Why training is key to solving the labour shortage crisis

Ahead of the budget on Wednesday, Robert West, Head of Education and Skills at the CBI (Confederation of British Industry) explains how reforming the Apprenticeship Levy could help solve the labour shortage crisis.

You don’t need to look far to find that the labour market isn’t working.  Whether browsing a shop window or an online job board, you will find more and more businesses posting vacancies for unfilled roles. In fact, firms are so desperate for workers right now that research shows that job postings hit a 14-month high last month.

Despite the best efforts of firms to overcome the crisis and attract the best and brightest talent out there, unfortunately, there are no signs of a slowdown just yet. Instead, ONS data shows that the country is struck in a perfect storm of low employment rates, record high job vacancies, and a surge of economic inactivity – those who are not in work and not looking for work – post pandemic.

75% of firms have been hit by labour shortages in the past year

For firms, the impact of the labour shortage crisis can’t be understated. CBI research shows that 3 in 4 (75%) firms have been hit by labour shortages in the past year, with estimates finding that this could cost the economy £30-39bn per year.

If left unaddressed by the Chancellor in the upcoming budget, businesses will suffer as they struggle to fill roles and boost their productivity – damaging their bottom line and long-term prospects. For the country as a whole, labour shortages mean that the UK won’t have the workforce and the skills that it needs to grow and compete against global competitors.

Solving the crisis is difficult

However, solving the crisis is difficult. The Government has already put one hand behind its back by saying that it won’t use immigration to fill vital shortages. While the CBI understands the political sensitivity around the Prime Minister promising lower levels of immigration to his party and the electorate, businesses can’t afford the government to ignore any solution to the crisis.

Instead, with one option off the table, the Government must double down on a range of other levers to solve the shortages. In particular, Sunak and Hunt must look at retraining the existing workforce to better fill roles, boost productivity, and overcome the prevailing economic headwinds.

According to the CBI’s latest Education and Skills Survey, more than nine in ten firms (94%) know that they currently have skills gaps to address. However, despite this, firms currently find it difficult to retrain the workers that they already have to fill changing wants and needs.

Skills Challenge Fund

In the upcoming budget, the government must solve this by enabling firms to put resources into the areas that they need the most. They can do this by reforming the Apprenticeship Levy and turning it into a Skills Challenge Fund.

While apprenticeships are vital to the long-term success of the country, they aren’t the be all and end all of training. Businesses always need new skills and talent to adapt to changing demands, and workers therefore need to change too. Creating a Skills Challenge Fund would make it easier for firms to adapt as they can use the levy to fund courses to give workers new skills in areas such as digital, rather than looking outside their organisation for new talent to bringing the skills that they need.

The labour shortage crisis is currently at the forefront of business leaders’ agenda. While vacancies pile up, firms and the government need to look inward, rather than just looking outside at what businesses can do to attract the best and brightest people to join their organisation. Training is crucial in solving the labour shortage crisis and the Chancellor must put making it easier for firms to reskill and put workers on courses at the heart of his budget next week.

By Robert West, Head of Education and Skills at the CBI