NEW London business leaders say workforce skills gaps stunting economic growth

23 November 2022 – London Chamber of Commerce and Industry (LCCI) has today published the results of its Q3 2022 London Skills Survey, which interviewed 501 London business leaders from micro firms to large-scale companies. Our latest survey reports that skills gaps are a major issue as two-fifths (40%) of London businesses identified that skills shortages are restraining their business growth.

Key findings from the Q3 2022 Quarterly Skills Survey:

 

Amidst an onslaught of economic headwinds for businesses including rising inflation, interest rates, soaring energy costs and the onset of a recession, businesses are struggling to hire in this context of cost pressures:

  • Close to a third (29%) of firms said the cost of doing business crisis was having a major/ big impact on their ability to fill skills gaps.
  • More than half (52%) of large companies (with 250 or more employees) said the cost of doing business crisis was having a major/big negative effect on their ability to meet skills needs. This figure was 38% for SMEs and 28% of micro businesses.
  • Half (55%) of manufacturers also said that the elevated costs environment was harming their ability to meet skills needs in a sizeable way, compared to 27% of service sector companies.

The latest figures show that the number of businesses reporting skills shortages has risen to more than two-thirds (69%) since the first London Skills survey in July 2021, when the figure was (74%). However, there is consistency in the areas where skills gaps have been identified:

  • The most common area for skills gaps was advanced digital skills (23%), followed by sales or business development (20%), and customer service and interpersonal skills (17%).
  • SMEs were more likely to report gaps in advanced digital (34%) and project management skills (32%), while larger business identified gaps in data handling and analysis and project management (both 42%).

The impact of skills shortages was broadly similar across firms of all sizes, with restrained growth, lower turnover and lower productivity among the most damaging effects. Impact varied depending on sector and business size:

  • For manufacturers, the biggest impact of skills shortages was lower productivity (45%), while service sector businesses cited growth being held back as the main result of skills shortages (39%).
  • Micro companies reported that the biggest impact of skills shortages was the negative effect on growth (40%), while around a third cited lower turnover (32%) and reduced productivity (30%).
  • SMEs reported overworked employees (46%) as the greatest impact, followed by difficulty meeting client requirements (42%), and low employee morale (37%).

When it comes to addressing skills needs, 55% of companies said they face barriers when trying to fill skills gaps in their firm at least occasionally, with a quarter (26%) experiencing difficulties most or all of the time:

  • Larger businesses were disproportionately affected with more than three-quarters (78%) experiencing difficulties when trying to address skills needs either all or most of the time. This figure was far higher than in micro firms (24%) or SMEs (43%).
  • The biggest barrier reported by all London firms was insufficient budget for investment in workforce training (27%), closely followed by a lack of suitably skilled candidates in the job market (24%).
  • Other barriers included the cost of training being too high (17%), those leaving school / education not having the skills needed (14%) and the inability to recruit non-UK workers with relevant skills (13%).

Richard Burge, Chief Executive of London Chamber of Commerce and Industry (LCCI), said: “Businesses are operating in the worst economic climate in decades and their financial woes are being compounded a skills crisis that has been left to fester under successive governments. Skills shortages have an acute impact on London businesses and by extension the UK economy and cannot continue to be ignored if the UK is going to turn around its chronic low productivity and growth. Despite our most recent findings demonstrating the dire need for immigration reforms that will help close these yawning skills gaps, it has become clear from their remarks at the CBI conference that the Prime Minister and the Leader of the Opposition have closed their ears to this obvious and practical solution to a perennial problem.

 

“The Prime Minister’s announcement of a Lifetime Skills Guarantee and bolstered efforts to attract AI talent are admirable, but without immediate immigration reform alongside efforts to champion agile and flexible learning, businesses will continue to suffer under the crushing weight of labour shortages. As a global city, we urgently need flexible immigration rules so that the skilled job gaps are – at last – filled. Businesses will be crucial to driving an eventual economic recovery, but without an adequately skilled workforce fit for the 21st Century, they will not be able to deliver the growth that underpins Britain’s shared prosperity.”

 

Alan Stuart, Director for Careers and Employability: Middlesex University, said: “At a time when businesses are under unprecedented pressure to operate and grow due to the economic crisis, it is critical that industry and academia more closely align and collaborate to ensure the skills that business needs to thrive are embedded into the FE and HE curriculum. In this climate it is essential that universities are open to partnerships with businesses to ensure that our students develop the skills and talent so desperately needed to support businesses of all sizes and sectors.”

To read the full report, click here.