By polling SMEs across engineering and manufacturing we are hearing a clear message from our community: the UK skills system is not working for the majority of small firms. We surveyed over 250 businesses, representing more than 10,000 employees and £1.9bn in turnover, to understand how skills challenges are being felt on the ground by groups unintentionally yet often unrepresented in government policy forums.
The headline finding is that SMEs feel unserved by the current system, and the labour market has become less attractive compared to a year ago with 52% now describing it as unattractive. What does this mean in practice? SMEs are struggling to find the right people: 80% have faced difficulties recruiting suitable staff in the last six months, with 60% citing a lack of technical qualifications as the main issue.
Employment costs are also the leading inflationary pressure. For 84% of SMEs, labour costs are driving pressure to raise prices yet many are reluctant to pass these costs on to customers, instead looking to improve productivity to offset rising expenses. This is constraining growth with three-quarters of firms operating below full capacity.
Looking ahead, SMEs are more confident in their ability to train staff than to recruit new talent. However, they remain sceptical about the impact of the Government’s pledge to fully fund training and apprenticeships – only a fifth believe it will increase apprentice recruitment. This survey shows a mixed picture: employers have reported an increase in business optimism for the year ahead, despite operating in economic conditions they see as highly challenging.
So what does this mean for policy? Skills policy is undoubtedly having its moment in the sun, and whilst the focus is welcome, the increasing frequency and pace of reforms risk overwhelming small businesses that already face obstacles accessing the skills system due to complexity and bureaucracy. Incremental, short-term changes are unlikely to deliver the step change needed. Instead, there is a strong case for a more stable, long-term approach mirroring the ambition set out in the Government’s 10-year Industrial Strategy.
Despite ongoing reforms, the message from SMEs remains consistent with last year: move beyond short-term policy churn and prioritise stability giving reforms time to bed in and deliver impact. Government is right to expect a reversal in declining employer investment in skills but this will not happen in isolation particularly in a challenging economic climate. SMEs navigating new qualifications, strategies and institutions will need to see a clear and compelling business case for investing in skills appear through the clouds.
This is where the Policy Centre for Supply Chain and SMEs – powered by Enginuity – comes in. There remains a persistent gap between the design of skills policy and the day-to-day realities facing SMEs, which make up over 90% of the sector. By bringing forward robust, employer-led evidence and amplifying voices too often missing from policy conversations, the Policy Centre is working to close that gap. The call to action is clear: policymakers must engage more directly with SMEs, prioritise stability over constant reform, and ensure the system works in practice – not just in theory – so that businesses can invest in skills with confidence and drive growth.
You can download a copy of the report here, or email the policy team at Enginuity on [email protected] to learn more about The Policy Centre for Supply Chain and SMEs – powered by Enginuity.
