The Sharp Squeeze on Britain’s HR Budgets
AI and hiring cutbackshave quietly prompted one of the biggest resets in HR budgets in years. Couldthat be a mistake?
In a world of AI complexity and rising levels of burnout, workers might feel they need as much help from HR departments as possible. But leaders in the UK have taken a notably different stance, at least for now.
A significant shift incorporate resource allocation appears to be underway. In the aftermath of the pandemic, when talent was scarce, HR departments benefited from rising budgets and newfound strategic influence with CEOs and boards. But that elevated position now appears to be softening. “HR is always one of the first roles that gets squeezed first,” says Drew Hill, a Korn Ferry senior client partner for Europe, the Middle East and Africa.
Indeed, a recent global study of CFO officers and finance leaders found that HR faces the sharpest pullback in planned budgets, with only 29% of CFOs planning increases and 22% expecting cuts. The average budget growth would drop from 2.4% in 2025 to 0.7% in 2026. In contrast, well over half of the those survey expect increases in sales and IT budgets.
In the case of the UK, organizations are feeling a sharp financial squeeze amid economic pressure, rising employment costs, and heavy technology costs. The UK’s government made some sharp changes that added to that pressure, as it increased the cost of employing people. That, in turn, affects hiring and staffing decisions, says Dominic Schofield, Korn Ferry’s chair for Board and CEO Services, UK. British-based HR officers are focusing more on talent development and retention rather than hiring. “You’re seeing unemployment rise,” he says.
At the same time, companies are facing a second, less visible cost surge: AI itself. While adoption is accelerating, the financial burden is significant. Around 30%of UK businesses cite cost as a major barrier to AI adoption, and more than a third say high upfront investment makes it difficult to demonstrate return on investment. Even for firms that have already adopted AI, the payoff is far from guaranteed. Nearly 80% of UK organizations are now using AI, but only about 31% report a positive return on investment, underscoring a widening gap between spending and value creation. Deploying AI tools and training staff is good, but it’s not enough on its own, says Jerry Collier, Korn Ferry’s solution leader, EMEA assessment and succession. “Without work redesign, this won’t deliver a scaled impact,” he says.
Still, regardless of the AI push, some experts says the pullback on HR will backfire. Wrong candidates can hired; onboarding suffers, as well as AI training. Firms cutting HR and people budgets to manage the short-term squeeze are sometimes, simultaneously telling their boards they are committed to AI transformation, says AJ van den Berg, a Korn Ferry senior client partner, London. “Those two things are in direct conflict,” he says. “The heavy lifting does not disappear when you defer, it just gets more expensive.”
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