Skills gap stifling SME manufacturing growth

By Anita Jaynes on 1 October, 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, launched today for the south west by Chartered Accountants Monahans at Swindon UTC.

The survey, supported by the manufacturing team at Lloyds Bank Commercial Banking sampled 400 predominantly SME manufacturing and engineering businesses, and found that nationally, 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.

Here in the south west, the sector saw positive economic growth in 2014, with 50% of respondents reporting business growth, 38% of whom reported growth levels of 10% or more.  However, whilst optimism levels remain high, with 65% anticipating some level of growth in their businesses in the coming year, this is down by 23% compared to last year.

The report also identifies that concerns over the ‘skills gap’ have had a knock-on effect on the sector’s optimism across the whole of the country, with confidence about future prospects declining among 16% of respondents when compared to last year’s results.  On a positive note, half of south west businesses are planning on taking on apprentices or trainees this year, although this is slightly below the national average of 52%

Nine out of 10 UK 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 80% of businesses in the south west feeling unable to increase prices to customers, productivity gains are becoming ever-more important.

Iain Black, Manufacturing Partner at Monahans, 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, the six University Technical Colleges in our region promoting manufacturing and engineering, and employers playing a more proactive role in schools, signposting engineering as a ‘go to’ career in secondary schools just doesn’t appear to happen.  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 for the south west:

·         Optimism for growth over the next 12 months is down 23% among respondents, although 65% still predict expansion
·         South west businesses are above the national indicator for plans to increase staff numbers, with 60% reporting it as part of their plans, 10% above the national level
·         Half of businesses plan to take on apprentices or trainees in the coming year, however this is slightly below the national average of 52% of businesses
·         35% of businesses report the recruitment of appropriately skilled staff as being a barrier to growth in the next 12 months
·         Exporting remains a key issue for the region, with 25% of businesses exporting to the Eurozone, which is 4% below the national average
·         58% of companies in the south west invest and spend somewhere between 1% and 6% of their turnover on Research and Development
·         Over half (54%) of businesses in the region have access government or grant funding in the past five years
·         South west businesses continue to face the burden of red tape, with 42% noting an increase

The MHA Manufacturing Survey also finds around eight in every 10 companies in the UK 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.

MHA surveyed over 400 clients and contacts in the manufacturing and engineering sectors in July 2015. The respondents ranged from companies turning over less than £1m to global players with significant industry presence, nationally and internationally. The survey report includes analysis by the prestigious WMG – the Manufacturing Group at the University of Warwick – and from Philippa Oldham, Head of Transport and Manufacturing at the Institution of Mechanical Engineers.

Pictured above: Iain Black, partner at Monahans