Skills gap stifling SME manufacturing growth

Published:  30 September, 2015

The growth plans of more than one in four of Britain’s small and medium sized manufacturers are being jeopardised by a shortage of skilled people, according to the annual Manufacturing Survey by MHA, the UK-wide group of accountancy and business advisory firms.

The survey, supported by the manufacturing team at Lloyds Bank Commercial Banking, sampled 400 predominantly SME manufacturing and engineering businesses, and found that recruitment issues were acting as a significant barrier to expansion for 28% of companies. Unsurprisingly, when asked what should be top of the government’s to do list, a quarter of respondents said they wanted more emphasis on skills training in schools and colleges to help develop the next generation of engineers and technicians.

The report also identifies that concerns over the ‘skills gap’ have had a knock-on effect on the sector’s optimism, with confidence about future prospects declining among 16% of respondents when compared to last year’s results.

Nine out of 10 companies also say their production costs will rise in 2015 for the fourth year in a row, primarily through higher wages. It seems with over 70% feeling unable to increase prices to customers, productivity gains are becoming ever-more important.

Meanwhile, the burden of red tape continues to be an issue for manufacturers, with 98% stating it was a concern for their business – and with over half of these (55%) feeling that the burden of regulation was increasing. The impact of auto-enrolment is likely to have played a part in these findings, says the report.

Chris Coopey, head of manufacturing at MHA, commented: “The survey provides a valuable insight into the challenges facing a sector with considerable growth potential but one also struggling to recruit the skilled people needed to help deliver plans for growth. While there are some hopeful signs for the future, such as the increase in STEM students at A Level and employers playing a more pro-active role in schools, signposting engineering as a ‘go to’ career in secondary schools just doesn’t appear to happen, so improving careers advice and skills training within the education system needs to become a major focus of debate if we are to attract the next generation into manufacturing and engineering.”

David Atkinson, head of manufacturing, SME, at Lloyds Bank Commercial Banking, added: “The news that we are facing a significant skills shortage is no surprise, but it should be alarming that the issue is now reigning in the ambitions of management teams across the sector. Without a solution the UK’s manufacturing and engineering industry will not be able to fulfil its potential and we will see the UK economy continue to be dominated by the services sector.

“However, the answer does not just lie with the government. We must all help to tackle the issue and one of the primary reasons we have partnered with the Lloyds Bank Advanced Manufacturing Training Centre is to address the skills gap. Due to open later this year at the Manufacturing Technology Centre, the centre will develop more than 1,000 new engineering apprentices and trainees, ensuring that there is an influx of skilled workers into the manufacturing industry over the coming years.”

Main findings:

• Optimism for growth over the next 12 months is down 16% among respondents, although 76% still predict expansion.

• 28% cite problems recruiting skilled staff as the main barrier to growth, along with a lack of motivated applicants. In addition, 26% would like to see the government expand skills training in schools and colleges.

• 55% expect to increase headcount in the next year, with 56% taking on apprentices or trainees.

• Almost half (49%) are aiming to offset production cost increases through efficiency gains, with 74% of respondents reluctant to raise prices for customers.

• There was a 15% increase in the number of SME manufacturers trading with the Eurozone (now 98% of all exporters), with smaller increases in the numbers exporting to North America (up 2% to 59%) and Asia (up 4% to 50%, excluding China), as businesses seek to expand their markets.

The MHA Manufacturing Survey also finds around eight in every 10 companies committing to R&D investment this year, although surprisingly 17% remain unaware of the benefits associated with R&D Tax Credits. In general investment on plant and machinery, capital expenditure is planned by 92% of businesses, with 48% of these expecting to spend more than last year.

In common with the rest of UK business, the sector continues to grapple with auto-enrolment, with 47% of businesses surveyed fully funding the cost of the programme, and a further 21% undecided on their approach.