Firms spend record £6.6bn plugging skills gaps, report finds

Experts urge employers to take longer-term approaches to talent, as inflated salaries, temporary staffing and recruitment fees add to the financial burden of Covid-19

The skills gap is costing companies a record £6.6bn a year on inflated salaries, temporary staffing, recruitment fees and training, with this financial burden tripling since 2017, according to research.

The figures, from the Open University’s Business Barometer, which surveyed 1,000 business leaders across the UK between July and August this year, highlighted the growing cost for UK employers of plugging skills gaps. This cost stood at £2.2bn when the annual survey began in 2017, and has now risen to £6.6bn a year – a 39 per cent rise on 2019.

The skills crisis “may now be escalating to critical levels, as some skills increase in value despite large numbers of people losing their jobs”, the report stated.

It found that more than half (56 per cent) of companies were suffering skills shortages, with £1.2bn spent on temporary staff to try to fill these gaps over the past year. This was a 45 per cent rise on the amount spent in 2019, and was despite 52 per cent of senior leaders reporting their organisation’s survival depended on reducing costs.

Viren Patel, corporate director at the Open University, told People Management that spending so much money to plug gaps short term made no sense at any time, but particularly not in the current climate.

“At a time when more than half of employers report that their organisation's survival depends on their ability to cut costs, it's somewhat surprising to see that the expenditure on short-term solutions to talent shortages has risen so drastically over the last year,” he said.

“Continuously buying in skills through new hires and temporary workers certainly seems appealing for senior leaders responding to recent upheaval, but this approach to acquiring talent can prove expensive and unsustainable.”

Claire McCartney, senior resourcing and inclusion adviser at the CIPD, urged employers to take more sustainable approaches to skills. “It’s important that organisations continue to take a longer-term and strategic approach to their talent management practices,” she said. 

“In times of crisis, learning and development activities are often hard hit, precisely when the ability to adapt, learn and improve is particularly imperative. These more straitened times will require innovative solutions to support new ways of working and enhance employee and organisational effectiveness.” 

More positively, despite mounting financial pressures brought by Covid-19, a third (32 per cent) of respondents to the barometer reported planning to increase investment in skills development for new staff by an average of 10 per cent. And 28 per cent intended to increase training budgets for all staff in the coming months.

More than two-thirds (67 per cent) said they were committed to hiring future employees from more diverse backgrounds, while nearly 37 per cent were actively looking to recruit staff from the area local to their business. Additionally, nearly two-thirds (61 per cent) said they now valued adaptability and agility as qualities in candidates as a result of the pandemic and subsequent disruption.

HR teams should not be panicked into knee-jerk responses by the current crisis, said Dawn Moore, group people director at J Murphy & Sons. “Short-term decisions for short-term gain can cause long-term pain if you don't make the right ones. My suggestion to people would be to take a step back, think longer term and don't just respond to the current crisis you are in,” she said.

Andy Davies, head of global enablement at MHR, commented that such an approach would likely continue for some time given the current highly volatile situation. But he agreed businesses should still strive to shift their focus longer term.

“The £1.2bn spend on temporary staff reflects the need to backfill permanent vacancies with ‘out of the box’ skilled professionals. Demand for temporary workers is something we anticipate will continue to rise as it gives businesses time to reset their future operations, or determine if there is a future for the business at all,” he said. “However, it does not help to deliver a long-term growth plan.”