What does the Autumn Budget really mean for SME employers?

“It’s going to be a tough five years”, says Jason Collings, co-founder of talent strategy experts, Quarsh. “If you’re thinking of cutting back on your hiring, you’re not alone.”

Jason has already seen SMEs across the UK making changes as a result of the October 30th Autumn Budget announcements. We caught up with him to understand what it really means for SME employers. 

Not just expense, but risk

The biggest changes for SME employers in the Autumn Budget were the increases in National Insurance, the minimum wage increase and the National Living Wage increase. As a result, says Jason, “we’re seeing a lot of small and midcap organisations cutting their hiring completely, reducing it dramatically or just saying they’re only doing critical rehires”. 

The reason behind this is not just the expense of the Budget changes. “It’s just too risky”, he says, “because of the risk profile that comes with the announcement of increased employment rights for immediate hires”. 

Unless SMEs absolutely have to hire, they won’t, he believes. Combined with rising inflation, this means less available money, less investment – and consequently, less growth. 

“We’ve already seen that national growth has stalled in the last couple of months”, highlights Jason. “I don’t see that changing any time soon. As business leaders, we’re not being given the levers to make growth happen and – regardless of your politics – you can’t have growth based on giving payrises to public sector employees. You have to increase productivity, which means you need more people doing more stuff more efficiently. Without the levers to make that happen, it’s problematic.”

Unemployment and automation

Step one, says Jason, is cutting hiring. Step two? Laying people off. 

“We’re already seeing in the open letter by various major employers – including the supermarkets and Amazon – that they believe the Budget will lead to job losses”, he says. “Of course, it’s those large employers who employ people on minimum wage who have seen their salary burden jump inordinately. The combination of NIC with living wage jumps has made supermarket workers, shelf stackers, packers, pickers, hospitality staff, retail staff and seasonal staff much more expensive to employ.”

As businesses that already work on low margins, it is unlikely that they will simply be able to swallow these costs. Instead, they will lay people off – and perhaps turn to automation as a solution. 

“We’re going to see more automation, whether that’s more self-service tills in supermarkets or more robots in Amazon warehouses”, he predicts. “This will increase unemployment, leading to lower tax revenues as fewer people will be working to pay tax. And we’ll have higher benefits bills because more people are going to need to be supplemented.”

Offshoring and relocating

Automation may not always be the solution to these hiring challenges. Jason talks of one of his clients with an offshore development centre. “They’ve just shifted a plan to hire 20 to 30 people”, he says. “While they still plan on hiring them – they’ll do so overseas instead. As a result, they’ll save themselves money – and while the quality of the hires may not be as high as they’d achieve over here, the risk and the additional costs of UK hires mean their decision makes financial sense.”

Another of Jason’s contacts – a UK manufacturing business – intends to keep its distribution in the UK, but move everything else to South Africa. “It’s the same time zone, it’s still an English-speaking country, and the amount of money they will save on salary costs more than makes up for the distribution costs of shipping everything to their UK client base.”

Where do the opportunities lie?

Despite the doom and gloom, Jason firmly believes that there are a number of opportunities for businesses to explore. 

The first is automation – whether that is AI, robotics, improved systems or something entirely different. “There are a lot of sophisticated ideas and pieces of technology being developed by a number of organisations”, he says. “With some, there’s the opportunity to be part of their study group if you ask – giving you beta access to new technologies very cheaply.”

He advises playing around with ChatGPT and other AI options. “Look at what automation is out there”, he says. “There’s going to be a capital cost but once you’ve made it, you’re not having to pay a salary”. 

Robots and AI will never replace your entire team, and that’s where a focus on recruitment comes in: ensuring that where you are hiring people, you’re hiring really good people. 

“There are still lots of organisations out there that have very poor recruitment processes – leaving it to somebody in administration or HR”, he says. “I have a huge amount of respect for HR staff, but people and recruiters are very different animals and they often seem to be lumped together. You need to have a good recruitment methodology, a good recruitment process, and great people doing your recruitment for you to deliver the best people.”

Jason believes that too many organisations are still reliant on their friendly neighbourhood agency or adverts on LinkedIn or Indeed. “Research has shown that this approach gives you access to just 3% of the pool of potential candidates”, he says. “You have to ask the question: are they really the best 3%?”

The solution? More proactive methods, such as building networks, creating talent pipelines, engaging with people and using the right search methodologies. 

Another key area of focus, says Jason, should be improving efficiency. This can be done in a number of ways, from improving focus to simple things like effective time management. “As an example”, he says, “so many people seem to work to hour-long meetings. They go into a meeting with no agenda, no chair, no minutes, no actions at the end of it and no follow-up to ensure that things are done. 

Finally, Jason highlights that a greater focus on better management can make a significant difference. “There was a study done last year that revealed that something like 87% of managers in the UK have had no formal management training”, he says. “It’s the only professional job I can think of where you have no training and you’re given the role because you’re good at doing something completely different.”

In contrast, in the US around 86-87% of managers have had formal training – and the difference in productivity, says Jason, is astounding. He advises that SMEs look at their managers and ensure that they are the right people, and trained in the right – and the same – way to ensure that both they and their teams succeed. 

With the changes brought about by Labour’s Autumn Budget, competition for talent amongst SMEs is not going to get easier, predicts Jason. “The people who are good are going to be in higher demand because businesses can only afford to hire lower numbers of people – they’ll really want the good ones”, he explains. Are your recruitment, management and retention strategies up to the challenge?

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