SMEs recognise that the UK economy is suffering from a prolonged skills shortage. The CBI recently warned that this is a barrier to recovery, with 2 in 3 businesses saying they expect their need for staff with higher level skills to grow in the years ahead.
The skills gap is seen as one of the main reasons for the UK’s productivity woes, particularly affecting sectors like engineering and construction. The Institution of Engineering and Technology (IET) found that over half of companies said that a shortage of skills poses a future threat to their businesses, while the Federation of Master Builders said a similar proportion of construction SMEs are struggling to recruit bricklayers, carpenters, joiners and supervisors.
As these gloomy studies indicate, there is a clear need for a skilled workforce. However the question that we really need to address is: how do we convert an abundance of low skilled, inexpensive labour into a highly skilled, productive workforce? Hiring low-skilled staff in droves, while reducing investment in training, technology and equipment, clearly lowers our productivity levels. The UK is woefully behind all of its developed nation counterparts on this key metric. According to The Economist, “a British employee produces a fifth less than a French one, but he or she is more than a third cheaper to hire.” British employers are choosing to hire more people, who are less skilled and less productive than workforces in other European nations.
Thankfully, small business owners and decision-makers appear to be taking a different approach by focusing on training and upskilling existing staff and turning away slightly from hiring. Our Quarter 2 2015 SME Confidence Tracker showed a steady increase in the number of SME employers investing in their staff, quarter on quarter. This is a positive development, but even small business owners could do more. Around a third are not investing in anything at all, suggesting that they are more uncertain about the economic environment than general business confidence trackers indicate.
Small businesses have a clear role to play in arming future generations with the skills they need to succeed as individuals and to contribute to the wider economy. Government has a role, albeit perhaps not as significant as one might imagine. Government initiatives can focus too much on one solution. The Government’s appetite for apprenticeships has been well-intentioned and largely benefitted SMEs. There is talk of an apprenticeship levy for large companies, which could have unintended consequences for the little guys. If large companies shun apprentices due to cost, that could bring the whole Government-backed scheme down. I agree with the CBI that the apprenticeship levy should not be used to subsidise apprenticeships for small businesses.
Apprenticeships in and of themselves will not solve the skills gap – we should look to tailor strategy and tactics to specific industries and sizes of business, because what works for a large corporate may not work for a sole trader. In the absence of a specific policy answer to this problem, SME owners must do more to increase the appeal of working for them. Working for a small business clearly has unique benefits: employees have a bigger voice in the direction of the business, more exposure to a variety of different business areas and a direct line to the Founder and CEO. Young people are struggling to find work, with the latest unemployment figures at 15.9% for 16-24 year olds. It’s time for UK small businesses to really sell the unique aspects of working for an SME to the youth of today, if we are to tackle today’s skills gap – and tomorrow’s.