A survey of over 700 directors suggests that 44% of UK businesses are currently experiencing staff shortages, potentially undermining the recovery and stoking emerging inflationary pressures.

Of those affected, 65% attribute worker shortages to the UK’s long-term skills gap, whilst 4 in 10 are struggling with a lack of potential workers from the EU. 21% state that these shortages are due to staff having to isolate. A similar proportion report that furloughed or inactive staff are reluctant to return to the workforce at the current time.

Directors who responded to the Institute of Directors’ survey are finding that the most challenging roles to recruit are in the ‘professional’ and ‘associate professional’ categories – although ‘skilled tradespeople’ are also much in demand. The sector worst hit by staff shortages is hospitality.

In response to these shortages, 81% of directors would support loosening immigration requirements as a way of easing the pressures on the labour market.

Labour shortages are also impacting on the salary costs facing business. Three quarters of directors say they are concerned by this. Half of those affected are observing increases in wage costs in excess of 5%.

In order to ensure that any recovery is not stymied by a dysfunctional labour market, the IoD has called on the government to increase its efforts to train workers, facilitate the issuance of working visas and reduce the costs of employment. It urges a number of measures including a suspension of the immigration skill charge for small businesses, a temporary cut to non-wage costs such as employers’ NICs by raising the employment allowance for start-ups and hospitality firms, and tax incentives for spending on training.

Joe Fitzsimons, senior policy advisor at the IoD, said: “Employers are keen to re-build following an incredibly turbulent 18 months for business. But the issue of labour shortages is proving disruptive across a huge range of sectors and at all levels. Ensuring that workers are available with the right skillset to perform effectively is a crucial pre-requisite for recovery.

“Although there is light at the end of the tunnel, with COVID restrictions continuing to ease, businesses are still relying on the government to address the ongoing challenges within the labour market. There are actions the government should take in the immediate term, although they must not neglect the longer-term skills gaps employers are facing.”

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