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Labour shortages appear to be worsening for engineering services

Job Shortages

Companies from across the engineering services industry have reported a growing impact of labour shortages, according to a new survey from the ECA, BESA, SELECT and SNIPEF. 

Labour shortages have been a common issue in the electrical industry, along with other industries in the professional engineering service sector. When last surveyed in Q4 2022, 32% of engineering services industry firms reported that labour shortages were their biggest concern, although that has now increased to 42% – meaning the situation has worsened rather than improved. 

The labour shortages continue despite a fear of an economic slowdown within the UK, with many firms shedding jobs in other sectors. That has led to the unemployment rate in the UK to increase slightly – but that hasn’t helped the engineering services industry which relies on a supply of skilled workers that is dwindling. 

There’s no shortage of jobs either, 54% of sector businesses reported vacancies in their organisations. When asked why they had trouble filling these vacancies, most businesses (54%) cited an insufficient supply of applicants, followed by a lack of appropriate skills (48%) and unaffordable pay expectations (43%).

The ECA and other industry bodies have been trying to encourage young people into careers within the electrical sector, citing the growing opportunities available within the industry – thanks to the transition to net zero. However, firms are still struggling to fill roles. 

Thankfully, despite the labour shortages, firms are still managing to increase their turnover as the industry remains in high demand. In fact, many respondents’ businesses saw revenues rise over the winter, with 40% reporting an increase in turnover between Q4 2022 and Q1 2023. That turnover optimism may be offset by the fact that 59% of SMEs said that between 1 and 5% of their turnover is currently being held in retentions, however – a notable increase from an already worrying 53% when last surveyed in January 2023.

That growth may not stay around for much longer, however. Worries about cashflow and payment times persist – with 23% of respondents expecting their turnover to decrease in Q2 2023, and 40% expect it to stagnate.

Rob Driscoll, ECA Director of Legal and Business, noted, “The construction sector is feeling the impact of events that were set in motion following the Brexit vote, the pandemic, and the war in Ukraine. Right now, we are coming to the end of fixed price contracts which have seen firms squeezed by inflation rates of more than 23 percent on materials.

“Rising interest rates have caused a crash in the private housing sector, inflation has reduced spending in the public sector, and infrastructure costs are being reviewed . Increasingly, payments are being delayed to shore up finances when bank lending becomes unaffordable or unavailable.

“SMEs unfortunately sit at the sharp end of these factors. They lack the financial cushioning that allows bigger players to ride out these adverse business conditions. Despite this, the M&E sector remains resilient as RMI increases and construction drops.”

Debbie Petford, BESA Director of Legal and Commercial, added, “The picture painted by our latest survey illustrates the direct link between cashflow and business optimism.

“Retentions and late payment are a serious drag on business growth which is exacerbated by the skills shortage. The fact that firms have a high number of vacancies shows there is plenty of pent-up demand for building services expertise, but firms are struggling to find suitably qualified staff and are too busy chasing payment to be able to fully invest in training, recruitment and staff retention.

“As usual, we find ourselves praising contractors’ resilience in the face of these challenges, but we need more action from government to address the continuing curse of late payment. Freeing up cashflow would allow SMEs to dedicate more time and resource to things that matter to the wider economy like improving our built environment and delivering net zero.”

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