Three-quarters of UK companies hit by labour shortages in last 12 months

Three-quarters of respondent businesses have been impacted by labour shortages over the last year and a majority now believe the issue is a threat to labour market competitiveness, in a new survey out today (Tuesday).

In its annual Employment Trends Survey with Pertemps Network Group, the CBI reports that “shortages in the labour market are having a material impact on firms’ ability to operate at full capacity, let alone grow.” Many businesses have responded by investing in training, while also increasing pay and improving their offer to staff to help retain workers and attract new recruits.

The survey found that:

• Nearly half (46%) of those who have faced labour shortages in the past 12 months have been unable to meet output demands; 36% made changes to or reduced the products or services they offer, while 26% reduced planned capital investment.
• Nearly three quarters of respondents (72%) said the UK has become a less attractive place to invest/do business in over the past five years.

• Respondents were most likely to see shortages of labour (75%) and access to skills (72%) as threats to labour market competitiveness. Concern about labour costs (59%) has risen on last year and the cost of living (69%) has become a significantly larger threat. Meanwhile, concern about the impact of employment regulation (35%) has been stable.
• Seven in ten respondents (70%) thought access to labour would still be a threat to labour market competitiveness in 5 years’ time.
• In response to labour market shortages: 55% of firms reported that they are investing in training to upskill current employees; 56% are investing in base pay; 45% in improving their Employee Value Proposition; while 40% are investing more in technology/automation.

• When asked what measures government should prioritise to help ease labour shortages, 46% called for the government to introduce incentives to help businesses invest in technology and automation to boost productivity, while 44% wanted government to grant temporary visas for roles that are in obvious shortage.

Matthew Percival, CBI director for skills & inclusion said: “It is crystal clear that labour market shortages are having a material impact on firms’ ability to operate at full capacity, let alone grow.

“Businesses are pulling every lever they can to attract and retain employees, but this is making productivity boosting investments like training and automation harder.

“To go for growth and build a higher-wage economy we will need to ease shortages to create the conditions for higher investment. That means helping more British workers to overcome barriers into the workplace, like a lack of affordable childcare, and taking a pragmatic approach to immigration.

“The Government has committed to looking at both issues which is great to see, and urgently updating the Shortage Occupations List should be the starting point. The Apprenticeship Levy stops firms investing in the skills their employees need and is in dire need of reform.”

Carmen Watson, chair of Pertemps Network Group, said: “The issues we are seeing in terms of labour shortages are not new and are not going to go away in the short term. The issues are being exacerbated by the current economic climate.

“Candidates are in a position to be very selective. It is not all about salary – real pay growth currently stands at minus 2.5%, taking into account inflation, so employees are feeling the pinch. As well as doing everything possible to address this pay growth shortfall,  it is about the whole package of incentives, wellbeing support and flexible working that is on offer when an organisation is seeking new employees.

“The figures in this survey should be a wake-up call to any businesses who are not already taking a long, hard look at their attraction and retention policies.

“We need to reach out to all the people out there. There is a wealth of untapped talent who, with the right incentives and the right training, can be a valuable resource to overcome the concerns expressed by respondents to this survey.

“For companies to survive this, they need robust attraction and retention policies, with investment in training and development and a focus on diversity, equality and inclusion, as well as the environmental performance of the organisation.

“There is no single thing that can be done to solve the labour issues – it involves collaboration between supply chains, businesses and recruiters to come up with longer-term, sustainable, recruitment strategies.”

On future hiring intentions and the impact of inflation on pay reviews:

• A third of respondents (33%) planned higher levels of recruitment for permanent roles over the coming 12 months compared to the previous year, down from 46% last year, while 39% expected the same level of recruitment.

• Nearly half (46%) of respondents whose firms are taking action to support employees on cost of living reported bringing forward or having additional pay reviews, and 36% gave staff one-off bonus payments.
• A third (34%) of respondents reported that their organisation’s approach to the next pay round was best described as ‘giving a general increase below inflation’, significantly higher than previous years; organisations giving a pay increase in line with inflation (29%) is the lowest since 2012.
• Only 7% expected to provide a general pay increase above inflation in their next pay round, the lowest in almost a decade.

Jennifer Beckwith, CBI deputy director for employment policy, said: “One of the ways high inflation hurts households is through making it harder for employers to offer the kind of pay rises that will match the rising costs people are facing without putting up prices. It also means most businesses, and the highest proportion since we started asking the question in 2018, are now worried about labour costs threatening UK labour market competitiveness.

“The Government has moved swiftly to support households and businesses on energy costs, and firms are doing what they can to find ways of supporting their staff through the cost-of-living crisis. In the months ahead, Government and business will need to work together to set the UK on a path to higher productivity – the only sustainable way to achieve long-term wage growth.”

When asked what the Government should do next on the National Living Wage, the survey found that a narrow majority of employers (53%) thought that they should be focused on productivity and growth in order to increase wages across the board, while relying on the current relative target for the National Living Wage (two-thirds of median earnings) to ensure that it rises too.

The Employment Trends Survey was conducted between 16 August and 1 September with 325 firms responding, prior to the Government’s detailed announcement on energy support for business and the fiscal statement.