Virginia, US
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| Zahira Patel

Labour and Skills Shortages Still a Concern for SMEs in the UK

The Confederation of British Industry (CBI)’s latest SME Trends Survey revealed both positivity and negativity amongst small and medium sized enterprises (SMEs) this year. The survey is carried out every quarter by the CBI to assess optimism among small and medium manufacturers in the UK. Three hundred and twenty-eight respondents to the latest survey gave mixed thoughts on the coming quarter for their businesses.

Overview of key trends

The survey revealed that export orders are the highest on record and output continued to rise. However, output has risen at a slower pace than last year and export orders are predicted to slow down in the upcoming quarter. Domestic orders, which have already stalled in the three months from February to May 2018, are expected to decline further. Investment intentions amongst SME manufacturers are reportedly weak and capacity pressures high, with the number of firms citing plant capacity as a factor likely to limit output rising significantly. 

On the other hand, the number of new employees grew at a very strong pace and this is expected to continue into the next quarter. Interestingly, optimism amongst the respondents has remained unchanged over the past three months and firms expect to maintain a strong pace of growth in output prices over the next three months.

Concerns over skills and labour shortages

The key take away from an immigration perspective is the persistently high concerns over skills and labour shortages, with 21% of respondents citing skilled labour as a factor likely to limit output in the next three months. This is slightly lower than in the previous survey in which a high of 29% reported concerns over skilled labour. However, hiring people with the necessary skills to drive growth in SMEs remains one of the biggest hurdles to output over the coming months, superseded only by concerns over orders for sales and more recently, plant capacity. 

These results demonstrate the need for certainty and access to skilled labour both during and after the Brexit negotiations. The publication in March 2018 of the Draft Agreement on the withdrawal of the United Kingdom from the European Union went some way to providing the certainty required for businesses, confirming that free movement of European Economic Area (EEA) nationals would continue during the transition period. This appears to coincide with the slight decrease in concern over skills shortages reported in this quarter.

However, concerns over labour and skills shortages, coupled with the recent challenges facing employers who seek to sponsor skilled migrant workers, makes for a more difficult environment for SMEs in the upcoming quarter. These challenges include the Government’s plans to increase the associated costs and the fact that the monthly quota for sponsorship of non-EEA nationals under the Tier 2 (General) visa category has been exceeded consistently since December 2017. Due to the combination of these factors, we expect concerns over labour and skills shortages in the areas required for SME growth to remain high.

SME companies who are concerned about retaining skilled workers in light of Brexit may find it helpful to read George Koureas’s recent article explaining how SME owners can retain EU talent or contact me at zahira.patel@fragomen.com