UK firms are being squeezed by labour shortages, rising prices and a slowdown in sales, according to a report from the British Chambers of Commerce (BCC).
More companies than ever before are finding it hard to recruit staff with four fifths of employers in manufacturing, and almost as many in the service sector, reporting difficulties in finding the right workers.
Dr Adam Marshall, Director General of the BCC, said these findings suggested the government should listen more closely to business when it came to drawing up its migration policies.
“Business concerns about the government’s recent blueprint for future immigration rules must be taken seriously – and companies must be able to access skills at all levels without heavy costs or bureaucracy,” he said.
The BCC also said that the lack of clarity over the process of leaving the European Union had led to stagnating growth and business confidence in the UK.
Suren Thiru, Head of Economics at the BCC, said the UK economy was facing “persistent Brexit uncertainty and rising cost pressures”.
He added that subdued household spending levels and tightening cash flow was making it hard for businesses, particularly in the services industries to grow.
However he said that upward pressure on prices from higher wage settlements remained relatively muted.
The BCC’s survey covers 6,000 firms, employing over one million people across the UK.
The latest KPMG/REC report paints a bright picture of the UK jobs market. The report for October showed that the number of people placed into permanent jobs in the UK rose at a sharp and accelerated rate, with the rate of growth the second fastest since March. At the same time, billings for temporary staff expanded at the fastest pace since May.
The survey reported continued strong demand for permanent staff within the UK labour market although it did note that the rate of growth was restricted by candidate shortages. On the temp side, an inability to find candidates for permanent positions was cited as a reason for robust demand.
Although job vacancies expanded at the softest pace for nearly two years in October, growth of demand for staff remained historically sharp at the start of the fourth quarter. Starting salaries continued to rise sharply in October, with the rate of inflation holding close to September’s 41-month record. Hourly pay rates for temporary staff also increased markedly, despite the rate of growth edging down to the least marked since March.
Commenting on the latest survey results, James Stewart, Vice Chair at KPMG, said:
“Whilst Brexit may be dampening overall business investment, firms continue to hire new staff at near record rates. With the jobs market so heated, businesses across the country, of all types, are struggling to find work ready staff. A four-decade low in unemployment and a dwindling supply of EU workers means good candidates are at a premium. Consequently, we’re seeing wages pushed upwards and a trend of canny workers job hopping to secure a pay rise rather than remaining loyal to their existing employers.”
APSCo reports strong increase in permanent placements
The Association of Professional Staffing Companies (APSCo) has reported a strong increase in the number of candidates securing permanent roles in July. APSCo’s research, which focuses on professional recruitment, showed a 10% increase in July although there were notable differences by sector.
While permanent placements within IT and financial services increased by 33% and 10% respectively over the 12-month period, the number of marketing professionals securing permanent roles during this time slipped by 11%. Meanwhile, vacancies for permanent staff, meanwhile, fell by 3% in July 2018. At the same time, demand for contractors also slowed down with vacancies decreasing by 7% across the board, signalling a slowdown in demand for talent.
APSCo added that the number of contractors out on assignment in July 2018 was 15% lower than the previous year. Despite this overall decrease, the contract market within financial services remains strong with demand for non-permanent professionals up 27% year-on-year across the sector. The number of finance contractors out on assignment increased by 3% in July 2018.
APSCo said that this strength is likely to be attributed to Brexit uncertainty, with some firms hesitant to increase permanent headcount until there is more clarity around service exports once Britain leaves the union.
Meanwhile, the most significant swing in hiring activity can be seen within the IT sector, where the number of contractors out on assignment plummeted by 33% year-on-year in July 2018. Permanent placements within the sector, meanwhile, increased by the same percentage over the same period.
John Nurthen, Staffing Industry Analysts’ Executive Director of Global Research commented, “While our survey detects year-on-year weakness in placements and vacancies for temporary jobs, the general labour market shows signs of health, with 32.4 million persons employed and total job vacancies up 6.6% to reach 829,000.”
Ann Swain, Chief Executive of APSCo, also commented, “While overall hiring activity remains strong, the current climate is certainly creating interesting activity in the market. Britain’s exports of financial services to the European Union hit a record high last year, and although firms need talent to meet demand, many are understandably reluctant to bring on board permanent talent.”
HMRC has cautioned that some people employed through agencies and umbrella companies who sign up to arrangements that claim to save them tax, could be in effect tax avoidance schemes.
HMRC warned that most employment agencies and umbrella companies operate within the tax rules. However, some umbrella companies and agencies promote arrangements that claim to be a ‘legitimate’ or a ‘tax efficient’ way of keeping more of your income by reducing your tax liability.
These arrangements leave you at risk because you are ultimately responsible for your tax affairs and for paying the correct amount of tax and National Insurance contributions.
These types of arrangements are likely to result in you paying additional tax, interest and perhaps penalties, and are never HMRC approved.
These arrangements may work in different ways, but the companies that use them claim they will help you keep more of your income and reduce your paperwork.
They will tell you that the payment is non-taxable because it doesn’t count as income as it’s a loan, credit, or something similar. These payments are actually no different to normal income, and tax and National Insurance contributions are payable.
The company may tell you that you have to sign up to these arrangements if you want to work for them. If they do, you should seek independent professional advice so that you fully understand the options available to you.
HMRC cautioned that arrangements like these that claim you pay less tax are extremely high risk and said it will always challenge tax avoidance schemes. If you are involved in an arrangement like this, you’re highly likely to be avoiding tax and you could end up paying additional tax, National Insurance contributions and interest. Penalties may also apply.
In summary, HMRC advised that any individuals should get independent professional advice if you’re not sure whether you are involved in this type of tax arrangement.
UK unemployment fell by 65,000 to 1.36m in the three months to June according to figures from the Office for National Statistics (ONS), the lowest for more than 40 years.
Wages, excluding bonuses, grew by 2.7% in the three months to June, compared with a year ago. The ONS figures also showed the number of European Union nationals working in the UK fell by a record amount.
The unemployment rate fell to 4% in the quarter to June. That was the lowest since February 1975 and better than the figure expected by economists. The drop came despite a smaller-than-expected 42,000 increase in the number of jobs created over the three-month period.
On productivity, the ONS also said output per hour worked was up by 1.5% – the biggest rise since late 2016. The figures also showed 104,000 people who were employed on “zero-hours” contracts, which do not guarantee a set number of hours per week, left such work. That left 780,000 people with those conditions as their main job.
It also said the number of people aged 16 to 64 who were not working, looking for work or available to work – what is known as “economically inactive” – increased by 77,000 from the first quarter of the year.
The latest IHS Markit jobs report for July (sponsored by the REC) shows that job vacancies expanded at their quickest rate since last November. Growth was led by the private sector, with demand for both permanent and temporary workers continuing to rise at rates that comfortably outstripped those seen in the public sector.
Permanent placements continued to rise sharply in July, though the rate of expansion was the softest recorded since last October. Temp billings also increased strongly, with the rate of growth picking up from June’s recent low.
Recruitment agencies indicated that candidate shortages weighed on permanent staff appointments. Notably, the supply of both permanent and temporary candidates fell sharply in July, despite rates of decline easing to the weakest in three months in both cases. Low candidate availability and robust demand for staff led to a further steep increase in salaries awarded to permanent starters. At the same time, temp pay rates rose at a marked and accelerated rate that was close to April’s two-year record.
Sophie Wingfield, Head of Policy at REC noted that despite the recent rise in interest rates that employees may be starting to see the benefits of rising salaries: “The rise in interest rates for only the second time in a decade may leave some people feeling the pinch. But a new job is one way people can ease the burden on their finances. With our data showing starting salaries continuing to rise, the latest official government figures suggest that we are finally seeing the effects of a tighter labour market feed through to pay.”
Demand for qualified accountants to work on a contract basis within commerce and industry surged by 44% between November 2016 and November 2017 according to market analysis from specialist recruiter, Global Accounting Network. This reflected a move by organisations to bring on board specialist expertise to arm themselves against future uncertainty, not least Brexit, the report said.
Commenting on this rise of vacancies, Hugh Spurling, Head of Interim Services at Global Accounting Network said:
“2017 saw a strong increase in demand for interim accounting professionals and we expect this trend to continue in 2018. This can largely be attributed to external market conditions, with businesses possibly unwilling to commit to permanent headcount costs against the current landscape and choosing instead to invest in flexible resources, until there is more certainty.”
“The clients we work with continue to seek professionals to oversee transformation programmes and systems implementation, which is positive for market confidence moving into 2018. However, a rise in vacancies for FP&A is indicative of the steps businesses are taking to mitigate against future uncertainty by ensuring that they have the data they need to inform decision making and long term strategies.”
New figures have shown that business investment actually grew in the UK post the Brexit referendum contradicting an initial report.
Revised figures from the Office for National Statistics have altered the picture of the UK economy, lowering figures for economic growth but increasing the estimate of how much households are saving.
According to the changes, business investment — one of the key indicators of companies’ confidence about the future — was higher than previously thought.
The data are particularly sensitive in the wake of last year’s vote to leave the EU. Mark Carney, Governor of the Bank of England, said in August that uncertainty over Brexit was holding back both business investment and household spending.
Business investment rose 2.5% during the second quarter of 2017 compared with the same quarter in the previous year. Earlier estimates found it had not grown at all during the 12-month period. Overall investment spending, known as gross fixed capital formation, was £81.1bn in the second quarter of 2017. Business investment represented £45.7bn of this total. According to the new data, total investment rose 2.4% and business investment increased 2.5% when compared with the second quarter of 2016, after adjusting for price increases.
The data are based on the responses of business to surveys and some companies have been wrongly classifying their investments. Companies had been reporting construction work as capital products.
Correcting this has raised the amount of investment because the different categories require different inflation adjustments. The change in categorisation means that more of the money spent is counted as a real increase in investment rather than an increase in prices.
The change in the rate of investment was not enough to raise overall economic growth. In fact, the ONS lowered growth estimates in the year since the Brexit referendum, because consumer spending had not increased as fast as previously thought. But the data does mean that it is not correct to talk about business investment falling or stagnating, even if investment is continuing to underperform.
UK jobs market remains strong in August – REC
The latest REC Jobs Report (produced by IHS Markit) shows the UK Labour market remained buoyant in August with the number of people placed into permanent job roles continuing to rise sharply.
The rate of growth did ease slightly from July’s record level but temp billings remained strong, with the rate of expansion unchanged from July’s 29-month high.
August’s data pointed to a further steep increase in staff vacancies. Furthermore, growth of demand for staff reached its highest since April 2015. Growth of permanent starting salaries accelerated for the fourth month running in August. Notably, it was the quickest rate of pay inflation seen since October 2015. Temp pay also increased at a faster pace, rising at the steepest rate for 16 months in August.
The availability of candidates to fulfil permanent job roles continued to decline sharply in August, with the rate of deterioration slightly quicker than seen in July. Temp staff supply meanwhile fell to the greatest extent in 20 months.
Commenting on the latest survey results, Kevin Green, REC Chief Executive says: “As this month’s report clearly shows, employers are increasingly turning to recruitment agencies as it becomes harder to find the people to fill the jobs available. There are two trends at play. Businesses are seeking more professional and managerial capability, so we’re seeing high demand for roles like financial directors, analysts, and compliance and HR professionals. Meanwhile, there is a significant shortage of people to fill blue collar roles such as drivers, electricians, and construction workers, and this is being exacerbated by a fall in net migration from the EU.
“In many areas of the jobs market candidate supply cannot meet demand. Employers are having to offer more money to secure the people with the skills they need. While the working population in general has experienced a pay squeeze, there are clearly opportunities now to earn more by moving jobs.
“This is good news for individuals, but businesses will be concerned about the sustainability of this trend. Businesses can only grow if they have access to the people and skills they need. It is essential that the government recognises this by developing an evidence-based immigration system that will support the economy.”
The latest REC/IHS Markit Jobs report shows a sharp and accelerated increase in permanent staff placements across the UK. May’s report shows the rate of expansion at a 25 month high while temp billings also rose at a steeper pace recording the strongest rate of growth since March 2015.
The number of staff vacancies rose sharply for both permanent and temporary roles in the UK during May. Notably the index measuring total growth of demand for staff reached a 21 month peak in the latest survey period. However, the availability of staff to fill vacancies continued to decline during May. While the number of candidates for permanent roles dropped at the quickest pace since August 2015, the deterioration in temporary candidate availability softened slightly since April.
This balance of supply and demand has led to average starting salaries for people placed into permanent jobs increasing at their quickest rate in the three months during May. Hourly rates of pay for temporary/contract staff also rose sharply, despite the rate of growth softening since April.
Commenting on the latest survey results, Tom Hadley, REC Director of Policy says:
“The challenges facing the next government are stark. Demand for staff is the strongest in almost two years, but the number of people available to take those jobs has plummeted. Official data shows unemployment has dropped to the lowest level since 1975, and EU citizens are leaving the UK in droves. Employers seeking to fill vacancies are running out of options.”
“Whichever party forms the next government must focus on improving the employability of our young people and boosting inclusion for underrepresented groups. Alongside this, these figures clearly show that in many sectors we need more, not fewer people so that businesses can grow and public services continue to deliver.”