Birmingham businesses turn to outsourcing amid soaring tax pressures
Birmingham businesses have been coming to terms with government tax hikes as more employers look to cover higher National Insurance Contribution costs and increases to the National Living Wage by outsourcing talent.
HMRC figures have shown that more than 250,000 jobs have been lost since Rachel Reeves announced her autumn budget last year, creating a four-year high for unemployment.
Worryingly, the number of employees on company payrolls tumbled 109,000 in May, representing its largest monthly fall since 2020 and the peak of lockdown during the pandemic.
National Insurance Contributions (NICs) for employers are expected to grow by up to £25.7 billion per year, but these rising costs have severely weakened the business case for hiring on a national scale.
For Birmingham business owners, these tax hikes are already forcing decisive action to be taken to keep operating costs lower.
Even Birmingham City Council has opted to significantly lower its expenses in a bid to future-proof its operations.
In January, the council was reportedly seeking permission to raise resident taxes by 9.9% while planning £153 million worth of cuts to offset higher costs.
Businesses eager to keep growing amidst the tumultuous tax landscape are increasingly turning to outsourcing talent as a means of accessing skilled workers from overseas with more competitive wage expectations.
The Outsourcing Boom
The challenging tax outlook for the UK in the wake of the government’s budget and its implications for NICs is prompting more businesses than ever before to outsource staff.
Demand for outsourcing services in the United Kingdom is expected to rapidly increase over the next three years, with 71% of large companies and 24% of SMEs set to grow their dependencies on overseas workers for back-office support.
In total, 1.3 million businesses nationwide are planning to increase their level of back-office business activities entrusted to outsourcing partners by 2027, with around 600,000 set to use outsourcing for the first time.
This growing trend will be a popular way for Birmingham companies to safeguard their future during a period of widespread uncertainty as new taxation laws come into effect.
Given the relatively flexible nature of Employer of Record (EOR) services, it can be much easier for companies to adapt faster to their scaling needs without losing track of a sustainable business model.
The approach can also help to support the development of existing in-house employees by onboarding knowledgeable remote workers. Either by enlisting the help of an EOR or by working with a contractor, it’s possible to tap into richly skilled overseas workforces to help develop internal competencies. Skilled and competitively priced talent pools, like Indonesia and other modern Southeast Asian nations, are all accessible via reliable providers.
Birmingham as a Tech Hub
While outsourcing is set to become a key trend among Birmingham businesses, it doesn’t mean that local talent has to suffer as a result.
With around 40% of the entire tech workforce of the West Midlands located in Birmingham, it’s clear that the city’s local universities are creating an exceptional conveyor belt of fresh talent to feed startups and established firms.
Crucially, outsourcing can help to nurture fresh talent through the exchange of expertise between in-house teams and external parties.
This means that outsourcing is far more than collaborating to complete tasks as a team; it can help businesses affected by higher NICs to continue to upskill their staff by transferring knowledge and improving the competencies of their young employees.
One of the biggest advantages that outsourcing can bring is the pooling of skills and resources at scale. This occurs when a diverse range of talents, experiences, and perspectives converge to help bring new ideas and techniques to processes that may have been more difficult for staff to pick up without overseas insights.
Just saw the confirmation of government funding for a £1.75 billion scheme that’s set to improve rail links between Birmingham and more than 50 national locations, including Lichfield, Worcester, Nuneaton, and Wales.
The Midlands Rail Hub, which was also announced by UK Chancellor Rachel Reeves, can help to cement Birmingham’s status as a hub for tech talent. In including strategic outsourcing among its most innovative firms, the city can become a key location for graduates to work with outsourced professionals to gain new perspectives throughout their respective industries.
Overcoming Tax Challenges
Birmingham businesses will continue to face major challenges to protect their revenue streams amid Reeves’ tax hikes as unemployment throughout the UK creeps higher.
However, outsourcing may present itself as a cost-effective way of securing growth while nurturing in-house talent at the same time.
Although the future will continue to remain clouded for businesses seeking to future-proof their operations, some 1.3 million employers will hope that outsourcing provides some much-needed breathing room. For Birmingham business leaders, outsourcing talent may provide value beyond saving on taxes.