Workforce challenges outrank inflation and interest rates as a top concern for mid-sized businesses

Workforce challenges outrank inflation and interest rates as a top concern for mid-sized businesses

  • Almost half of mid-sized businesses are facing skills or labour shortages as mounting recruitment costs prevent two in five firms from hiring 
  • This outranks both rising costs and interest rates as a top concern facing mid-sized businesses in the next six months
  • Two-fifths are unable to replace staff who retired during the COVID-19 pandemic as part of mass exodus of over-50s from the UK workforce
  • Businesses are turning to more diverse recruitment practices, automation and artificial intelligence as they call on Government for new support

Workforce challenges such as skills and labour shortages outrank rising costs and interest rates as one of the top concerns facing mid-sized businesses in the next six months, according to the latest research from accountancy and business advisory firm BDO. Nearly a third (32%) say it is one of the three biggest challenges they face, second only to supply chain pressures.

The bi-monthly survey – which looks at the challenges and opportunities facing mid-sized businesses – reveals that almost half (48%) are experiencing skills or labour shortages. Nearly two-thirds (61%) cannot recruit enough entry-level staff, with even more (73%) struggling to plug gaps at a lower-managerial level.

Two in five mid-sized businesses (42%) say it is too expensive to hire new staff because of costs including immigration bureaucracy, National Insurance contributions or higher salary expectations from candidates amid the cost of living crisis. A third of firms (35%) are struggling to recruit enough people due to immigration restrictions, rising to 43% of hospitality and leisure businesses. A further 41% are unable to replace staff who retired during the COVID-19 pandemic, with data from the ONS showing a mass exodus of over-50s from the workforce between March 2020 and November 2021¹.

These mid-sized businesses – defined by BDO as firms with revenues between £10m and £300m that are privately owned, backed by private equity or listed on the AIM market – employ eight million people and provided a quarter of UK jobs as of March 2023, according to further research².

In the face of labour shortages, more than a quarter (26%) are offering existing staff opportunities to retrain, while a third (32%) plan to invest in upskilling over the next five years. A similar number (30%) will use more freelancers to access particular areas of expertise.

In a bid to expand their access to talent, businesses are exploring new hiring methods. One in five (23%) are recruiting more staff through trainee schemes or apprenticeships, while over a quarter (27%) are offering specific incentives to attract more diverse hires, including childcare vouchers or health and wellness support.

One-fifth (20%) are removing academic criteria from job adverts to broaden their candidate pool and 25% are exploring new working patterns such as four-day weeks. A quarter (25%) also expect to see an increase over the next five years in the number of workers aged over 50, as firms prioritise upskilling and retention.

With workforce challenges adding to existing economic pressures, businesses are turning their attention to artificial intelligence and other technological solutions. A fifth (21%) plan to trial or allocate budget for automation and new technologies over the next six months in order to increase efficiency, while more than a third (36%) plan to increase spending on AI in the next five years.

Against this backdrop, businesses are looking to the Government for fresh support. As firms struggle to hire and momentum grows around AI, over a quarter (26%) would like to see investment from the Government in automation to help businesses increase efficiency and cut costs.

A fifth (20%) are calling for immigration policy changes, such as faster processing and additions to the Shortage Occupation List, to plug skills and labour gaps. A similar number (21%) want to see the Government broaden the variety of post-16 education options, while a further fifth (20%) hope to see tax cuts for companies in areas where the regional economy is performing less well.

Ed Dwan, Partner at BDO said: “Workforce issues have the potential to be a real drag on UK productivity. While it’s heartening to see mid-sized firms invest in more diverse hiring and upskilling existing staff, these challenges clearly aren’t going to go away overnight.

“Skills gaps and worker shortages have a real impact on firms’ productivity, output and morale, and could cause a slump in business confidence over the long term. Businesses need a helping hand from Government if they’re to overcome this and achieve the growth we know they’re capable of driving as the UK’s economic engine. More investment in areas such as high-quality apprenticeships, or incentives for people to train in areas where skills shortages are most severe, could have a huge impact.”


Note to editors

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world. 

The organisations we work with are Britain’s economic engine –entrepreneurially-spirited, high-growth businesses that fuel the economy.  

We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.  

BDO LLP operates in 17 offices across the UK, employing 7000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

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