You won’t need us to tell you that the UK is in a difficult spot at the moment, with significant external pressures from rising energy prices, the cost-of-living crisis, socio-economic turmoil, and the war in the Ukraine, to name just a few.
Alongside these wider problems, businesses across a range of sectors have been battling ongoing skills shortages for years now. Data from the latest edition of our APSCo Trends Snapshot Report – provided by the global leader in software for the staffing industry, Bullhorn – reflects this challenging market and has once again revealed some interesting findings that highlight some of the key issues that lie ahead. But what does the report say and what does it mean for UK HR teams?
Contractor reliance continues
The key finding for HR specialists is that the reliance on the contract workforce is likely to continue for a while yet. Demand for these skills remains high with the trend being driven by the aforementioned skills shortages. The lack of available skills spans all sectors, but some, like aviation, IT and finance, seem to be faring worse than others. While problems within aviation were significantly worsened by the pandemic and airlines’ subsequent reactions to lockdowns, the latter two industries have been beset by a range of factors and have relied on the skills of contract specialists for some time now. This is highlighted in our latest APSCo Trends Snapshot which showed that contractor demand rose 3% month-on-month and 6% when compared to October 2019.
And it’s not only demand that’s rising, rates are – perhaps unsurprisingly – on the up too. The contractor market is clearly aware that specialist skills are highly sought after, as the amount invested in attracting these individuals has inflated at a much higher rate than demand. In October 2022, recruitment agencies noted a 7% increase in contract revenue when compared to September, while annual comparisons showed a 14% uptick in October. The largest increase was noted when compared to pre-Covid levels, with sales up 48% since October 2019.
However, while it’s clear that many employers are relying on the skills of contractors, there are still significant policy and regulatory issues for HR teams to overcome when employing these types of specialists. And although contractors are highly sought after, one of the main reasons that rates have increased is because firms are fishing from a smaller talent pool than they have historically been able to. It’s not fair to blame everything on Brexit, although it is tempting, but it’s no secret that since the UK left the EU, it has become significantly less attractive to international talent and, even if they wanted to work here, the ability of the brightest and best to move to the UK has been restricted, particularly for contractors who have to navigate an increasingly complex regulatory landscape.
We remain advocates of the need for controlled immigration that benefits the UK economy. We believe there is still a need for a specialist visa for highly skilled self-employed professionals that would aid employers across the UK by enabling them to compete on more equal grounds for both global talent and international business. Our public policy team here at APSCo will continue to drive this agenda to ensure a new visa is steered by the valuable insights from the recruitment and HR industry. In addition, we regularly hear from recruiters and HR teams working with contract and contingent workers that Agency Worker Regulations (AWR) and Working Time Regulations (WTR) are too complex and, inadequately differentiate highly skilled professionals from those in lower pay brackets. Both these examples of regulations that we hope will be reviewed in the next year, are burdensome for staffing firms and those highly skilled contractors that are particularly important in the current economic landscape.
Volatile permanent market
However, as you have probably noted, while it might be challenging finding, hiring and retaining the contractors required by your business, it’s even more difficult in the permanent market, where there has been a level of volatility that can only be attributed to wider economic uncertainty in the UK. The Snapshot data is mixed; while vacancies are down 6% when compared to October 2021, month-on-month statistics suggest that recruitment increased by 5% in October. Much of this growth can be tied to the decline noted in September due to the period of national mourning and from the additional bank holiday. When compared to pre-Covid levels, however, the data shows a 24% decline in the number of jobs added between October 2019 and October 2022, suggesting that the recruitment slowdown experienced in the UK since the summer period is continuing. On a more positive note, day-by-day comparisons of permanent placements across October were on an upward trajectory, with a 16% increase in the second half of the month. This translated into a 22% uplift in permanent sales revenue for recruitment firms and suggests that Jeremy Hunt’s appointment as the new Chancellor has allayed many fears in the market.
The uncertainty in the permanent hiring market is likely to continue as, while the aforementioned proposed legislative changes would almost immediately benefit the contract recruitment market, longer-term measures are needed to boost permanent recruitment. Clearly, with so much uncertainty, we need to think of alternative solutions. And although attracting new skills to the UK is key, so is the upskilling of the existing workforce. We have seen the new Prime Minister talk openly about the need to focus on skills and education and we believe this must remain a top priority. APSCo and its member firms have ideas that could help to boost UK talent pools; not least by overhauling apprenticeships and the Apprenticeship Levy. This would have a positive impact on skills development; the current setup is too inflexible and doesn’t align with the modern make-up of the workforce or the demands of today’s professionals.
The Levy itself is also far too rigid, meaning that funds are going unspent rather than being channelled into the right routes to upskill the country’s workforce. Apprenticeships need to be flexible, portable and accessible to all if we are to climb out of this hiring crisis.
It’s clear that the UK employment market is facing a number of major, concurrent challenges at the moment, which has left HR teams struggling to source the permanent skills required, and having to turn to the contract and contingent market perhaps more than they would like, particularly with rates on the rise. However, as we’ve seen, the strength of the labour market does underpin the economic stability of the UK and we will continue to work with representatives from across the political landscape to ensure the skills agenda is prioritised for the country in what will no doubt be a tough year.