Employers across the UK have spent the last six months trying to decide how to respond to the increase in employers' national insurance contributions and the increases to the national minimum wage unveiled by the Chancellor last year.
From April, employers’ national insurance contributions rose from 13.8 per cent to 15 per cent, while the minimum wage climbed to £12:21 an hour. The threshold at which employers pay national insurance has also fallen, from £9,000 to £5,000.
Retailers such as Marks & Spencer have estimated the costs of these tax rise to be north of £100 million each. BT has said something similar. Tesco, the largest private sector employer in the UK, says it is looking down the barrel of a £1 billion bill. Sainsbury’s said it would reduce staff numbers by around 3,000 in response.
At a national level, the tax hike has obviously inhibited growth. But what are businesses doing? Organisations are considering various strategies to tackle these increasing costs and offset the impact on their financials.
Building societies are not magically immune from the effects either. Indeed, mutuals collectively employ more than 50,000 people in the UK. Nationwide alone employs 14,000 people. They need to think about the bottom line, too.
The most straightforward approach is to automate, growing revenue while managing the wage bill. Industries that have traditionally relied on cheap labour are increasingly turning to robots. Rachel Reeves’s Budget has triggered a surge in demand for robots as her tax raid makes employing human workers too expensive. In January, Automate UK, the industry body for industrial robots, said over half of its members had seen a jump in enquiries since Ms Reeves announced an increase in employers’ national insurance rates and the minimum wage.
In December, the Lloyds sentiment index, which surveys 1,200 companies, showed a fifth of the companies planned to improve their use of technology, including AI and automation.
Since then, the Fraser of Allander Institute (FAI), part of Strathclyde University, said its Scottish Business Monitor for the first quarter of this year took in responses from more than 250 enterprises around the country. Some 78 per cent indicated higher national insurance contributions had contributed to greater payroll costs. As a result, 47 per cent had reduced hiring or trimmed their plans to expand the workforce and 27 per cent had reduced worker benefits or compensation packages. The research also showed 12 per cent had looked to find savings by using automation and technology.
How might this work for mutuals? Well, building societies will need to develop products and services that attract savers and borrowers, without taking on more staff. That means embracing innovation and automating more processes traditionally undertaken manually probably through the use of AI. They’ll need to examine their processes and overall productivity to identify efficiency improvement opportunities. The budget changes may inadvertently serve as the greatest catalyst for mutuals to seriously embrace digital transformation.
Rather than relying on outdated legacy systems, mutual societies can adopt new technology and increase collaboration. This approach not only meets member expectations (unlike, say, slashing pay) but enables faster decision-making, more efficient asset servicing and superior service delivery. With growing competition from banks, non-bank lenders and challenger brands, maintaining relevance depends significantly on technology adoption.
Equally, businesses for whom the shift to AI feels just too revolutionary could tackle the problem by recognising their core competencies and identify opportunities to outsource specialised functions. Financial services organisations increasingly utilise business process outsourcing (BPO), transferring key functions to experienced third parties with greater expertise and capabilities. This delivers real efficiencies and competitive advantages in areas such as loan servicing, compliance, customer care and service. Not only can it enhance the customer experience, but it can also overcome the regulatory and scaling challenges, too.
By concentrating on their core functions and services, organisations like building societies can streamline operations, liberate vital resources and reduce important costs. In this complex sector, selecting the right partner with appropriate expertise, experience and technology is essential for efficient execution.
The recent hikes in employers’ national insurance contributions and the minimum wage have significantly increased costs for businesses, prompting a strategic shift toward automation and efficiency. While retail giants like Tesco face billion-pound bills, building societies can look to tech, innovation, and automation to expand their capabilities – without expanding their wage bill. Mutuals can embrace digital transformation, adopt AI-driven processes and outsourcing to streamline operations. These changes, though challenging, offer opportunities to enhance competitiveness, meet member expectations, and thrive in a rapidly evolving financial landscape.
