The biggest challenge currently facing the UK manufacturing industry is the combination effect of labour shortage, increasing costs and dangers of proposed policy changes. While demand for UK manufactured goods has increased, businesses are struggling to fulfil orders due to labour shortages and are falling behind on achieving their goals of economic recovery post-pandemic. The shortage of labour is resultant of a number of factors including - Brexit and the resulting difficulty in hiring and retaining EU workers, the disruption of vocational training during the pandemic which has reduced the inflow of qualified staff and people being out of the workforce due to early retirement or long-term illness after covid.

Dramatic increases in manufacturing input costs have also exacerbated the industry’s difficulties. The increase in costs is associated with - unexpected sharp increases in energy prices, wage inflation, costs associated with distribution, operational costs associated with trade between the EU and UK and a staggering increase in material (raw material, components, parts of equipment) costs.  While manufacturers are increasing the prices of final goods in tandem with increased costs, it is still proving insufficient to counter the depleting operational margins.

Considering the existing challenges being faced by the manufacturing industry, the proposed increases in National Insurance Contributions could not come at a worse time. These hikes will add to costs, drain funds and make it harder for the industry to dedicate remaining capital into making necessary hires during a labour shortage crisis.

Source : Make UK 

The manufacturing industry will not be able to sustain output growth if input costs keep rising. In order to address challenges, the government needs to start working with the industry to help it recoup from the losses during the pandemic. As an immediate measure, the increase in NICs need to be called off, at least for the foreseeable future, because adding to costs on what is currently a fragile industry, is going to hurt it in the long term.

As for a solution to challenges regarding labour shortage, it might be worthwhile for the government to extend the existing “Youth Mobility Scheme” to include EU nationals in the age group 18-30 in order to compensate for the loss of the EU workforce that employers felt post-Brexit and again during the pandemic. Extending the reach of an existing scheme will be beneficial because it would cost less, be less administratively burdensome and overcome the challenges of SMEs reportedly having low awareness and understanding of new immigration schemes.

It is also time for the government to make certain policy relaxations that would allow rapid training of staff to meet demands. A fast-paced training scheme and swift licensing can overcome the backlog of training created during the pandemic.

Another solution from the government to present challenges could come from increasing the term of the Super Deduction policy. The government’s announcement to incentivise manufacturing businesses with tax relief when they make investments into their business operations is a step in the right direction. While this policy has proved helpful for businesses looking to make investments in the short term, in order to have a significant impact, the policy should be extended further so that businesses can plan their investments for the future. It should also be tweaked to remove exclusions for leasing and used/second-hand that negatively impact SMEs who fail to benefit from this policy.

Savant is informed by leading market research and we keep informed about changes in the labour market so you don’t have to. Supply chain disruptions in the manufacturing industry have had domino effects on several other sectors. Hiring essential talent to make post-pandemic financial recoveries has never been more important. If your business is looking to expand its workforce, reach out to us for a free consultation about how the market has changed, how you can meet your hiring needs and how Savant can best support your interests. You can contact us at technology@savantrecruitment.com, we look forward to hearing from you!