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Skills shortages are continuing to bite with firms identifying this as the top threat to the UK’s attractiveness as a place to do business for the second year running. That’s according to the latest CBI/Accenture Employment Trends Survey.

The annual survey – in its 18th year, and with 342 respondents employing nearly 1m employees – found that more than two fifths (43%) of companies will grow their workforce next year, with permanent jobs outstripping temporary roles. The survey, carried out between August and October 2015, found jobs growth has continued across the whole of the UK.

But despite the upbeat picture on job creation, firms are concerned about rising labour costs through the planned National Living Wage (NLW) and the apprenticeship levy, and against the backdrop of an unreformed business rates system. Although companies expect to create more graduate jobs and apprenticeships next year, the rate of growth for both is easing. One in six businesses (16%) believe the new apprenticeship levy is the right approach to tackle the UK’s skills challenges, with almost half (47%) anticipating it being costly and bureaucratic (the survey was carried out before the details of the apprenticeship levy were confirmed in the Autumn Statement on 25 November 2015).

Carolyn Fairbairn, CBI Director-General, said: “The UK’s labour market has continued to outperform expectations with businesses delivering jobs in every region of the UK. But there’s a danger of Government complacency, with companies facing multiple increasing costs, through the apprenticeship levy, the national living wage and unreformed business rates, these are acting as a cumulative drag that could hamper growth.

“Given the uncertainty surrounding the effects of the National Living Wage, it is critical that an independent, evidence-based Low Pay Commission plays the main role in assessing its true impact and recommending future rate rises accordingly.

“The Government must be careful not to sacrifice prosperity for political expediency by saddling businesses with costs that could harm investment, which is critical to increasing productivity.”

More than half of businesses intend giving staff a pay award next year at or above the RPI rate of inflation, but nervousness remains about the impact of the NLW. Half (51%) of service sector respondents indicate they will raise their prices, 27% will employ fewer people and 18% will make changes to their reward packages as a result.

As the economy heads towards full employment, there is a risk that skills shortages continue to worsen. Further restrictions on skilled migration would hamper business activity, with 29% of companies affected reporting they would fail to meet customer demand if they were unable to get the right person, in the right place at the right time. And more than a quarter of respondents said they would look to move certain functions or activities overseas.

Emma McGuigan, Managing Director, Accenture Technology, UK & Ireland said:  “Business optimism is absolutely clear, but these findings also signal a real challenge in the employment landscape. Most significantly, just under half (46%) of respondents reported a lack of skills is threatening to have a major impact on the UK’s labour market competitiveness.

“For that reason, over half (52%) of respondents cited the development and maintenance of digital skills within organisations as having a new urgency, especially as a way to develop new revenue streams. The workforce of the future will not just be more digitally literate, but more capable of delivering new digital business models, customers experiences and business partnerships. These broader digital skills will be essential to boosting the UK’s competitiveness and sustainable employment growth.”

Carolyn Fairbairn, CBI Director-General, added:  “Skills shortages remain a problem, so both the Government and businesses must contribute to building a higher skilled domestic workforce as well as allowing British companies access to the most capable people from overseas.

“Ultimately, we want to see the Tier 2 visa cap raised and for the UK to establish a longer-term and more realistic immigration policy that recognises the economic benefits of skilled migration.

“We know there are significant public concerns about the social impact of high levels of immigration, which should be addressed. But we also need an economy that is thriving and growing to pay for the public services of the future.”

Looking at the findings on job prospects and pay, the survey shows that the health of the UK economy (CBI forecasts GDP growth of 2.4% in 2015 and 2.6% next year) is reflected in the labour market, as more people are now in work than ever before across all regions of the UK, with the number of people in employment rising by 419,000 in the last year.

Growth in permanent jobs (35% plan to increase recruitment of permanent positions with 11% planning to reduce it, leaving a positive balance of +24%) is set to increase faster than temporary positions (16% plan to increase recruitment of temporary positions with 12% planning to reduce it, leaving a positive balance of +4%).  Encouragingly, the survey found 62% of businesses expecting to have entry-level roles suitable for young people aged 16-24.

On apprenticeships, 25% plan to increase recruitment with 6% planning to reduce it, leaving a positive balance of +19% respondents looking to recruit next year, and more than a third want to see employers given greater control over the levy (the survey was carried out before more details of the apprenticeship levy were confirmed in the Autumn Statement on 25 November 2015).

Graduate positions are also set to rise, though at a slower rate than last year. 22% of firms are set to increase graduate recruitment, with 6% planning to cut back, leaving a positive balance of +16%.

Commenting on the findings, Neil Carberry, CBI Director for Employment and Skills, said:  “The UK’s labour market is in fine fettle, though it’s clear that maintaining flexibility is of the utmost importance to employers.

“Companies are concerned about the apprenticeship levy and view it as a payroll tax, so the CBI is determined to work with the Government to ensure that businesses see their money is spent in the best way.

“The levy board will also need to focus on delivering quality apprenticeships, not just the quantity to hit a political target.”

Other highlights from the survey include:

  • When asked about their view of the UK as a place to invest in five years’ time, there is still considerable optimism: two fifths (41%) of businesses anticipate that the UK will be much more or slightly more attractive in the future
  • 25% this year believes the UK will become a less attractive business location in five years’ time. This means the overall balance of respondents expecting the UK to be a more attractive place to invest and do business in future has declined from +31% in 2013 and +25% in 2014 to +16% this year
  • The new right to Shared Parental Leave (SPL) has proved largely problem free. Half of respondents (50%) have simply updated their HR policies to reflect the new rights
  • Multi-skilling employees to improve organisations’ productivity and capacity to adapt is now the leading form of flexibility, operated by nearly four in five respondents (79%), followed by flexibility over location for work (73%).

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