Enginuity report says labour costs holding back growth

High employment costs are now outstripping energy costs as the most cited source of pressure to raise prices, creating inflationary headwinds and threatening the competitiveness of the UK labour market, according to a new report from the former sector skills council, Enginuity.

Skills shortages – where the labour is available but not with the right skills for the role – are also hampering business growth and causing SMEs to hold back on investment. The vast majority (80%) of SMEs (small and medium-size firms) that engaged in the research experienced difficulties finding suitable staff during recruitment in the last 6 months. 

Only 15% of SMEs think that the UK labour market is attractive, and only 24% said that labour and skills shortages have not affected their business. The UK’s skills system is fundamentally failing to meet industry demand in engineering and manufacturing. SMEs struggle to engage with the UK skill system, despite making up the vast majority of the manufacturing sector, a priority industrial growth sector for government.

Enginuity - a former Industry Training Board and Sector Skills Body - produced this report to help employers in the manufacturing and engineering sectors to close the skills gap. The report captures insight from 135 manufacturing and engineering micro and SMEs from across the UK, who represent 6,500 employees and £1.1 billion worth of sales.

Initiatives to help SMEs to thrive
The employers that engaged in the research remain optimistic about the year ahead, even while operating in a labour market they find challenging. The recent Industrial Strategy has provided a strategic 10-year vision for business and demonstrates the Government’s commitment to kickstarting economic growth. Awareness of the strategy is high among the employers that engaged in the research, providing an opportunity for the Government to focus on helping SMEs to thrive.

To unlock public and private sector investment in skills, Enginuity is calling on the Government to focus on replacing fragmentation with cohesion, and complexity with clarity. To realise employer commitment, SMEs need strong institutional arrangements, cultural esteem for vocational learning, and long-term policy continuity. This will allow SMEs to help the Government meet its ambition to kickstart economic growth, break down the barriers to opportunity, and make Britain a clean energy superpower.

Poppy Bramford, the report’s author and Enginuity’s policy manager (pictured above), said: “This report is striking confirmation of how severely the skills system is failing the majority of engineering and manufacturing SMEs, and stifling their ability to grow. Despite significant increases to employment costs, SMEs remain determined to keep investing in training. While the Government wants to see increases to employer investment in skills, barriers keep SMEs locked out of the skills system that would enable them to do so.”

She concluded: “For SMEs to realise the ambitions of the UK Government on economic growth, the skills landscape must move beyond policy chop and change by injecting longevity and SME engagement into policy creation.”