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Skills shortage in the UK: what that means for your organisation

More than half of UK businesses are currently experiencing skills shortages, and a survey of almost 500 leaders of medium-sized businesses across England and Scotland found that they all thought the current UK skills shortage could pose a threat to their growth.

However, analysis by the New Economic Foundation (NEF) suggests that the current UK skills policy and the £500m committed to help people back to work after furlough will not be enough to meet the scale of the skills shortage challenge. NEF suggests more upskilling and retraining options will be needed for those facing redundancy due to jobs that are no longer required, replaced by automation or for those businesses seeing decline inactivity. In addition, a huge 80% of employers believe that current graduates are lacking in the skills they need to be work ready so it’s clear that education institutions will also need to work more closely with business sectors to help identify and train the skills needed to meet future demand.

10 minutes

Written by The Access Group

Whilst research tells us there are skills shortages in most areas of the economy, in many cases the skills identified as most in need, aren’t actually being trained for inside organisations or are low down the priority list. Whilst reskilling and upskilling are still seen by many employers as ‘nice to have’ employee benefits, they’re going to become vital aspects of future strategy for organisations looking to avoid the impact a future skills shortage could have on growth and profitability.

We look at the scale of the UK’s skills shortage, the skills challenges of the future and how organisations and HR can build resilience in their workforce.

What is the skills shortage in the UK?

The Office for National Statistics (ONS) recently reported that official vacancies in the UK were at a record high of 1.2m making it clear that organisations are finding it harder than ever to fill roles.

There are a number of reasons for this, not least a general labour shortage. Most of us will have heard about sector-specific shortages, for instance, of HGV drivers and healthcare staff. The Institute for Employment Studies estimates there are 600,000 fewer people in work than before the pandemic, likely due to fewer migrants in the labour market, older people retiring, and more younger people in further education. In addition to this growing labour shortage, there are also growing gaps between new jobs being advertised, and the skills within the current workforce to do them.

A report by the Learning and Work Institute (L&W) in 2019 found that the UK skills shortage will cost the country £120 billion by 2030. Overall, there will be a shortfall of 2.5 million highly skilled workers and an oversupply of 8.1 million people with traditionally intermediate or low skills.

The Open University’s Business Barometer stated that employers were paying a significant price to make sure that they had the skills necessary to remain competitive and efficient, with overall shortages costing £6.6 billion per year in the UK, due to recruitment fees, raised salaries, temp hires and training for employees taken on at a lower level than expected. Of course, with the pandemic, rising inflation and new economic challenges, the cost of skills shortages in the UK will only have increased.

This impacts individuals as much as organisations. Millions of people lost their jobs as a result of COVID-19, but the types of jobs emerging from the crisis are now very different from the ones that have been lost, leaving a gap between the new skills required and those that exist in the job market. Growing automation and the skills required to adapt is also putting a strain on other areas of society, from smaller businesses struggling to keep up with the new skills required, and according to a 2020 Mckinsey survey, those with lowest incomes and educational attainment too.

According to a Department for Education’s Skills Needs Survey in 2019, there were around 210,000 ​‘skills-shortage vacancies’ (SSVs), more than double the figure from 8 years previously and this rising number of SSVs has made 24% of jobs inaccessible to current job seekers. Despite this NEF found that only 6% of workers were retraining, suggesting the gap between skilled work and skilled workers is likely to be growing.

Whilst there are wider political discussions to be had on the back of the government’s ‘levelling up’ agenda in order to foster a “high wage, high skill, high productivity economy”, research shows that around 30% of all UK workers may need to transition between occupations or skill levels by 2030 in order to achieve this vision and be prepared for the changing nature of jobs.

The future skills shortage – digital skills gaps and the impact of automation

The World Economic Forum’s Future of Jobs in 2020 reported that by 2025, the time spent on tasks at work by humans and machines would reach level pegging for the first time. It also found that 39% of redundancies are due to jobs that are no longer deemed necessary, while 7% occur because roles are being replaced by automation. We know that machine learning and dynamic but disruptive technologies will only get smarter and more influential in the years to come.

However, the rise of automation is affecting higher and lower-skilled workers differently. For example, new technological processes tend to support the more highly skilled ‘white collar’ professions, helping to automate manual tasks for example. This in turn increases the demand for these services and the professionals to provide them. However, automation is increasingly replacing lower-skilled jobs completely. It’s expected that jobs such as management, ICT, engineering, health and teaching are likely to grow by 19% between now and 2030, whereas administrative and secretarial roles are expected to shrink by around 17%. However, McKinsey reported that those more in-demand roles have an average vacancy rate of 3.6% compared to 2.4% across all occupations, showing the growing scale of the skills shortage.

Securing staff with strong digital awareness and/or the capacity to expand their know-how in this area is an increasingly important consideration for organisations, though the digital skills shortage is increasingly putting organisations at risk of missing out on opportunities for future growth and investment. For example, The Digital Economy and Society Index (DESI) found that 4 out of 10 adults and every third person who works in Europe lack basic digital skills.

There are currently very few programmes running in the UK to tackle digital skills shortages. One such programme run by Generation UK in Scotland, works closely with The Prince’s Trust, Skills Development Scotland and DWP as well as being supported by major employers like Morgan Chase and Microsoft. The aim will be to equip young people with the much-in-demand skills needed to work in the growing technology sector. Related research from Microsoft and LinkedIn looked at how the UK’s universities can help equip students with the skills they’ll need to close the growing digital skills gap. Programmes like this will be vital in helping schools, education providers and businesses work together to tackle the future skills roadmap.  

Which sectors are most impacted by the UK skills shortage?

We know that some sectors have been impacted more than others by the shortage of skilled workers – and by labour shortages more generally.

Prior to the pandemic, only 4-5% of workers in retail and hospitality were undertaking reskilling. By September 2021 job advertising numbers were running at approximately 150% of pre-pandemic levels, suggesting a shortage of workers for these roles. Having being impacted badly by the pandemic, the travel and tourism sector has witnessed a drive to automate back-end processes – just one consequence of the impacts it has felt. But this will also put many people out of work, or create the need for new skills not readily available in the sector.

In the information and comms sector, meanwhile, resilience, stress tolerance and flexibility are increasingly sought-after skills that are as yet fairly poorly represented within that arena. Similarly, in professional services, there is a growing requirement for soft skills such as analytical thinking and innovation but these don’t feature at the top of current training programmes in this sector.

In construction, manufacturing and engineering, 1 in 3 vacancies are now hard to fill due to a shortage of skilled employees with the right qualifications or experience. This has been a growing problem; even back in 2018, nearly a third of leaders highlighted the skills shortage as the biggest challenge for the industry, and a quarter said disruptive technologies were a major issue.

With manufacturing in particular, there’s a growing demand for reskilling and upskilling programmes to focus on more digital skills, from systems analysis and evaluation, as well as technology design and programming. In a survey of 570 HR managers, the VDMA found that 78% experienced challenges in finding those with qualifications in areas such as engineering, while 82% struggled to find skilled workers that have completed vocational training. More than 40% expect to see fewer skilled workers available, so the challenge is anticipated to be getting worse.

EngineeringUK shared the scale of the problem, reporting a shortfall of up to 59,000 people in meeting the annual demand for 124,000 core engineering roles in the UK, with another 79,000 each year with a mix of engineering and other skill sets, likely in line with moving towards a more digital and green economy.

How can organisations help avoid a future skills shortage?

Many organisations are reviewing their recruitment strategies in light of the skills shortages. The Institute of Student Employers found that 23% of companies were now planning to switch from hiring university or college leavers to young people with only school-level education. This move would see employers investing in vocational training for early-career employment, providing the more specific skills and on-the-job training required for their future workforce and diversifying their talent pool. The stats show that competition for graduate jobs rose 17% in 2021 with an average of 91 graduate applications per post, compared to 67 school leaver applications per post, whereas hiring of school leavers grew by 14%.

Other organisations are including reskilling and upskilling in their strategic workforce plans and underpinning this with robust performance management frameworks. These are useful to visually map talent and succession plans. Those that are able to identify the skills required for their future roles and map with the competencies that their existing employees possess will be best placed to support employee development and avoid future skills shortages.

Skills such as complex problem solving, negotiation and emotional intelligence are now increasingly recognised as essential skills, rather than ‘nice to have', enabling organisations to upskill and reskill their internal talent who already have the ‘right’ attitudes, values and shared commitment to business goals. Employers are now investing in developing these ‘soft’ skills in order to be adaptable and resilient to future skills requirements, by nurturing existing talent, restructuring departments to move people in manual or admin heavy roles being replaced by automation into other growing areas of the business, and cutting down on the need to recruit externally.

Technology to support skills development

Whatever your future skills strategy involves, it’s likely to be supported by the right tools and technology to measure its success. For larger organisations with long term growth goals, this will likely include talent and performance management software to help map the future skills required and to identify current competencies and skills gaps. This is usually accompanied by a blend of face-to-face training and eLearning with mobile and self-serve capabilities so that employees can develop their skills in-line with the competencies required in their performance plans, but also with their own personal development in mind.

For example, employee career development software can empower employees to take control of their own skills development. Investing in ways to support employee development can help in counteracting potential future skills shortages. It helps support internal talent mobility and in the process, talent retention, benefiting both the individual for their development and the employer in developing the skills they need for the future.

Organisations that are able to demonstrate that they invest in the development of their employees are more likely to avoid future skills shortages and be equipped to retain and develop the talent they already have.

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