The UK’s human resources sector has become disproportionately large, costing businesses billions of pounds every year, according to a new report from think tank Policy Exchange.
The centre-right research institute claims that the UK’s HR industry is proportionately almost twice the size of the European Union and around 60 per cent larger than the United States. This “labour misallocation” is estimated to cost the economy around £10 billion a year, compared to a scenario where the sector was at US proportions.
Between 2011 and 2023, the number of people working in HR roles in the UK increased by 83 percent, far outpacing the 13.5 percent growth in the overall workforce over the same period. Policy Exchange calculates that 1.6 percent of UK workers are currently employed in HR roles, compared to 1 percent in the US and 0.8 percent across the EU.
The report argues that the expansion was driven in part by equality, diversity and inclusion (EDI) requirements, which it said have created a “shadow regulatory environment”. While the authors acknowledge that such policies are often well-intentioned, they contend that they can incur significant compliance costs and reduce productivity.
Andrew Griffith, the shadow business secretary, said the findings suggest a need to rebalance regulation and business autonomy. He argued that excessive bureaucracy increases companies’ risk-taking and diverts focus from core economic priorities.
Policy Exchange recommends the repeal of certain “positive action” provisions in the Equality Act 2010, which allow employers to take targeted action to tackle under-representation. It is also recommended that government agencies should not consider EDI guidelines when awarding contracts and should refrain from promoting diversity initiatives in the private sector.
The think tank calls, among other things, for a revision of the legal definition of “equal work” in order to limit claims of equivalence between different roles. It cites an ongoing legal battle with Asda, with workshop workers seeking equal treatment with warehouse staff in a case potentially worth more than £1bn.
Baroness Cash, a former Equality and Human Rights Commission commissioner, said reform was needed to ease the burden on businesses.
The government rejected the report’s conclusions. A spokesman said they do not recognize the figures given and insist that equality and economic growth are complementary. Ministers continue to push for mandatory reporting on ethnicity and pay gaps for people with disabilities and require employers to publish action plans alongside gender pay gap data under the Employment Rights Act.
The debate reflects broader tensions between calls for deregulation to boost growth and arguments that inclusive workplace policies strengthen long-term economic performance.
