South: Growing skills shortage may substantially compromise manufacturers, says MHA

The latest annual SME Manufacturing Survey from MHA, the UK-wide group of accountancy and business advisory firms, paints a picture among manufacturers of growing optimism, supported by continuing investment in R&D and capital expenditure and an increase in recruitment, including a 13% rise in the numbers due to take on apprentices. That said a shortage of recruits, at every level, is harming future prospects and has been described by Chris Coopey, head of MHA’s manufacturing group, as “a national scandal”.

Interestingly, despite nine in every 10 small and medium-sized manufacturers predicting growth in 2014, more than half of these businesses still feel unable to pass on any increased costs to customers.

The latest annual SME Manufacturing Survey from MHA also highlights that 36% of the same businesses are unsure how they will meet the upcoming cost of pension auto-enrolment. Unsurprisingly, given the level of administration involved in auto-enrolment, almost six in 10 also say that ‘red-tape’ is getting worse, despite government pledges to reduce regulation.

Energy costs also remain a major issue.

Survey highlights:

• Optimism among manufacturers is high, with 92% predicting growth over the next 12 months – almost half of these anticipate an increase of over 10%.
• Almost six in 10 companies feel unable to pass on cost increases to customers, reflecting a cautious approach to economic recovery and continuing concern over pricing.
• 59% expect to see an increase in staff numbers in 2014 and 64% of companies intend to take on apprentices or trainees. However, there are calls for an ‘Industry to Education’ interface to address the predicted shortage of engineering graduates.
• 86% of companies intend to invest in R&D this year. Of those who applied for the R&D Tax Credit Scheme in the past 12 months, no respondents reported an unsuccessful outcome to their claim.
• Africa is growing in popularity as a destination for export and trade, increasing from 23% last year to 33% in 2014, but there are worries over sourcing local distributors and managing the regulatory and tax environment.
• 36% of respondents are concerned about meeting the future cost of pension auto-enrolment and its impact on their competitiveness.

Coopey commented: “The underlying trend is very positive for those small and medium-sized businesses operating in the manufacturing sector. It’s possible that many had to restructure during the economic downturn and now they are reaping the benefits of improved productivity. For the time being most are looking to absorb any cost increases rather than passing them on, however, this is unlikely to be a sustainable option for the long term.”

One area of increasing concern is the availability of motivated recruits, skilled engineers and graduates. While apprentice recruitment is due to increase among 64% of companies, the shortage of skilled and experienced engineers – and graduates – is becoming an increasing challenge, with 65% of companies experiencing problems.

“The Government is committed to rebalancing the economy through manufacturing – yet the sector continues to suffer from a shortage of capable and motivated recruits and skilled engineers, including graduate engineers,” said Coopey. “This will become a real barrier to growth and will undoubtedly affect the UK’s ability to compete on the global stage. One suggestion among the survey respondents is to create an ‘Industry to Education’ interface that will support the education system in developing young people with the right skills set for industry.”

Other survey results:

• Support from banks for the sector is improving, with 72% reporting adequate funding arrangements and almost nine in 10 gaining approval for their funding requests.
• Around 20% of manufacturers are still unaware of the workings and benefits of the R&D Tax Credit scheme which itself has improved following the budget.
• 76% of respondents now place sustainability as a medium or high priority.

Said Coopey: “While the trading environment is showing positive improvement – with the increased R&D support, the £7 billion package to cut energy bills and the increases in the Annual Investment Allowance in the Budget particularly welcome – there are still many immediate challenges for our SME manufacturers, particularly around energy prices, increasing regulation – despite government commitments to the contrary – and the costs associated with auto-enrolment.

"We also need to get to grips once and for all with motivating our young people to consider a career in engineering and manufacturing, which has to start by target setting at secondary school level which pump primes the whole system. Failing to grasp this nettle will mean that the manufacturing renaissance the UK needs will be strangled at birth and the competitive ability of UK manufacturers looking to trade around the world will be seriously compromised.”