The UK’s labour market is finally starting to show signs of a cooldown, with the latest official ONS data showing that, in May to July 2022, the estimated number of vacancies fell by 19,800, bringing to an end the sequence of quarterly increases, which started in July to September 2020. However, with recession fears looming and ongoing Government uncertainty amidst a leadership contest, this drop is certainly a concern for the country’s economy.

UK labour shortages have been highly publicised this year, and it looks as though Brexit has been a key contributor to this. A new report led by academics from Oxford university found that industries most reliant on freedom of movement have been hit significantly and, contrary to predictions by supporters of Brexit, employers have not responded to shortages by increasing wages.

Our own data supports the latest vacancy statistics, showing that permanent recruitment is slowing. But what our research also indicates is that more businesses are turning to contract professionals as they struggle to fill resourcing needs during increasingly challenging conditions.

Rise of the contingent workforce
Taking a detailed look into the white-collar jobs market, the latest Recruitment Trends Snapshot report from the Association of Professional Staffing Companies reveals that the contractor recruitment market remains buoyant in light of the ongoing dearth of resources, with vacancies up 2% month-on-month and 7% between July 2021 and 2022. In contrast, permanent job numbers have dropped, down 1% from June to July 2022, also reporting a similar decline annually in July.

Although this dip in permanent recruitment appears to be marginal, in a market impacted by a cost-of-living crisis, recession fears and a shortage of skills, these figures present a potential indication of economic instability. In fact, when we look at the pre-pandemic comparison, we can see the extent of the drop in permanent recruitment, with vacancies falling 23% between July 2019 and July 2022. In comparison, contractor job numbers rose 13% during this same period, highlighting the extent of the reliance on contingent labour to fill resourcing gaps in the current economy.

Of course, any seasoned HR professional recognises that this trend is not sustainable, but in a volatile environment, keeping talent at the top of the corporate agenda is tough, especially when budgets are increasingly being tightened. Nevertheless, it’s important that we all bring skills back to the fore. It’s for this reason that APSCo wants to get conversations going again around Brexit and its potential impact on the UK’s access to skills.

As Tania Bowers, Global Public Policy Director recently explained: “This reliance on the non-employed segment of the workforce simply isn’t sustainable at a time when the UK’s attractiveness as a destination to work for international contractors is dwindling post-Brexit. And with the impact of Off Payroll still being felt in the temporary recruitment market, the longer-term availability of these resources and the ability to tap into skills in a cost-effective manner is at risk. We urgently need some stability from the Government and a clearer direction on the regulation of the employment market to ensure that the UK can manage through the difficult times ahead.”

Salaries decrease despite inflation
The data, provided by the global leader in software for the staffing industry, Bullhorn, also reveals that average permanent salaries have fallen 7% year-on-year, despite July seeing a 10% annual increase in permanent placement numbers. Our data is also in line with findings from the latest ONS labour market statistics, which revealed that levels of UK wages fell at the fastest rate for at least 20 years in the second quarter of this year, which is the steepest decline since comparable records began in 2001. This will no doubt exacerbate the shortage of applications for current roles, further increasing the reliance on the contractor market.

These less than satisfactory salaries, which are likely to prove insufficient as the cost-of-living soars, could also lead to a drop in staff retention rates alongside the disruption to day-to-day activities some companies are facing due to industrial action. In fact, there have already been reports of sector-wide strikes, with recent plans for an autumn strike from the education industry as well as strikes from those in the healthcare sector, both of which were fuelled by anger over the Government’s below-inflation pay proposal.

The future of the UK’s economy
The data is painting a worrying picture for the UK’s permanent recruitment market at a time of continued instability. We are still seeing the impact of the pandemic play out, but to see such significant spikes in contractor recruitment when comparing pre-pandemic levels with today, highlights that the country’s skills agenda is balancing on a knife’s edge. Companies are faced with no other choice but to turn to contractors to keep business as usual operations running, but for many, that’s not a sustainable approach.

Without a visa route that is geared to attract highly skilled contractors into the UK, and with lucrative opportunities available to these individuals in other countries, the UK’s businesses will face a real struggle to fill resourcing needs – an extra hurdle that employers simply don’t need in already difficult times. With a recession approaching, businesses need to be fully equipped to not just survive the difficult times, but to also come out the other side in a strong position to grow post-pandemic. Achieving this is heavily reliant on the ability to source the skills each company needs to deliver the best results. With average permanent salaries also dropping despite the cost-of-living crisis, our economic stability is at stake. While we await the decision around a new Prime Minister for the country, our hope at APSCo is that the successful individual prioritises a solution to the UK’s skills crisis.