Group warns of costs impact as it accelerates investment in automation

Co-op has cut its workforce this year in response to the additional financial burden imposed by Labour’s national insurance hike, with its chief executive revealing that the tax increase has prompted the retailer to accelerate its investment in automation.

The group, which operates life insurance and funeral businesses alongside its grocery division, announced on Wednesday that it is reducing headcount as part of a broader plan to save £200m following a cyber-attack last year.

Kate Allum, Co-op’s interim chief executive, told

City AM that the government’s increase to employer national insurance contributions (NICs) at the 2024 Budget came as a “surprise” to the retail sector.

The tax rise pushed the group’s national insurance bill from £100m to £150m per year, landing the firm with a “significant” new financial burden.

“We then immediately fast-tracked things like electronic shelf-edge labels. So now we’ve got electronic shelf-edge labels rolled out to all 2,300 stores. That reduces the burden on staff time and that has been able to be absorbed through natural staff turnover,” she said, as reported by City AM.

“So has it reduced our overall level of employment in certain areas? Yes, but not in a stark way, in a natural way. But that is the reality check of the cost of employment going up over the last three years for all of the retail industry.”

Allum declined to disclose the precise number of roles to be cut from Co-op’s 54,000-strong workforce. “We’re always looking at our processes and how we can execute our business more effectively,” she said.

Retail bosses have warned that the rise in NICs — alongside Labour’s forthcoming clampdown on flexible working — is undermining their capacity to take on staff at a time when youth unemployment is already a pressing concern.

The British Retail Consortium (BRC) — which represents major names including Tesco, Sainsbury’s and Marks and Spencer — has called on Chancellor John Healey to address “soaring employment costs” ahead of next month’s Budget.

Retailers have also pressed the government to overhaul the business rates system, which they argue creates an uneven playing field between traditional high street shops and e-commerce behemoths such as Amazon and Shein.

Allum cautioned the government against introducing tax rises at the Budget that could have “unintended consequences”. Labour should instead foster a “strong economic environment” for the retail sector, she argued.

“For a lot of the rural communities that we support, we are lifeline stores, and we always want to be able to do that. But we do need the support from [the] government to create that certainty and confidence for us to invest in the future,” she added.

Co-op is pursuing a recovery following a cyber-attack last year that dealt a £206m blow to revenue and dented its profit by £80m.

The firm saw its operating loss deepen by £11m to £45m in the six months to July, driven by increased investment in discounting and store improvements.

People off sick from work should keep in phone contact with their boss, government-appointed back-to-work expert Sir Charlie Mayfield has said.

Getting bosses and workers to have a conversation, rather than simply exchanging emails and sicknotes, could help get people back into work, Sir Charlie, who is leading the Keep Britain Working taskforce, said.

His latest report said health-related economic inactivity was costing Britain around £212m a year in benefit payments and lost output.

Talking on the phone was just “one piece of the jigsaw” he said on Wednesday.

The report calls for more workplace support, external for people with health conditions and disabilities and the establishment of a Workplace Health System alongside the NHS.

But improving communication was also a way to “rehumanise” the workplace and help prevent people dropping out of work altogether, Sir Charlie said.

The report does not suggest that someone struck down by flu needs to croak through their symptoms over the phone or that bosses need to provide down-the-line sickbed sympathy if an employee is off with food poisoning.

“I’m not worried about a day here and a day there. It is more about longer term issues,” Sir Charlie told the BBC’s Today Programme.

But he said Britain was doing a “poor job” of handling sickness in the workplace, leading to more people becoming disengaged and dropping out altogether.

“I have met so many people who have said to me, ‘You know, I was signed off sick and I was off sick for a month, two months, three months, and I had almost no contact with my employer’,” Sir Charlie said.

Around 300,000 people leave work every year with a health condition, much of which is preventable, the report said.

Sir Charlie said employees sometimes feared talking about long-term health issues with their employer.

“But the fear is also felt by employers as well because they’re afraid of causing offence or creating a complaint or a grievance,” he added.

Fear on both sides can create a distance and lack of understanding, he warned, with longer absences making it much more likely a worker will drop out of the labour force altogether.

“If you can keep more people in work, there’s a massive opportunity for us to add billions to the economy and, frankly, to people’s livelihoods,” Sir Charlie said.

“To get that, though, you need to have people talking to each other, and you’ve got to more actively manage sickness and ill health in the workplace.”

Employers need to do more, he said, and employees need to engage with it.

Other ways for bosses to support staff include ensuring access to treatments such as physiotherapy and talking therapies, he said.

However, the first office selection process is always made on the basis of cost, convenience of location, or even size of the office. Expensive mistakes are normally discovered much later on in the process.

Based on experience of working with myHQ Spaces and dealing with thousands of office enquiries, there is always the same set of common errors that are made. It is not about selecting the wrong kind of office space. It is about jumping too soon, comparing incomplete pricing, and making decisions on assumptions about the way the business will operate in two or three years’ time.

Mistake 1 — Treating the Quoted Rate as the Cost

The work area offered at £300 per desk monthly does not have to be £300. The VAT is generally levied at the current standard rate of 20% in the UK for all products and services, which implies that the £300 work area cost will amount to £360 inclusive of VAT. This will mean that for a team of five individuals, the cost will be £1,800 monthly or £21,600 annually.

The real issue is whether the figure presented gives you an indication of what is actually included. Room usage could be capped at a certain monthly allowance, with extra hours billed on a separate basis. Other services such as printing, storage, visitor access, out-of-hours access, car parking, etc., could fall outside the stated price. Some organizations quote the price inclusive of VAT, while others quote the price exclusive of VAT.

Mistake 2 — Committing to a Lease Before the Headcount is Settled

It may be wise to go for a traditional commercial lease in case the need for space is quite predictable; however, if you have an uncertain number of employees, it might not be worth pursuing. According to business.gov.uk, company leases usually last 10 to 15 years, although shorter leases have become quite common. It also mentions that break clauses can be negotiated, depending on the terms of the lease agreement.

The commitment goes beyond just paying the rent. There are other commitments involved, like fit-out charges, maintenance, and dilapidations if the property comes back to the landlord in bad shape. This implies that a business will pay rent for office space which it does not need anymore and also the cost to bring the property back into shape. Flexspace can thus be termed as an insurance premium. It involves paying more for each desk, but in doing so, one avoids betting on something that has not even happened yet.

Mistake 3 — Choosing Location by Prestige Instead of Hiring Pool

A premium business address may be impressive for websites and business cards, but it may not be a convenient place for your employees. The office should be in a place that can easily be reached by people through a manageable commute, especially where the expectation is that the staff will attend often. Business.gov.uk identifies proximity to the employees, customers, and transport links as important considerations for business premises.

Such logic does not apply only to London. An enterprise from Bristol could be interested in a centrally-located office, but discover that an office in a less central position will be better because it will be closer to where their primary customers reside. It can happen in Manchester, Birmingham, Leeds or Glasgow. Should an affordable office cost employees an additional 40 minutes of travel time, then the saving on rent becomes meaningless.

Mistake 4 — Taking Space Before It is Needed

The existence of an office might indicate that the company has matured to the next level, but this should not be the factor that determines when the commitment should take place. Should a majority of the staff work off-site, having an office rented five days a week might result in a lot of capacity going to waste. Day passes, membership options, and conference room facilities might serve as other solutions until it becomes clear how much office space is needed.

An alternative approach would be to first create the company, test the market, hire the staff, and then measure the working system that has developed. The reverse approach is very common; get into a big office and hope the people will follow. This gets the order of demand and costs backward. Should the process of hiring take longer than anticipated, then the company is saddled with an office expense without the required number of staff.

Mistake 5 — Not Comparing Like With Like

Two different office quotes may share the exact headline rate but actually signify two entirely different costs. One may consist of meeting room credits, Internet connection, receptionist service, and some utilities, whereas others may not. The deposit amount, set-up fee, notice period, and other such factors may also influence the cost of the agreement.

It is important to first ask all providers the same questions before making a comparison. Questions include: What is included in the price per month? What is excluded from the pricing? What is the deposit amount? What is the notice period? Are the meeting rooms included and, if yes, for how many hours? All of this information should be presented in a straightforward cost comparison on a monthly and annual basis. The goal is not to look for the lowest price per desk.

The Practical Sequence

Making the first decision in regard to the office is much simpler once you make the distinction between the headline price and the real commitment. You need to calculate the total cost including VAT and extras, and align the term of the lease agreement with your level of confidence regarding future staffing. The location should be chosen based on where your team could reasonably do its work, and not simply by looking at prestige factors. In any case, take the permanent space only if you really need it operationally.

https://www.business.gov.uk/invest-in-uk/expand-your-business-in-the-uk/guide/detailed-guides/find-the-right-location-and-premises/

This article was written by

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