South East: Small firms fear workforce skills gap could hit profits and growth, says Lloyds TSB Commercial Banking

Many small and medium-sized businesses (SMEs) across the South East are suffering a ‘skills gap’ in their workforce which they fear could stunt growth, limit competitiveness, and dent their future profits, according to a new report from Lloyds TSB Commercial Banking. The study shows that while most businesses state they want to address the perceived lack of skills among their workers, many say they do not have the time or allocated budget to do so.

The report shows that three fifths (60%) of South East SMEs believed that there is a shortage of skills among their workers – this compares with six out of 10 (61%) firms nationally.

Over a quarter (26%) believe IT know-how is an issue; a similar amount; (24%) feel that there are gaps in sales and marketing skills; and one in six (16%) cite management/leadership skills as a key area of development. Just over one in 10 (13%) consider project management skills as a cause for concern and one in 10 (10%) mention team building skills as an area that could improve.

Businesses cite a number of reasons for not developing skills among their workers. The main obstacle, cited by over a third of businesses (36%), is time pressures, while a similar amount (35%) blame budget constraints. Over one in 10 (13%) are concerned about investing in developing skills for employees who may soon leave the business and a minority (3%) say they have difficulty in finding the right training.

The overwhelming majority (96%) of SMEs that have identified a skills gap in their workforce believe it has a detrimental impact on their business. Their main worries are that a lack of skills will:

• damage future growth potential (51%)
• inhibit their competitive edge (40%)
• make them less profitable (35%)
• stifle innovation (25%)
• harm staff morale (18%)
• impact on staff retention (8%)
• reduce recruitment opportunities (8%)
• make them less attractive to investors (7%).

While there is a clear feeling among the majority of SMEs that they need to do more to address their skills gaps, just under a third (30%) feel that their employees do have the appropriate skills and do not require additional training. This is particularly the case for SMEs with fewer employees.

Gareth Oakley, regional director for Lloyds TSB Commercial Banking in London and the east, said: “If businesses are to seize opportunities for future growth and profitability, investment in skills needs to be at the top of their to do list. While there are some businesses that claim they have the skills they need for the future, most do recognise a need to develop skills across their workforce and can pinpoint the key areas in need of improvement. Given the recent economic headwinds that South East businesses have had to endure it is understandable why some have not been able to make skills development a priority, but if they are to reach future potential growth they’d be wise to consider doing so now.”

The report also reveals that British SMEs spend an average of around £900 a year per employee on skills development. Across the South East just under a third (30%) SMEs spend at least £500 or more a year per employee; one in 10 (10%) spend between £500-£1,000; and nearly one fifth (20%) spend between £1,000 -£5,000 per year. Despite businesses’ concerns that a lack of skills could impact productivity and growth potential, just over eight out of 10 (82%) businesses have not increased their investment in skills development over the past year.

Looking ahead, nearly a half (48%) are considering investing more in skills development in the future. Over a quarter (26%) say they would be able to compete more effectively. Over a fifth (21%) say that by spending more they would be better positioned to grow in the future; and nearly a sixth (14%) say they would be able to develop a more products and services.

However over a half (52%) SMEs do not plan to make any further investment in skills. Under a third (31%) claim that they will not have the time to do so, and just under three tenths (29%) say that they will not have enough budget to invest. Nearly a sixth (15%) cite wider economic uncertainty as a barrier to investment and a small number (6%) say they would rather employ staff who already have all the skills for the job.

Oakley continued: “There are growing signs that businesses are becoming more confident and hopefully that will soon translate into an increase in investment in skills. We want to help businesses develop these skills and that’s one reason why, as part of the Mentorsme initiative, we have a network of more than 400 mentors across the country who are on hand to guide businesses on all the issues they face, including skills development”.