The latest quarterly Labour Market Outlook from the CIPD and The Adecco Group, based on a survey of 2,001 employers, shows that the recruitment and retention pressures have increased sharply during the past year compared with previous years. And the key driver behind this is the while the demand for workers continues to remain strong, the difference this year is that the supply has failed to keep pace.

This is at least partly due to a ‘supply shock’ of far fewer EU nationals coming into the UK. According to the latest official data, the number of EU-born workers in the UK increased by just 7,000 between Q1 2017 and Q1 2018, compared with an increase of 148,000 from Q1 2016 to Q1 2017. This represents a fall of 95%. However, it would be simplistic to say that this is solely due to EU net migration. Reductions in labour supply can be seen elsewhere, especially the supply of younger workers, which is due to a fall in the youth population and a 14-year low in the youth unemployment rate.

As a result, the number of applicants per vacancy has dropped across all skill levels during the past year, which is reflected by the higher proportion of organisations reporting hard-fill vacancies in the data.

One might expect wages to rise in line with the increase in skill and labour shortages. However, the report suggests that the downward pressure of persistently weak productivity growth is dominating any upward pressure on pay from labour and skills shortages. According to the survey data, median basic pay award expectations for the wider workforce are set to remain at around 2% for the foreseeable future. It seems that the only people who are benefitting from the tightening labour market are some new starters and some key staff who employers are keen to retain.

The report makes three key recommendations to government to help address the current situation. First, with skills and labour shortages set to worsen further against the backdrop of rising talk of a ‘no deal’ outcome with the EU, the need for the Government to issue consistent, categorical assurances about the status of current and future EU citizens, whatever the outcome of the negotiations, is more important than ever. The survey data also reinforce the need for a low-skilled route in the government’s forthcoming EU white paper on post-Brexit immigration policy. This is despite the recent welcome announcement that the government plans to introduce a youth mobility scheme for all 18-30 year old EU citizens. This effectively amounts to free movement of labour for up to 2 years, and could provide a useful safety net for employers; especially those who need seasonal workers.

The report also calls on the Chancellor to use the National Productivity Investment Fund (NPIF) and the local implementation of the Government’s industrial strategy to increase investment in skills development and utilisation in the Autumn Statement. This includes a specific recommendation to establish People Skills support hubs across all Local Enterprise Partnership (LEPs), which would provide a finite amount of free, high-quality HR support to small firms in order to boost their basic management capability and enhance job quality. The CIPD is currently in regular discussions with the Home Office and the Treasury ahead of key announcements this autumn.