Pay Is Rising, but We Must Overcome the Skills Barrier

Neil Foulkes, Area Director for Lloyds Bank Commercial Banking in the Thames Valley and South.

Neil Foulkes

This month Lloyds hosted an event in Berkshire where we sat down with influential figures from across Thames Valley to discuss the issues that will shape the future of business in the region and across the UK.

We hold events like this all the time, but this one was particularly enlightening, not least because more than nine out of 10 of those firms attending told us they were planning to spend more on wages in the next year.

That sounds like great news for workers – disposable income is growing strongly – but it reveals a headache for employers who are being forced to dig deep to attract the talent they need to keep generating growth.

This is backed up by the latest Thames Valley Business Barometer, a twice-yearly snapshot of business and economic confidence in the region from BDO and C8 Consulting, which focused on the challenges that businesses face around recruitment and retention.

It found plans to grow headcount were up from 59 per cent to 64 per cent year on year – only three per cent expect to cut jobs in the next six months – but businesses are struggling to find the right people to recruit.

Indeed, 59 per cent of those surveyed said that they were having more difficulty finding staff with the skills they needed to fill their vacancies than a year ago.

Sectors need skills

We know that businesses are facing particular issues in sectors like construction, engineering, IT and manufacturing. Demand for skilled staff appears to be outstripping supply, driving competition for a limited pool of people and pushing up wages as employers strive to secure the staff they need.

The pipeline of skilled workers was undoubtedly disrupted by the economic downturn, as firms rationalised their workforces and cut back on all but the most essential investment, with training falling down the agenda for many.

The end result is that we now find ourselves with an ageing workforce and a skills gap that is fuelling wage inflation.

Further research from recruiter Hays found the UK’s talent mismatch level – the gap between the skills people can offer and those employers are looking for – has grown every year since 2012.

A growing gap

The UK’s current talent mismatch score of 9.7 out of 10 puts it among the worst in Europe, piling on wage pressure as the economy continues to rebound and leaving companies with no choice but to pay a higher premium for the best people.

The skills gap threatens the UK’s already weak productivity and the government has put tackling it at the top of its agenda, including a plan to train up 3 million apprentices by 2020.

Hearteningly, productivity across the UK economy rose at its fastest rate in four years in the second quarter of 2015 at 0.9 per cent, according to the Office for National Statistics (ONS).

But the ONS also found that unit labour costs – the cost to companies of employing staff – rose 2.2 per cent in the second quarter of 2015 against the same period in 2014 – faster than at any time since 2012.

This should be a trigger for businesses and trade associations to reassess the effectiveness of their training structures and schemes.

Time for training

The Thames Valley Business Barometer found that 58 per cent of the region’s firms had no school leavers training programmes or apprenticeships, and only five per cent are now planning on introducing a scheme.

Firms wanting to plan for long-term growth should consider investing in getting a formal in-house training programme in place, capitalising on the knowledge they already have in place and passing it down to new recruits.

Not only will this aid in recruitment, it also helps retain valuable staff.

At Lloyds’ Thames Valley event, 94 per cent of the business leaders attending told us they plan to ramp up investment in their business over the next 12 months.

We’re doing our bit at Lloyds Bank too. We’ve committed to contributing £1 million every year to the Manufacturing Technology Centre in Coventry, which has been backed by the UK Government and will develop more than 1,000 manufacturing apprentices aged 16-19 during the partnership.

It’s time to invest in people and foster our home-grown talent.

Only then will we overcome the skills barrier that is holding back progress for British businesses and UK PLC.