Three quarters of UK business concerned about impact of labour shortages on competitiveness - CBI / Pertemps Network Group

Jobs market rebounds as hiring and pay rises accelerate

The UK’s jobs outlook is strengthening, with a net balance of 50% of firms expecting to grow their workforce in the next year*. However, around three quarters (76%) of businesses are reporting access to labour as a threat to the UK’s labour market competitiveness – the highest proportion since the question was first asked in 2016.  Supporting firms to plug the shortages gap in the immediate term is therefore vital. That’s according to the CBI and Pertemps Network annual survey – in its twenty-fourth year and with 422 responses.

• 87% of businesses are planning to recruit permanent roles this year, with nearly half of firms (46%) expecting higher levels of recruitment and only 9% expecting lower levels of recruitment for such roles compared to the past year.
• Access to skills (noted by 77% of companies) and the ability to move UK workers across the EU (69% of companies) also feature heavily in businesses’ list of current concerns**.
• Asked for their top three factors vital to labour market competitiveness, 89% said finding enough people with the right skills, followed by a flexible labour market (47%) and a healthy workforce (35%).
• Positively, nearly 7 in 10 firms (68%) are planning to either increase pay in line with or above inflation – making the rebound the highest since the question was first asked in 2009.
• Nearly 3 in 5 firms (59%) are keeping Covid-19 safety measures in place to support employees’ confidence to return to offices.
• As employees return, businesses are expecting changed working patterns to stay. Compared to working pre-pandemic, over three quarters (76%) expect the use of hybrid working to increase, 40% expect full time remote working to increase, and 58% expect informal flexibility to increase in their organisation.

Matthew Fell, CBI Chief Policy Director, said:

“After a challenging year it’s encouraging to see the jobs market rebound. With demand returning, businesses both small and large, have put their recruitment plans into action. But as the UK’s labour market emerged from one crisis, it’s been plunged into another, with shortages holding back growth.

“Whilst firms have been stepping up to address labour shortages through further investment and training, these steps take time and do little to ease the pressure firms are facing now. From logistics to hospitality, firms are feeling strain across the whole economy, and expect this to continue not just for two months but two years.

“Immediately reviewing and updating the Shortage Occupation List so that firms can temporarily fill the most significant vacancies would provide businesses with some breathing room. In the longer-term, skills policies should help workers gain the abilities needed to fill shortages.”

More businesses expect to match or exceed inflation at their next pay review, but almost half of firms (47%) believe labour costs are impacting labour market competitiveness

Nearly one in four businesses (24%) expect to increase pay above inflation and 44% of firms plan to increase pay in line with inflation, up from 29% in 2020. Encouragingly, fewer than 1 in 10 businesses are planning to freeze pay (8%), down from 33% in 2020. However, the proportion of businesses that believe that labour costs are impacting labour market competitiveness has increased from 34% in 2020 to 47%.

Similarly, most respondents affected by the National Living Wage (NLW) believe the Low Pay Commission should take the cautious approach of matching inflation next year (56%), while around one in ten businesses (12%) have asked to freeze the rate. Over 4 in 10 businesses (42%) believe it’s too soon to know the impact of the pandemic on the viability of the government’s 2024 target to increase the NLW to 2/3 of median earnings, while 27% already think that the target should be delayed.

Matthew Percival, CBI Director of Skills and Inclusion, said

“Pay intentions are rising across the board as firms reopen and the economy recovers. This could be challenging though, for those businesses that remained shut during lockdowns and need to recoup losses and pay off Covid debts.

“Pay rises need to be underpinned by productivity or risk being passed on to customers through higher prices. The Government using the upcoming Budget to boost business investment will be key to achieving this and preventing rising employment costs damaging labour market competitiveness.

“Businesses are committed to raising living standards and think the Low Pay Commission should protect the real terms value of the minimum wage rather than recommend unstainable larger increases. It’s too early to know the impact of the pandemic on the National Living Wage target for 2024, so this will need to be kept under review.”

Firms are keeping health and safety measures in place to support the return to office

Businesses are playing their part to boost public confidence in living with the virus. To support a confident return to offices, the survey found that over half of UK businesses (59%) are maintaining health and safety measures. While many firms already have flexible working arrangements in place, nearly a further third of firms (31%) are increasing flexibility for start and finish times so people can choose when they travel to and from the workplace.

Transitioning to new working arrangements continues to be a focus for firms, with around three quarters of businesses (76%) expecting hybrid working patterns to increase compared with pre-pandemic levels. Businesses are taking steps to support this transition, including investing in new technology to facilitate new working patterns (60%), changing the layout of the office space to accommodate a hybrid/flexible workforce (55%) and creating tailored strategies for mental health and wellbeing to accommodate all workers regardless of working time/location (52%).

Carmen Watson, Group Chair for the Pertemps Network Group, one of the UK’s largest recruitment specialists, said:

“There is a lot to be positive about and this survey reflects the trends and optimism we have been seeing in our monthly Labour Market Updates recently.  It is also heartening to see that the majority of companies are including mental health strategies in their new working arrangements, like hybrid strategies. This is as important as colleagues having the right tech to work more flexibly.

“Talk of a shortage of candidates is not new and, inevitably, this is hitting the economy now in many different areas. It goes to further illustrate the importance of recruitment strategies, not just for companies, but also across the public sector, to both help in the short-term and manage the talent pipeline in the longer term.

“What I think will also help is the fact that the survey shows seven in ten business are planning to increase pay, at least in line with inflation but, with many looking to go further. This will make roles with those firms more attractive to the candidates out there, particularly set against the backdrop of rising consumer goods prices that are really impacting daily lives for most people.

“Offering remuneration that is competitive and in-line with the role is a key piece of advice we are repeatedly giving to clients in the current climate, more so than ever before.”