News & Insights  |  Posted June 21, 2023

Understanding Business: Lack of skilled staff holding back Scottish economy

A lack of skilled applicants across all sectors threatens to undermine plans to grow the economy, according to a new quarterly survey of Scottish businesses commissioned by 56° North and research group Diffley Partnership.

The new survey – Understanding Business – saw firms from across the country set out the challenges they have filling vacancies. 70% of those surveyed, who had tried to hire in the last three months, said a lack of applicants was holding them back, whilst 66% said applicants did not have the required skills or experience.

These findings highlight the skills gap that employers are facing when attempting to recruit both in terms of the skill level of the applicants and the available pool of applicants. Just under half (46%) also said salary expectations were too high.

Looking ahead to the next three months, two-thirds (65%) report that their workforce size is set to remain the same, while around one in four (23%) have plans to increase their workforce. While it has been well documented that Brexit and the pandemic have made recruiting for low paid or seasonal jobs difficult, this new study shows that hiring highly qualified workers is becoming increasingly difficult for Scottish businesses.

These staffing problems, combined with uncertainty about rising costs and poor growth, means most firms don’t expect profits to rise in the coming year. Indeed, around 40% expect profitability to fall despite two-thirds (66%) of businesses surveyed expecting to increase the price of their goods and services in the coming period. These increases in costs are seen to be primarily driven by increased workforce costs, the price of utilities and the price of raw materials.

The Scottish Government, under First Minister Humza Yousaf, has been trying to build a stronger relationship with business. However, the survey found that around half of businesses felt that economic conditions were set to get worse in the next 12 months. Furthermore, two-thirds (66%) report being more concerned about inflation than three months ago. 61% of firms cite increased taxation as a concern.

Mark Diffley, Founder and Director of Diffley Partnership, said: “The first in our new quarterly survey series reveals the range and scale of challenges facing businesses up and down Scotland.

“It is clear that business leaders, like the public at large, are broadly pessimistic about current economic conditions and the prospects for the economy over the next year-giving decision makers significant food for thought.

“The standout theme fromour first survey is that of recruitment; while more than half of businesses have attempted to recruit in the last quarter, only one in five (18%) have seen their workforce increase, suggesting mobility and movement among employees. However, those looking to recruit highlight significant barriers to being successful, including the number, skill levels and salary expectations of applicants.

“We will be tracking all the issues highlighted in this inaugural survey, and a range of other factors, as we regularly explore the experiences andattitudes of Scotland’s business community over the months and years ahead.”

John Penman, Managing Partner of 56° North, said: “Understanding the issues facing Scottish businesses has always been important to ensure there is a focus on policies that support those businesses that grow the economy. This new survey will add important data and detail to the debate about how best to do that.

“A worry about increasing profits suggests the economy is still stagnant and with inflation and rising costs still problematic, it may be some time before that changes.

“Too many businesses have told us that they feel the Scottish government has been distant in recent years but welcome the positive approach that Humza Yousaf has taken to working with business since taking over as First Minister. However, findings from the Understanding Business report show the scale of the task he has ahead of him.”

The Understanding Business report is available to read here. The next Understanding Business report will be produced in September.

Understanding Business Logo dated June 2023