Businesses still face labour shortages amid rising recruitment costs

Nearly half of mid-sized businesses in the UK are struggling with labour and skills shortages, as the cost of recruiting new staff impedes their ability to hire, according to the latest research from accountancy and business advisory firm BDO.

Two-fifths of firms are unable to replace employees who retired during the COVID-19 pandemic due to mounting recruitment costs, which outrank both rising costs and interest rates as top concerns for mid-sized businesses over the next six months.

A bi-monthly survey conducted by BDO revealed that 48% of mid-sized businesses are experiencing shortages in skills or labour, with 61% struggling to recruit enough entry-level staff and 73% facing difficulties filling lower-managerial positions.

Businesses are calling on the UK Government for new support measures while exploring diverse recruitment practices, automation and artificial intelligence to mitigate workforce challenges.

Amid a cost of living crisis, 42% of businesses claim that hiring new staff has become too expensive due to costs including immigration bureaucracy, National Insurance contributions, and increased salary expectations from candidates. Additionally, 35% are unable to recruit enough people due to immigration restrictions, rising to 43% in the hospitality and leisure sectors.

In response to the labour shortages, 26% of businesses are offering retraining opportunities to existing staff, and 32% are planning to invest in upskilling over the next five years.

Companies are also considering alternative working patterns, such as four-day weeks, and increasing the use of freelancers to access specific areas of expertise.

Ed Dwan, Partner at BDO, stressed the importance of government support in addressing these challenges: “More investment in areas such as high-quality apprenticeships, or incentives for people to train in areas where skills shortages are most severe, could have a huge impact.”

With workforce issues posing a threat to UK productivity, 26% of businesses are looking for government investment in automation, while 20% are calling for immigration policy changes to plug skills and labour gaps.

Additionally, 21% want the Government to broaden post-16 education options, and a further 20% hope for tax cuts in regions with underperforming economies.