David Adams 7 Apr 2017 10:00am

How business can address the skills gap

The skills shortage is a much cited barrier to business, but why does it exist? David Adams looks at evidence for and reasons behind the problem in the UK – and what employers should be doing to mitigate its effects

Caption: Illustration: Jamie Jones

You will probably have noticed how often the phrases “skills shortage” and “skills gap” crop up in news stories and political rhetoric. But to what extent are they threatening the UK economy? And what more could or should employers and policymakers be doing?

The most recent edition of the biennial UK Commission for Employment and Skills (UKCES) Employer Skills Survey, for 2015, showed increases in employers active in the recruitment market and in vacancies. Of the employers surveyed, 6% had at least one vacancy that could not be filled because no candidates with specific skills could be hired, up from 4% in 2013. In total, employers reported 209,000 skill-shortage vacancies, up from 146,000 in 2013 – but this was in proportion with the overall increase in all vacancies.

The survey also reveals the significance of skill-shortage vacancies for many employers: over two thirds of those reporting difficulty filling them said they had experienced a direct negative financial impact as a result, either through loss of business to competitors, through increased operating costs, through having to outsource work, or a combination of all three.

Skills related to operational aspects of jobs, in particular specialist skills relating to specific jobs or industries, and complex analytical skills were the two most common groups of technical/practical skills in short supply. Personal or people skills that were most often lacking included management, sales and customer skills.

More recent skills crisis news stories have included a warning that almost half of UK employers (48%) expected a shortage of suitable candidates to fill permanent jobs during 2017, according to a survey commissioned by the Recruitment and Employment Confederation (REC) in December 2016.

This survey came a month after publication of the Albion Growth Report, an annual survey of 1,000 UK SMEs commissioned by venture capital firm Albion Ventures. Its respondents identified finding skilled staff as the greatest challenge they faced. SMEs in the manufacturing sector expressed the greatest level of concern about finding skilled staff, followed by technology/telecoms and construction.

Emma Roberts, chief executive at the accountancy firm Creaseys, based in Tunbridge Wells, says: “A lot of businesses are having problems getting and retaining the right people – skilled and unskilled: most people I talk to have an area of their business where they’re finding it difficult to recruit.”

Anthony Bruce, partner in the HR consulting practice at PwC, says his company’s research suggests that as technology continues to drive rapid change in many industries, one consequence may be increased demand for more highly skilled individuals. For example, more manufacturers are likely to develop more hi-tech manufacturing facilities over the next few years, reducing overall demand for jobs, but increasing the number of highly skilled technical and management roles.

Elizabeth Crowley, skills adviser at the Chartered Institute of Personnel and Development (CIPD), suggests that for many businesses it is skills gaps, not shortages, that are most pressing: when existing employees lack the skills needed in their current role. The 2015 UKCES figures showed that 14% of employers had skills gaps among their staff; that’s about 1.4 million UK workers. UKCES noted that although the proportion of employers and staff affected by the skills gap had decreased compared to 2013, “the impact of skills gaps increased slightly, and appeared to impact on smaller businesses in particular”.

A March 2017 briefing from manufacturers’ trade association EEF states that manufacturing companies must retain access to highly skilled workers in the EU and elsewhere around the world if those businesses are “to maintain their ability to invest, grow and train in Britain”.

Tim Thomas, director of employment and skills policy at EEF, claimed that the UK “continues to struggle with chronic skills shortages”.

Three-quarters of manufacturers have struggled to fill skilled engineering posts during the past three years, according to EEF research. Nearly seven out of 10 (68%) complain that job applicants lack the requisite technical skills; while 73% express concern about their ability to gain the skills they need during the next three years.

Serious worries have also been expressed about skills shortages and gaps in the construction industry. Concerns are Brexit-related here too. Many construction companies now rely on foreign labour. It is estimated that about 12.5% of construction workers in the UK are non-British, a figure that rises to 23% in London. In October 2016 the Farmer Review, a government-commissioned investigation into how to revitalise the industry, recommended including complete reform of the Construction Industry Training Board (CITB), to enable greater and more effective investment in skills needed by the industry.

Skills shortages may also threaten industries strongly associated with specific regions within the UK. Examples could include technology and life science businesses in Cambridge, according to Peter Hewkin, founder of the Centre for Business Innovation, which facilitates the creation of collaborative “communities” of technology and scientific businesses.

“Even before the referendum, Cambridge was already challenged by a shortage of software skills,” he says. “Everybody was avoiding the obvious solution: training people. If people were able to take the longer view then the answer to all our woes is education.”

In the shorter term, Hewkin fears that life sciences and healthcare technology companies will also face skills shortages if Brexit cuts off the supply of skilled scientists from Europe. If companies can’t employ skilled workers from these countries so easily, they will work with those individuals where they are based instead, he says. “But they won’t be paying UK income tax.” Alternatively, immigration from countries such as the US or India may need to increase.

Stephen Ibbotson, director of business and commercial at ICAEW, says: “We are getting reassurance from government in relation to the highly skilled,” he says. “They understand that if you’re going to have a modern, high-skills economy you need highly-skilled people, and people move around.”

Neither Brexit, nor the fact that concerns are being expressed more forcefully in some sectors, should distract other employers from the possible impact of skills shortages. There are some concerns in professional services industries, including parts of the accountancy sector. Larger firms are particularly concerned about Brexit, but some smaller firms are also reporting recruitment difficulties.

“We are finding it increasingly challenging to get good candidates,” says Creaseys’ Roberts. “We have been in situations where we’ve had vacancies for a year, or for 18 months.”

The government’s focus on apprenticeships is welcomed across industry, including in professional services, even if the Apprenticeship Levy remains controversial. Further changes policymakers and employers could consider include additional support and resources to retrain people returning to the workforce after a career break, Bruce suggests. The government is also encouraging employers to make better use of older workers, through its Fuller Working Lives strategy, launched in February.

Whatever the consequences of Brexit, or any other domestic or international political or economic development, if there is going to be a skills shortage every business needs to make itself more attractive to potential recruits. Employers need to consider the requirements of different groups of potential employees when putting together rewards and benefits packages, from older workers as mentioned above to Millennials. Research suggests many of the latter are increasingly likely to want to work for employers that put a strong emphasis on an ethical approach, employee engagement, training and development; and that enable flexible working.

At Creaseys, ever more emphasis has been put on training and development, says Roberts. “We’ve always been a training firm, but we take on more trainees now, in part because if skills shortages mean you’re looking for a reasonably experienced person for a number of years, you might as well train one up yourself,” she explains.

“Our proximity to London means that effectively we’re competing for those candidates. So we’ve broadened our employee proposition. In addition to our benefits package, we offer a very broad training programme, giving trainees a chance to work in different parts of the business to help them understand in which direction they might want to develop.”

The starting point for employers should be a skills audit and a strategic workforce plan to guide workforce development, including recruitment and training, says Crowley. Employers should also try to work out exactly why the business sometimes fails to fill vacancies – skills shortages may not be to blame.

“You need to understand the current make-up of the workforce and to look at the skills required for vacancies you can’t fill,” he says. “It is critical that employers know how they will fill positions as older members of staff retire – and how they will fill new roles that are needed in future.”