Britain’s top businesses relying on quick fixes in face of long-term labour shortages

Research shows that three-quarters of the FTSE 100 cited labour shortages or staff retention as principal risks to their businesses, writes James Moore

A training centre for drivers in Croydon, south London (AFP)

The sheer weight of reporting means we are in danger of becoming desensitised to the issue of labour shortages. That would be unwise. Research conducted by Pirc, the voting adviser, demonstrates the scale of the problem.

Having trawled thought the annual reports issued by the constituents of the FTSE 100, it found three-quarters cited labour shortages or staff retention as principle risks to their businesses. The logistics and food industries have generated most of the publicity, but this is clearly a problem that is being felt across the economy.

Where the research gets really interesting is when it comes to how firms have decided to respond. The answer, in many cases, is not well.

Boards have discussed the issue in depth. Workforce planning, notes Pirc, has become a “priority discussion point”. Unfortunately those conversations have largely yielded a series of quick fixes, presumably in the hope that the problem will ultimately solve itself.

As such, we’ve seen a lot of recruitment and retention bonuses offered, such as the bung Tesco put up to recruit lorry drivers. This goes beyond the FTSE 100 too. Amazon has done the same thing, ahead of the seasonal rush generated by Christmas.

Another tactic has been lobbying the government to extend its visa schemes to allow in more overseas workers. This is, I think, more justified because Britain clearly faces an issue with numbers. It needs more workers than it is currently producing, particularly in shortage sectors.

Increasing wages will only go so far towards addressing the problem, and if this proves to be inflationary it won’t address it at all because price rises will erode the benefits. And prices are already rising at an uncomfortable rate.

The inflation figures have just been released and they show that it fell a bit this month. However, at 3.1 per cent, down from 3.2 per cent, it is still running substantially ahead of the Bank of England’s 2 per cent target and eating into living standards. The modest reprieve is also almost certain to be temporary. We are going to be living with prices rising at an uncomfortable level for maybe the next year, maybe longer.

The trouble with the lobbying is that its chances of success look slim given the government’s regressive immigration policy and pandering to the extreme right.

Pirc looked in more depth at companies in sectors where the shortages are particularly acute. These include transport and logistics, social care, food manufacturing, and hospitality.

Shockingly, some of the additional measures they have resorted to are notable for making the life of employees worse.

This seems painfully counterintuitive but the research nonetheless found evidence of employers modifying contracts to enable frictionless redeployment of staff between sites and roles and an increase in the use of agency or self-employed workers. It also found signs of a rise in the use of outsourcing.

All this makes it a lot harder to sympathise with their attempts to persuade the government to allow them to import more workers.

What Pirc did not find, at least in these sectors, was any evidence of firms looking at ways to improve the job quality of their workers as a means of retaining them. None cited this.

It is clearly possible for them to do better and they need to. Ashtead Group, which is in the business of hiring out industrial equipment, shows what is possible.

Ashtead, Pirc said, “acknowledged that ensuring its workforce feel secure in their role is an important factor in retaining them”.

It sought to “remove any fear of furlough or layoff” during the pandemic through providing additional paid time off for Covid-19 related reasons, as well as offering discretionary bonuses and a 2 per cent pay rise for certain skilled roles. The company has since brought forward a 6 per cent pay rise for skilled roles in its North American operations to address the labour pressures encountered there.

Note, these are pay rises, not short-term bonuses.

Here is a multi-pronged approach that, you would imagine, should foster goodwill and encourage staff to stick around. It’s an example too few employers seem minded to follow. And the problem isn’t going away.