New CIPD research on labour and skills shortages reinforces urgent case for a temporary immigration ‘safety valve’ and long-term reform of skills policy

The Government's ambition to transition the UK to a 'high wage, high skill' economy that is less reliant on migrant workers will be undermined unless there are short-term interventions on immigration policy to tackle the immediate labour crisis and long-term reforms to skills policy and business support.

• A temporary job mobility scheme for young EU nationals to act as a 'safety valve' to ease immediate, acute labour shortages
• Reform of the Apprenticeship Levy to create a broader, more flexible training levy to boost employer investment in skills
• Government to provide £60m to fund a business improvement consultancy service via the Growth Hub network to help more firms invest in new technology and improve their people management and workforce development capability

The CIPD's report found that four in ten (39%) employers have hard-to-fill vacancies. This is only slightly higher than in 2019 (36%), suggesting that most labour and skill shortages currently facing the UK pre-date the pandemic. However, certain sectors are facing acute challenges with hard-to-fill vacancies and require urgent intervention to address the shortfall in staff, notably in hospitality, arts and recreation (51%, up from 12% in 2020), health and social care (49%) and manufacturing (47%).

The CIPD's research highlights several challenges that employers in low pay sectors face in attracting and retaining staff:

• A supply 'shock' in key sectors: For example, the CIPD's figures show that in 2018 and 2019, transport employers received a median number of 50 applicants for the last low-skilled vacancy they attempted to fill, but in 2021 this had fallen to just 15. Some employers pointed to the reduction in labour supply from the EU as a factor - most notably in hospitality and transport and storage, sectors which are particularly reliant on EU workers.
• The unattractiveness of key industries: many low-pay sectors don't attract enough UK applicants because of a mismatch between jobseeker expectations and the wages and working conditions offered. Reinforcing the case for more investment in skills and business support, some young, unemployed jobseekers say they would be prepared to tolerate low pay for a period provided that suitable training opportunities and promotion possibilities were provided.
• While some employers have got better at sourcing labour in response to labour shortages, too many employers are not taking action to address skill and labour shortages: Many employers experiencing recruitment difficulties don't have the resources or capability to respond, think labour shortages are likely to be a temporary short-term problem or are stuck in 'wait and see' mode. Recruitment difficulties for some firms are also linked to a narrow, ad-hoc approach to hiring which means they are not reaching out to under-represented groups in the labour market or are overly reliant on recruitment agencies and temporary workers. Where employers are acting to address hard-to-fill vacancies, the most popular planned response is to upskill existing staff (44%). Other responses include hiring more apprentices (26%), raising wages (23%), recruiting more UK graduates (20%) and improving job quality (14%).
• Lack of investment in technology: Just 9% of firms plan to invest in technology as a way of addressing skill or labour shortages, demonstrating the need for short term interventions to get more people into key roles and longer-term, more support for employers to increase the adoption of new technology.

The CIPD is warning that these factors show the need for a temporary immigration 'safety valve' to tackle the immediate challenge of acute labour shortages and ongoing measures to reverse two decades of underinvestment in skills and people management practices by employers and Government. It proposes three key measures:

1. The Government should introduce a temporary job mobility scheme for young EU nationals. This would build on the Youth Mobility scheme meaning it could be quickly introduced in response to the rapid expansion in hiring and to help offset the fall in the stock of EU nationals reported as a cause of recruitment difficulties in the most affected sectors.
2. The Apprenticeship Levy should be urgently reformed to create a more flexible training levy. This would support employer investment in a wider range of skills training and boost their engagement with further education colleges. For example, in transport the funding could be put towards the cost of much needed HGV driver training. Apprenticeship wage rates should also be raised to tackle the widespread perception among young unemployed jobseekers that it's too low to make apprenticeships an attractive option.
3. The Government should invest £60m a year to provide a business improvement consultancy service through the Growth Hub network. This would provide SMEs with up to two-days of free business consultancy support on vital issues such as people management capability, workforce skills development and technology adoption to boost productivity and create better paid and quality jobs.

Gerwyn Davies, senior labour market adviser at the CIPD, the professional body for HR and people development said: "Our research suggests that too often, employers in low-paying sectors see the workforce as a cost to manage down rather than a key value driver to invest in. There's promising evidence that some employers are getting better at sourcing labour and improving job quality in response to labour shortages. Measures such as providing flexible working arrangements can also help attract and retain people and is an increasing expectation from candidates as we recover from the pandemic.

"However, changes in business behaviour, people management capability and investment priorities will take time, time that firms who are struggling with acute skill and labour shortages now simply don't have. In response, there is a strong case for an immediate immigration safety valve to address the rising labour supply challenges some employers are facing. Equally, we hope that the upcoming Chancellor's spending review recognises the need for improvement in the quality and availability of business support, to pave the way for greater investment in skills, people management capability and technology over the longer term."