A significant majority (62%) of employers surveyed by the CBI and West Midlands-based recruitment specialist Pertemps predict a decline in the UK as an attractive place to invest and do business over the next five years. Notably, businesses are increasingly pessimistic with a 6% upswing in those concerned that the UK is set to become ‘much less attractive’.

The latest annual CBI/Pertemps Employment Trends Survey outlines the challenges facing both Government and business in getting the economy growing again. Firms report that their unease arises from several factors, including a lack of detail about the Government’s Plan to Make Work Pay proposals and the potential for unintended consequences. However, the survey also points to how Government and business working together can address the challenges identified, including firms reporting that quickly implementing the Growth and Skills levy, or making simple changes to the Apprenticeship Levy as an interim step would make it easier for them to invest in workers’ skills.

The survey found:

• A negative swing in expectations for the impact of the labour market on the UK as a place to invest and do business in the next 5 years. 36% of employers think that the UK labour market will become a much less attractive place to invest and/or do business in the next 5 years, an increase of 6% since last year. A further 26% think it will become slightly less attractive.
• 39% of businesses currently think the impact of employment regulation on flexibility is a threat to labour market competitiveness, but that jumps to 58% over the next 5 years. This is the main change in perceived future threats to competitiveness, joining skills gaps (71%), labour shortages (58%) and labour costs (56%) as the most commonly identified risks.

Only 26% of businesses currently say they are confident they can absorb the cost of the government’s Make Work Pay plan for workers, given the limited information they have, without a negative impact on growth, investment, jobs or employee benefits. 54% either disagree or strongly disagree that they can afford the higher costs they expect from the package without there being unintended consequences.

Matthew Percival, CBI Future of Work and Skills Director, said:

“We share the Government’s primary mission to boost investment in the UK to deliver long-term, sustainable growth and raise living standards for people across the country. It has set a clear direction through its Make Work Pay plan to support workers.

“While business recognises the objectives of many of these reforms, the lack of detail about how they will be achieved has created damaging uncertainty. Businesses are concerned that achieving these goals in the wrong way risks significant unintended consequences for growth and for workers.

“The hard reality is that companies are already struggling to keep up with the pressures on their bottom lines, especially SMEs, and that further pressure from employment costs will inhibit their ability to invest, hire and grow.

“Working collaboratively with business to develop the detail as the Government turns its ideas into legislation will be critical to making a success of the Plan to Make Work Pay whilst simultaneously delivering the objective of reaching their 80 per cent employment target.

“For instance, taking on a new employee is often seen by business as taking a risk, particularly for small businesses. While the government has said that businesses can use probation periods, the possibility of decisions at the end of probation being challenged at employment tribunal has 75 per cent of respondents saying they’d be more cautious about taking on new staff. This can be avoided with well-designed policy where the Government applies new probation rules that require only a light touch process for dismissal. Harnessing the voice of business as part of a two-way conversation will lead to a fruitful partnership with Government bearing better policy decisions.

“An implementation timeline that allows business to co-develop policy and prepare for the changes will help drive certainty and confidence. Similarly, a public commitment to ensuring the new probation rules are ready before the old rules are removed would smooth the transition to a fair and flexible labour market that is fundamental to growth and works effectively for both employee and employer.”

Future hiring intentions and next year’s pay reviews

Hiring intentions remain stable compared to last year, with half (48%) of employers expecting the size of their organisation to be larger in 12 months’ time than it is today.

More than two thirds (69%) of employers have some level of confidence that they will be able to recruit or train enough workers to meet their organisation’s skills needs at Level 2 and 3 over the next three to five years. This drops to 64% for Levels 4 and 5 and 65% for Level 6.

Carmen Watson, Chairperson of Pertemps, which has its headquarters in Meriden, said: 

“It’s encouraging to note that hiring intentions remain positive, with nearly half of organisations expecting to have a higher headcount in the next 12 months. It’s therefore hugely important that investment in skills training moves from its current slow position to one of a more proactive stance.

“To ensure businesses are supported in their hiring endeavours and staff retention, it is essential that Skills England, when reforming the current levy system, allows sufficient flexibility to support the development of both new and retained talent.

“While accepting that any skills funding must ensure comprehensive and high-quality training to ensure successful outcomes, Skills England should note that one size does not fit all and, therefore, a more modular approach and delivery would be appropriate.

“It is interesting to note that up to 69 per cent of employers have some level of confidence they will be able to recruit or train enough workers to meet their skills needs. This will largely depend on the availability of UK talent and the effectiveness of the proposed skills training.

“Despite 56 per cent of respondents highlighting labour costs as a challenge, 20 per cent of respondents are planning an above-inflation pay increase compared to 8 per cent this time last year.”

Policy solutions to reverse slowdown of investment in skills

Growth in skills investment is slowing compared to the last time data was gathered in 2022 (38%) and is down on pre-pandemic norms, with just 1 in 3 employers (34%) planning to make higher investments in the training and development of staff over the next year relative to investment over the past twelve months.

Meanwhile, three quarters of respondents (76%) rank access to skills as a threat to labour market competitiveness, and over two thirds of respondents (71%) believe it will continue to threaten competitiveness in five years' time.

When asked about policy changes that could help the survey found:

• 52% of respondents and 80% of businesses with 250+ employees believe that greater flexibility in the apprenticeship levy would incentivise them to invest more in training their workforce.
• Six in ten respondents agree that the levy should fund any form of accredited training.

Matthew Percival, CBI Future of Work and Skills Director, said:

“Alarmingly, fewer firms plan to increase their investment in training despite acute skills shortages. The Government should expedite its proposal to reform the Apprenticeship Levy into the much-needed Growth and Skills Levy, starting with action at the forthcoming Budget that will immediately boost business investment in training by making those funds available to businesses now.”

www.pertemps.co.uk