Skills gaps are strangling UK businesses
and stifling productivity
The UK is in the grip of a skills crisis that is affecting many of our industries and impacting productivity, growth and ultimately the bottom lines of businesses across the country.
The jobs market is in one of the greatest states of flux we have seen for decades. Increasing globalisation and digitalisation, the introduction of Artificial Intelligence and the automation of many roles means that industries and jobs are changing incredibly quickly.
And then of course there is Brexit, causing huge amounts of uncertainty about how this will play out in the medium to long term and what the impact will be on the UK labour market.
Shockingly low - UK ranks 23rd out of 26 in Europe for employer investment in skills
To understand the impact of these issues on UK plc we polled over 1,000 UK employers to find out how they are faring in terms of recruiting and training the skilled workers they need to thrive and uncover what challenges they see on the horizon. We also worked with economic modellers Emsi to consider the current state of the UK labour market and predict what it may look like in the coming years.
We hope that you enjoy reading this research and that it gives you a clearer picture of the skills issues that employers are facing and some of the solutions that they are putting in place to help improve productivity and address the challenge of Brexit. With all the turmoil in the labour market at the moment it’s in some ways difficult to predict the future, but one absolutely certainty is change – we are going to see a lot of it. So we all need to make sure that we are ready for it.
Managing Director: City & Guilds, ILM & Digitalme
Skills gaps and Brexit
So what are employers predicting for their near future?
Skills gaps and shortages
The chief concern amongst employers is that we are not currently well-equipped to home-grow the skills that we need in the UK.
'Employers are struggling to fill one in every four job vacancies due to a lack of appropriately skilled candidates.'
Alongside recruitment concerns, over a third of employers also felt their existing staff do not have the right skillsets for the future, and there is a lack of effective leaders and managers within businesses.
Brexit begins to bite
On average our respondents told us that almost a quarter of their employees currently hail from the European Union.
So it should come as no surprise with the deadline for the UK to leave the EU looming large, that employers told us that Brexit was their biggest concern when it came to their productivity over the next three to five years.
Following concerns over Brexit, over two-fifths of respondents stated increased competition was also likely to be an issue, and over a third told us that skills shortages in their industry were likely to be a problem.
Sectors such as construction, catering and hospitality, who rely heavily on overseas labour to fill vital roles, are already experiencing huge recruitment challenges.
The impact of skills gaps on
Skills gaps are hitting the bottom line of UK businesses and diminishing productivity
Difficulty meeting customer demand was noted as the biggest problem affecting 38% of employers. This was followed closely by higher operating costs and having to outsource work to another company.
Over a quarter of employers told us that skills gaps meant they lost business to competitors.
There has been a lot of talk over the last few years about the problems employers are having recruiting new staff, particularly in those industries that tend to be low paid, and which have relied heavily on workers from countries within the European Union. With the lowest unemployment figures for decades, but around 800,000 vacancies being advertised for at any one time, it is fairly clear that competition to attract workers is fierce.
Employer's skills gaps
What needs to be done to fix skills gaps?
Employers were evenly divided between three key areas when thinking about how to tackle skills gaps in the UK:
1. Businesses, educators and Government need to collaborate better
The apprenticeship system does comes on top as a solution for skills gaps with over a fifth telling us that they believed it was the most effective piece of Government policy currently in operation. This suggests that many employers do in fact back the new system, even if there is clearly still significant work to be done amongst the rest to ensure that it is widely adopted.
It also is worth noting that a significant minority (10%) felt that no Government policy at all was effective at tackling skills gaps suggesting that Government may still need to do more work with employers to understand their skills needs and meet them.
Given the current Government drive to reduce migration of skilled workers it is interesting to note that more than half of respondents (54%) stated that recruiting overseas was either successful or very successful at closing skills gaps. This may become much more difficult in the coming years post-Brexit.
2. They recognise that companies need to invest more in training their staff
Over three quarters of respondents ranked their talent management plan as very effective or effective whilst another 77% stated that their management training was either very effective or effective, this is despite almost half telling us that managers and line managers were the most difficult roles to fill.
There seems to be a disconnect in the findings here which suggests that employers may be overly-positive about their current training practices.
That said, it's clear employers see the need for a collaborative solution to reducing skills gaps but also believe they can start to tackle this problem themselves by progressing their own staff.
3. They believed educational institutions needed to be better aligned to the needs of business
We have set out nine recommendations for Government, employers and the education sector which address the concerns raised in the report
1. Careers education, information, advice and guidance (CEIAG) needs to be redesigned for the modern world
We need to rethink the way that CEIAG is delivered to young people today. Generation Z are digital natives - we need to make greater use of digital channels to democratise access to information about careers so young people from all areas of the country and walks of life are able to access the same information.
2. T Levels could help to reduce skills gaps and provide a good route into work for young people if they are better promoted and embedded
The Government will need to invest heavily to promote T Levels to young people and their parents so that they achieve the desired take up. There is also more work to be done to distinguish them from apprenticeships and make it clear to employers why both routes into work are valid and needed.
3. Make the most of the apprenticeship levy to build a talented home-grown workforce and upskill employees at all levels
Brexit could create huge skills challenges particularly in sectors such as accommodation and food services, construction and retail. The apprenticeship levy is an effective tool for developing home-grown talent and enabling people to progress through the workforce. Employers should look at their talent development plans and see where the levy can be used to support reskills and upskilling, as well as entry level recruitment.
That said employers need greater support and advice from Government. Some thought should be given to simplifying the current system, as employers have told us they find its complexity off-putting.
4. Government should consider widening the apprenticeship levy to meet employers needs
There is an appetite from across industry to broaden the scope of the levy and Government must work with employers to understand how they want to use their levy to support skills development in their organisations. This may require employers to provide evidence of investments in apprenticeships to unlock some use of the levy for other reskilling/ upskilling programmes.
5. Investing in training and development activity can have a significant impact on business performance
Britain has some of the lowest levels of employer investment in skills development in Europe with only Greece, Poland and Romania providing less employer funded training.
High-quality training programmes could help to tackle skills shortages by not only upskilling employees to do roles but also by encouraging current staff to stay with the business.
6. Employers should consider investing in quality on-boarding and engagement programmes
Recruitment is expensive and laborious so having a comprehensive programme to pre-board, welcome and support new recruits into a business will mean that employers retain much more of the talent that they have invested so much time and effort in attracting.
Employers should consider allocating a buddy for new hires whilst they settle in, potentially elongating their on-boarding process to as long as a year and ensuring that staff have adequate access to any necessary training and advice needed to do their jobs effectively.
7. Effective leaders and managers will be essential to help businesses navigate Brexit and in the post-Brexit world
Having effective leaders and managers in place during this tumultuous time will be critical in helping businesses navigate change and transition from a pre-Brexit to post-Brexit world.
Employers who aren’t already doing so, should consider putting in place a talent management programme to identify future managers and leaders within their own organisations. Through the use of diagnostics tools they can identify talent within organisations and begin to develop it. This in turn will help with staff retention and engagement.
8. Training and development activity needs to be linked to business performance and its effectiveness constantly measured and evaluated
HR budgets and activity need to be seen as vital to business performance and HR departments must constantly measure their outcomes in terms of productivity and business performance.
9. An independent body is needed to have oversight of UK skills policy and make sure it meets current and future skills needs
Skills policy is currently developed in different places and in silos, resulting in disjointed policy that is not as effective as it could be at meeting UK skills needs now and in the future. Government often also lacks the required level of buy in from employers when implementing policy (as has been seen with the apprenticeship levy.)
We believe a Skills Policy Institute should be created with representatives from across policy makers, education/training and industry to take a holistic view of existing skills policy and look at how it can be most effectively implemented now and in the next 5 to 10 years.