SCOTTISH companies “risk falling dangerously behind the curve on recovery and growth” if they cannot get the talent they need, amid lack of access to previously available European Union labour, a leading business figure has warned.
Tim Allan, president of Scottish Chambers of Commerce, highlighted the “additional growing challenge for business” of “instability in the labour market and persistent skills shortages” as the organisation published its latest quarterly economic report.
This survey, produced in partnership with the University of Strathclyde’s Fraser of Allander Institute, shows a boost in confidence and domestic sales across the economy during the third quarter with the gradual removal of coronavirus-related restrictions on businesses over the summer months.
However, it also reveals continued export weakness, with adjustment to post-Brexit trading arrangements cited as a key factor, as well as labour and skills shortages and inflationary pressures.
Unveiling the findings of its latest survey, Scottish Chambers said: “The construction, manufacturing and tourism sectors have all reported significantly increased recruitment difficulties due to a lack of skilled labour in the UK workforce and lack of access to previously available EU labour.”
And it warned: “Added to the rising cost burden, this will impact on business capacity and, in the long term, force firms to curb investment.”
The UK Government has clamped down on immigration from the EU in the wake of the country’s departure from the European single market on December 31 last year, in what was viewed widely as a hard Brexit.
Mr Allan said: “All sectors in the survey are reporting increased recruitment difficulties, in line with official statistics recently reporting record high vacancies for the Scottish and UK economy. If Scottish businesses cannot get the talent that they need, they risk falling dangerously behind the curve on recovery and growth. There is no time for timidity when it comes to action to support businesses and that’s why the Scottish and UK Government must urgently back business with a clear economic plan and budgets focused on business recovery.”
Confidence rose during the third quarter across all sectors covered by Scottish Chambers’ survey: construction, financial and business services, manufacturing, retail and wholesale, and tourism.
The Scottish construction, and financial and business services sectors recorded strong growth in sales revenues, profits and employment during the third quarter. However, the financial and business services sector’s sales revenues from exports fell for a sixth consecutive quarter.
Manufacturers reported strong rises in revenues from sales within Scotland and to other parts of the UK. However, this sector experienced a third straight quarterly decline in export sales revenues. Manufacturing recorded a sharp rise in employment.
The retail and wholesale sector saw revenues from sales within Scotland and the rest of the UK rise. However, it recorded a sharp fall in revenues from exports. Employment in this sector rose modestly. Tourism providers recorded a sharp rise in sales revenues but a fall in employment, with operators reporting a sharp escalation of recruitment difficulties.
Mr Allan said: “The survey results indicate that confidence and domestic sales are generally strong across all sectors surveyed, with expectations in line with improving economic forecasts that the Scottish economy should return to pre-pandemic levels in the spring of 2022. After what has been an extremely challenging past 18 months for Scottish businesses, many are now looking and working towards building back to a new normality.”
However, he warned that this “progress is under significant threat”.He flagged increasing concern over the “emerging energy crisis” driving up business costs.
Mr Allan also cited worries over inflation and taxation, the cost of raw materials and shipping, declaring all of these issues “are fuelling uncertainty at a time when businesses urgently need confidence and certainty to continue their recovery from the pandemic”.
Scottish Chambers said: “All sectors have reported significantly increased concerns over inflation and taxation. Across all sectors, levels of concern over inflation have now reached record highs. Surges in the cost of raw materials and shipping, global supply chain disruption and the UK Government’s decision to raise national insurance contributions are all being cited by firms as key factors.”
Mairi Spowage, director of the Fraser of Allander Institute, said: “There are still a number of risks to the fragile economic recovery that we have seen to date. It is unknown how many of the workers who were on furlough at the end of September will become unemployed or unable to secure the type and level of work they want. This uncertainty coincides with the cancellation of the Universal Credit uplift which will bring additional financial hardship to around half-a-million families in Scotland.”
The UK Government last week removed the £20 per week uplift to Universal Credit put in place to help households amid the pandemic.
Ms Spowage said: “As well as the risk of joblessness, labour shortages are becoming clear in many sectors, threatening goods shortages and adding to wider inflationary risks. Consumer confidence, so important for the improvement in outlook over the last six months, could start to wane as prices across the economy rise.”
And she warned that “industries which are heavy energy users are signalling that they may need Government support to keep operating through the winter”.
Ms Spowage added: “So while the Scottish economy is now only around 2% below pre-pandemic levels of output, there are a number of risks that could stall growth. In this survey, increased optimism goes hand in hand with significant concerns from businesses about labour shortages and increased costs of inputs. Though on balance it is likely that global recovery will continue as we move forward, the situation remains fluid, particularly as Government support winds down, which could present a risk to growth.”