New Government can boost UK competitiveness with fast decisions on immigration and commitment to flexible labour market - CBI/Pertemps Network Group

The annual survey – in its twenty-second year and with 304 respondent businesses employing 830,000 employees – revealed firms are on track to create more jobs, with over two in five (43%) expecting to grow their workforce in the next year (broadly in line with last year 45%). With SMEs (+40%) being more confident about hiring than larger firms (+18%).

• However, more than seven in ten (72%) businesses fear they won’t have access to the skills they need and identify this as the main threat to the UK’s labour market competitiveness. This is followed by access to labour (55%) and the ability to move UK workers across the EU (48%).
• With access to skills and the ability to move workers around the EU featuring heavily in businesses’ list of current and future concerns, getting the new immigration system right is vital. Nearly three in five businesses (57%) report that that they would be negatively impacted if the new immigration system is introduced before it is simplified so that businesses can actually use it.
• Businesses expect these challenges to grow as over half of firms (57%) believe that the UK labour market will become less attractive in the next 5 years.
• Nearly nine in ten firms (88%) say that UK’s flexible labour market is either vital or important to labour market’s competitiveness and job creation.

Matthew Fell, CBI Chief UK Policy Director, said:

“The UK’s labour market has remained remarkably resilient in the face of tougher economic conditions and uncertainty. But job growth is showing signs of tailing off and businesses are becoming more concerned about the competitiveness of the UK labour market.

“It’s clear what’s weighing heavy on businesses minds is uncertainty about the new immigration system. Businesses believe that this can both support the economy and restore the public’s confidence that immigration is controlled. A strong partnership between business and government is essential to doing so. Whatever the final shape of the new immigration system, it needs to be simple from its first day of introduction and allow firms to access both the labour and skills they need to grow.

“Despite this, it’s encouraging to see businesses continue to support their employees. Whether it’s by improving workforce diversity, encouraging flexible working or investing in training, businesses are taking concrete actions.

“After a generation-defining election, business and government must form a determined partnership and commit to working together to create a labour market that supports people and the economy. Allowing companies to access people and skills they need is just as crucial as forging our future trading relationship with the EU.”

Tracy Evans, Pertemps Group HR & Quality Director, said:

“We are seeing businesses invest in their employees and are already seeing the return from it within the workforce. Businesses are embracing diverse workforces and inclusive workplace practices to ensure everyone feels encouraged to reach their full potential and share in success.

“Closing pay gaps by ensuring fairness to everyone should be of particular importance to UK businesses, to support everyone, at all pay levels within UK plc.”

Improving diversity and inclusion remains at the top of the agenda for firms

Businesses are increasingly implementing policies that foster diversity and inclusion, such as promoting flexible working (68% from 54% in 2018), improving progression opportunities (67%) and investing in training for line managers (67% from 55% in 2018).

Many firms state that these measures are having a direct and positive impact, with these businesses stating that they see an increase in attracting and retaining staff (70% up from 60% in 2018), higher levels of staff engagement (55%) as well as an increase in skills and capabilities (46%).

A majority of firms continue to take steps to improve gender diversity and reduce the gender pay gap (71%). Meanwhile, 65% of respondents are taking steps to improve ethnic diversity and reduce the ethnicity pay gap.

Matthew Fell, CBI Chief UK Policy Director, said:

“Year-on-year, firms are putting in place policies that foster a diverse and inclusive workplace, which, in turn, is unlocking productivity and the full potential of their employees.

“Companies continue to take steps to close the gender pay gap, while a majority are readying themselves for the introduction of ethnicity pay gap reporting. Most businesses cite improving data collection and monitoring progress as a way to combat the pay gap, as, ultimately, what gets measured gets done.”

Businesses face tough decisions to afford the National Living Wage

Around seven in ten firms (68%) expect to raise pay for their employees in line with or above inflation in the upcoming year. But the National Living Wage is expected to rise significantly faster reaching 60% of median earning in April 2020.  Since its introduction, the NLW has risen by 14% from £7.20 to £8.21, far above the rate of median wage growth. This means that the proportion of firms that can simply absorb this higher cost is falling year on year (39%). And this is more pronounced for small and medium sized firms with only three in five (60%) impacted by the National Living Wage being able to absorb its rising costs, down from 75% in 2018.

In response to the rising National Living Wage, affected firms are taking a range of actions, including increasing productivity through greater investment in training (34%) and automation (38%). Whilst businesses across the board are feeling the pinch of the rising NLW, the pressure seems to be particularly heavy for smaller and medium sized firms who also feel less able to find the cash to invest in technology and skills.

Looking ahead, firms expect to offset NLW costs by investing in automation (43%) and training (36%), while others plan to raise prices (32%).

Matthew Fell, CBI Chief UK Policy Director, said:

“Pay growth has picked up throughout the year and is now at its strongest rate since the financial crisis in nominal terms. But the mixture of economic uncertainty, rising non-wage employment costs and poor productivity growth is making it difficult for firms, especially SMEs, to manage pay rises, particularly the National Living Wage.

“If businesses are to continue to raise wages, improving our lacklustre productivity will be vital, with investment in training and automation critical to achieving this.

“Looking ahead, the LPC must be given the flexibility to monitor the impact that the new target of the National Living Wage will have on the economy and workers. This should include looking at pay differentials and their impact on progression opportunities, as well as the impact on jobs and hours, particularly among SMEs.”

Other highlights from the survey include:

• For the seventh year in a row, our survey shows that the rate at which firms add to their permanent roles will increase in the year ahead. Over two in five respondents (42%) expect higher levels of recruitment in the next 12 months and over one in seven (15%) expect the rate of permanent recruitment to be lower, giving a balance of +27%.
• Two thirds of respondents (67%) have taken steps to attract, develop, or retain older works.
• Firms expect their top three priorities for the year ahead to be maintaining or achieving high levels of employee engagement (44%), improving leadership skills (44%) and retaining talent (41%).
• Effective line management (49%) continues to be the key driver behind employee engagement. Shared companywide values (32%) and flexible working practices (28%) are also important.