Diversity and inclusion policies are costing UK businesses billions each year, according to a new analysis that claims the country’s human resources workforce has expanded far beyond that of comparable economies.
The report argues that spending linked to diversity, equality and inclusion initiatives, alongside the growth of HR teams, is placing increasing financial pressure on organisations at a time when productivity and growth remain under strain.
It also raises concerns about how resources are being allocated, suggesting that a larger share of employees are now working in support and compliance roles rather than revenue-generating positions.
Research by Policy Exchange, a UK-based think tank focused on public policy, estimates that the scale of HR employment in Britain is contributing to around £10 billion in additional annual costs compared with a workforce structured more like that of the United States.
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HR workforce expands faster than wider labour market
The report found that 1.6 percent of the UK workforce is employed in HR roles, compared with around 1 percent in the United States and 0.8 percent across the European Union.
This expansion has accelerated over the past decade. Between 2011 and 2023, the number of HR workers in the UK increased by 83 percent, far outpacing overall workforce growth of 13.5 percent.
Policy Exchange argued that this reflects a broader shift towards compliance, governance and internal policy development, driven in part by the growth of diversity and inclusion programmes.
Zachary Marsh, a research fellow at Policy Exchange and co-author of the report, said government-backed guidance had contributed to what he described as “a mass of shadow regulation that businesses feel obligated to follow”.
The report also suggested that spending on diversity-related training could be significant, estimating that such programmes may cost businesses more than £1 billion annually.
Policies ‘affect productivity and hiring’
The analysis claims that some diversity and inclusion initiatives, while designed to improve fairness and representation, may have unintended consequences for performance and decision-making.
Andrew Griffith, the shadow business secretary, said the balance between regulation and autonomy had moved too far. He said the current approach made organisations more cautious and slower to act, adding that it left them “focused upon ticking bureaucratic boxes rather than delivering for their customers”.
He also pointed to the growth of HR and corporate responsibility roles, arguing that the expansion had created functions that were not directly linked to core business output.
Policy Exchange said directing resources towards compliance and reporting requirements could limit investment in other areas, including hiring for operational roles and business development.
HR leaders defend compliance and fairness frameworks
Kate Palmer, chief operations officer at Peninsula, a UK-based company that provides outsourced HR and employment law services, told HRreview that the UK’s regulatory framework was designed to balance compliance with fairness across workplaces.
She said HR structures in the UK were built to support both organisations and employees. “HR policies and frameworks in the UK are robust and aim to ensure fairness, compliance and protection for both employers and employees. This includes areas such as recruitment, data protection, pay transparency and automated decision-making.”
Palmer acknowledged that some organisations could find the requirements demanding. “Some businesses may perceive these requirements as bureaucratic and administratively burdensome, particularly when compared to countries with more relaxed regulations. However, the measures are designed to promote transparency, reduce inequality and ensure compliance with legal standards.”
She said recruitment rules in particular were intended to improve outcomes. “Recruitment practices, including pay transparency and restrictions on asking about salary history, aim to reduce pay gaps and discrimination. While these requirements may increase administrative tasks, they also enhance fairness and competitiveness in the global market.”
Palmer added that compliance could strengthen trust and reputation over time. “Although UK employers face challenges in maintaining compliance with detailed policies and records, these frameworks are intended to create a fair, transparent and equitable workplace environment, which can ultimately benefit businesses in terms of trust, reputation and competitiveness.
“The costs associated with HR and compliance may be higher compared to countries with less stringent requirements. However, these measures are designed to foster trust, reduce legal risks, and support international trade and competitiveness.”
She concluded that regulation remained a necessary part of modern workplaces. “While some businesses may view these requirements as bureaucratic, they are often necessary to create a fair, transparent and legally compliant workplace environment.”
Government rejects cost claims
The government has rejected the report’s conclusions, maintaining that equality initiatives and economic performance are closely linked.
A government spokeswoman said the figures presented were not recognised and emphasised that policy was intended to support both fairness and growth. She said: “Equality and economic growth go hand in hand, which is why we are clear that our focus is on effective equality measures that support businesses to grow and contribute to our economy.”
She added that upcoming reforms under the Employment Rights Act would require organisations to publish action plans alongside gender pay gap data, with further measures planned to introduce ethnicity and disability pay gap reporting.
Debate grows over role of HR, workplace policy
The report has added to an ongoing debate about the role of HR functions and workplace policy in shaping business performance.
Supporters of diversity initiatives argue that inclusive workplaces improve engagement, retention and long-term outcomes. Critics, however, question whether the scale and cost of current programmes are proportionate, particularly in a challenging economic climate.
Policy Exchange has called for changes to legislation and guidance, including reviewing provisions in the Equality Act and reducing the role of diversity criteria in public procurement decisions.
With HR teams continuing to grow and new reporting requirements on the horizon, the discussion is likely to intensify over how organisations balance compliance, culture and commercial priorities.
