment is,” he said.

Retailers are equally alarmed about the ripple effect on inflation, following the announcement of a national minimum wage increase. Simon Roberts, CEO of Sainsbury’s, cautioned: “Higher costs for employers would push inflation up just when it’s been brought to normal levels.”

HR must step up as a ‘strategic partner’

With nearly half of firms considering job cuts, HR departments are under immense pressure to find innovative ways to manage workforce costs and maintain productivity. 

Ian Moore, managing director at Lodge Court, stressed the critical role HR plays in avoiding reactionary decisions: “HR departments play a vital role in helping UK companies manage the challenges of higher business tax charges without slipping into ‘damage control’ mode. Strategic workforce planning is key here — HR can optimise staff costs by introducing flexible work schedules, such as part-time or remote options, to balance expenses with productivity.”

Moore also highlighted the importance of upskilling and reskilling employees to adapt to evolving business needs, fostering innovation, and empowering employees to propose cost-saving measures and process improvements.

Gemma Bullivant, an HR and coaching consultant, echoed these sentiments, calling for HR to embrace its role as a strategic partner:

“In times of economic uncertainty, it’s vital for HR to step forward as a strategic partner, not just a support function. HR is just as much a commercial partner as any other member of the senior leadership team and has a unique role in steering the business away from reactive decisions and towards strategic, sustainable profitability.”

Bullivant argued that effective workforce planning and organisational design can help businesses avoid knee-jerk responses, maintaining employee morale and operational stability.

“We need to hold our nerve and stay focused on the fact that HR’s proactive involvement is critical to ensuring that the business can weather challenges without resorting to ‘damage control’ mode.”

Modernising HR and empowering managers

The increased tax burden, coupled with rising national minimum wage rates and new employment law changes, is intensifying the strain on HR departments. 

Simon Fowler, CEO of Empowering People Group, warned that these pressures could significantly increase HR resource needs. “Our own analysis reveals that new day-one unfair dismissal rights could increase HR resource needs by up to 13 per cent, further compounding the strain mentioned,” he said. 

Fowler argued that organisations must empower line managers to take on more day-to-day people management responsibilities, enabling HR to focus on strategic priorities. However, this requires investment in training, tools, and modern systems.

“To effectively achieve manager empowerment, organisations need to ensure that investment in technology enhances ways of working and enables managers to quickly and efficiently respond to their team’s needs in the moment,” he explained. 

“As managers are able to self-serve more employee relations matters without involving HR, HR is able to spend more time developing people-first strategies that align with business goals.”

The pressure to cut costs is also reshaping compensation strategies. Moore added: “Aligning compensation strategies with financial goals is another critical step. 

“By informing employees about financial constraints and inviting their input, HR can foster trust and collective resilience, ultimately supporting long-term business growth.”

For more resources, view the CIPD’s latest appeal to HM Treasury on the Autumn 2024 Budget and Spending Review.