The number of NEETs and the UK’s benefit bill could fall within three years if government and industry manage to close skills gaps and worker shortages, skills charity Enginuity says.
The report from former Sector Skills Council for engineering and manufacturing shows that the skills gap in the engineering and manufacturing sector is costing the UK more than £5 billion a year and it warns that if it is not addressed with urgency it will cast further adrift the ‘lost generation’ identified by Alan Milburn in his recent report on young people and work.
The Enginuity report, entitled Mind the Gap, says that the sector faces a “perfect storm” of interrelated factors which will only make matters worse over time.
The £5 billion lost annually to skills shortages represents a major missed opportunity, the charity says. Based on typical starting salaries in the sector, it would be equivalent to supporting over 300,000 apprenticeships each year— a scale of intervention that could materially reduce the number of those not in education, employment or training (NEET) by 30% and help to reduce pressure on the benefits bill.
Ann Watson, CEO of the charity Enginuity, said:
“The findings highlight a significant productivity challenge for our sector but also a clear opportunity. At a time when the UK is striving to boost growth, we cannot afford to see talent, investment and potential go to waste.
“We have a generation of young people struggling to access good work, employers crying out for skilled talent and growing economic inactivity placing increasing pressure on public finances. The solution is there in front of us.
“Government needs to take note of these findings and ensure they are reflected in efforts to remove barriers to growth and talent entering the sector.
“Through The Policy Centre for Supply Chain and SMEs: Powered by Enginuity, we will be feeding these findings and recommendations directly to government and work with them to bring about change.”
The survey evidence, from SQW, demonstrates that skills challenges are particularly widespread among engineering and manufacturing SMEs.
Around half of surveyed SMEs reported skills related issues in the past year, with 36% experiencing skills gaps and 35% reporting skills shortages.
Where skills gaps exist, firms estimate that around one in five employees are affected, while SMEs facing shortages typically report two to three hard to fill vacancies. SMEs report shortages in core technical and manual skills alongside growing gaps in digital, data and managerial capabilities.
These challenges are not confined to entry-level roles and are most commonly associated with lost productivity, with knock-on effects for turnover and future growth.
Based on survey evidence and economic modelling, it is estimated that skills related challenges cost the engineering and manufacturing sector approximately £5.2 billion per year, equivalent to around 10 per cent of their annual output. At an individual business level, affected companies may be losing as much as 10% of their annual Gross Value Added (GVA), – equivalent to approximately £110,000 per company, per year.
Key findings
- The sector faces a ‘perfect storm’ of interrelated factors driving skills gaps and shortages, with complex and non-linear interactions.
- The ageing workforce can be considered the primary underlying factor: many skilled workers are approaching retirement, and too few young people are entering the sector to replace them. The resulting skills gaps and shortages are most acute in advanced technical roles.
- The talent pipeline is thin. Too few young people and career changers choose engineering and manufacturing careers often due to misinformation about pay and career prospects.
- The key factors contributing to the pipeline being thin are the sector’s image problem (engineering and manufacturing jobs are perceived as dirty and poorly paid), growing societal preferences and pressure to enter higher education, and young people’s expectations about remote work and flexible hours which are misaligned with the sector realities.
- SMEs struggle to resolve the pipeline issues. The are severely time and resource constraint and are stuck in a vicious circle: skills gaps and shortages suppress productivity, reduce turnover and constrain budgets for training. This creates a feedback loop that deepens the shortages that SMEs already face.
- Apprenticeships are perceived as a viable tool but are expensive for SMEs because of the necessary inputs from more senior colleagues. Furthermore, as skill challenges deepen, firms increasingly compete for the same workers across and within sectors. This raises the risk of losing trained up individuals to other SMEs and large companies.
- The quality of available training is a major concern for SMEs. They report a ‘postcode lottery’ in provider quality, outdated course content, and delivery models that do not fit operational needs. SMEs prefer shorter, modular, and practical training, but current provision often requires costly time away from the workplace.
Half of businesses and experts who contributed to this research believe that skill challenges will worsen over the next five years.
