In its annual Employment Trends Survey with Pertemps Network Group, the CBI reports that labour shortages are having a material impact on firms’ ability to invest, respond to demand and grow. Nearly 7 in 10 businesses (69%) are trying to narrow the gap by investing in training to upskill current workers while 3 in 5 (60%) are investing in technology and automation to improve productivity and reduce reliance on labour.

The survey found that:

• More than a third (38%) of businesses have been unable to grow and respond to new business opportunities despite demand due to labour shortages in the last 12 months, while more than 1 in 5 (22%) have had to hold back investment in other parts of the business and 1 in 10 (12%) have shrunk due to shortages.
  

• More than three quarters of respondents (76%) said the UK has become a less attractive place to invest/do business in the last five years – the most negative result since the survey began.
  

• Respondents saw access to skills (77%) and access to labour (66%) as key threats to the UK’s labour market competitiveness. Concern about the cost of living (61%) continues to be a threat.
  

• In 5 years’ time, more than 8 in 10 (82%) respondents believe that access to skills would still be a threat to labour market competitiveness, demonstrating the long-term nature of the issue.
  

• To ease the impact of labour shortages; 65% are investing in leadership and management capabilities to help engage and retain employees, 3 in 5 (60%) are investing in technology and automation to reduce reliance on labour via productivity gains and 60% are investing in base pay to attract and retain talent.
  

When asked what measures the government should prioritise to help ease labour shortages, 68% called for introducing incentives to help businesses invest in technology and automation to boost productivity and 65% would like to see reform of the Apprenticeship Levy to give employers flexibility to spend levy funds on a variety of training to help fill shortage roles.

Rain Newton-Smith, CBI Chief Executive said: “It is crystal clear that while labour shortages are making it more important than ever to focus on productivity, they are also making it harder to invest and grow, stifling the economic transformation needed to deliver sustainable growth."

“Businesses have been helping people get into work by increasing flexible working and making proactive investments in employee health, but with government support like expanding tax-free health support and subsidising the cost of occupational health services for SMEs, they can do even more."

“More often and more effectively adopting technology will be key to improving living standards. In doing so, we’ll need to help employees add to their skills. That’s why government needs to go further with their skills reforms and turn the Apprenticeship Levy into a Skills Challenge Fund, unlocking firms to invest more capital in improving the skills of more workers than apprenticeships alone."

Carmen Watson, Chair of Pertemps Network Group, said: “Hiring pressures are likely to continue for some time, with more people economically inactive or likely to retire in the next decade than join the workforce. This is compounded further by the record number of people in long-term sickness or disabled and lacking support to enter the workforce."

“While this survey highlights measures firms are taking to ease shortages – like investing more in technology, automation or training to upskill current employees – there is more they can do. Working closely with recruitment specialists on long-term attraction and retention strategies will enable firms to make the best of a changing labour market.”

Ahead of an era-defining General Election and with shortages impacting firms’ ability to grow, business wants political parties to focus on measures that will drive productivity and sustainable growth in the UK.

• 82% of respondent firms support introducing incentives for firms to invest in productivity-boosting technology and automation when asked to what extent political parties should prioritise them in their manifestos.

• Nearly 3 in 5 businesses (59%) support making all skill levels permanently eligible for the Shortage Occupations List.

• 62% of business respondents support increasing the financial support provided through the Access to Work scheme to help employers to hire people with disabilities.

• More than half of businesses (54%) support the introduction of incentives for businesses to invest in workplace health measures.

On future hiring intentions, business’ approach to next year’s pay reviews and attractive employment packages to attract and retain talent:

• The balance of employers expecting their workforce to be larger in 12 months’ time than it is now, is +37% - up from 28% in 2022. 1 in 3 respondent firms (31%) are expecting higher levels of permanent recruitment in the next 12 months while 16% expect it to be lower.
  

• Nearly half (46%) of respondents are planning to increase pay either in line or above inflation for their next pay review. This is an improvement from last year but remains well below the long-run average. 1 in 4 (24%) plan an increase below inflation.
  

• Business continues to help employees manage the cost of living, with more than half (53%) offering more flexibility to work at home to reduce transport and fuel costs, 42% giving staff one-off bonus payments and just under a third (32%) bringing forward or having additional pay reviews.
  

• In response to the NLW, 47% of businesses affected by it are increasing prices to offset the cost. Beyond 2024, more than half of respondents (53%) believe that when assessing the future rate, the Low Pay Commission should prioritise the extent to which increases in the NLW can be afforded by productivity gains rather than causing price rises and inflation.
  

• Investing in basic pay (66%), training and development opportunities (53%) and in developing and communicating a strong purpose and company values (52%) are seen by business as the most important parts of an employment package with regards to attracting and retaining talent.

Carmen Watson, Chair of Pertemps Network Group, said: “Recruitment expectations show that the labour market remains in a strong position, with the number of firms expecting to grow their workforce higher than those expecting it to be lower. Likewise, it is good news to see firms making every effort to match pay with inflation, yet many workers are still feeling the pinch.”

“As workers shop around the labour market for the most competitive employment packages, business is having to do all it can to both attract and retain talent. Two-thirds (66%) are investing in basic pay, more than half (53%) are investing in training and development opportunities as well as (52%) communicating a strong purpose and company values.”

Matthew Percival, CBI Director of Future of Work said: “Pay decisions in the last 12 months have been difficult for businesses and workers with companies having to put up prices to afford pay rises that still didn't match inflation. Fewer than half of companies expecting to be able to match inflation in the next 12 months suggests another difficult year ahead. Employers will need to invest heavily in relationships with their workers and trade unions to minimise disputes and maintain employee engagement.”

"With the National Living Wage set to reach its target next year, businesses want to focus on improving productivity in all jobs and ensuring that those gains are shared with the lowest-paid.”