Higher insurance 'could fuel an increase in outsourcing'

24 April 2002
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25 April 2002 | David Arminas

Purchasers could have to deal with an increase in outsourcing after Gordon Brown, chancellor of the exchequer, announced a 1 per cent rise in national insurance (NI) contributions in last week's budget.

Damon Jones, global vice-president of new ventures and outsourcing at the QP Group consultancy, said the rise would tip the scales in favour of outsourcing for many firms.

He said procurement departments themselves could be threatened as companies attempt to fend off the extra cost of employing staff.

"The NI increase is a big tax for many companies," he said. "It could fuel an increase in business process outsourcing as a way to escape higher labour costs.

"In most businesses, procurement is under-resourced. One of the first areas where a company takes out heads is procurement and with the added NI contributions, this decision might be all the easier to take."

Norman Rose, director-general of the Business Services Association, the umbrella organisation for providers of outsourced operations, warned of a rise in contract prices.

"The 1 per cent NI cost on the employees of the outsourced operation is likely to be passed on by the outsourcing company to its client," he said.

"There is the potential for a modest increase to the client."

Outsourcing is already high on the agenda for many companies and an important source of income for consultancies, according to the annual report of the Management Consultancies Association (MCA).

Revenues for its members in 2001 were boosted by a 50 per cent growth in outsourcing, mostly in the transport, banking, hotels and catering sectors. Earnings rose by 17 per cent to nearly £4.4 billion, 27 per cent of which was from outsourcing.

Also in the budget, Brown closed a loophole over payment of bribes. Companies will no longer be able to claim tax relief on payments made to overseas officials in pursuit of contracts and services, including facilitation payments, which were outlawed in the recent Anti-terrorism, Crime and Security Act.

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