The events of the last month have thrown a range of new hurdles at us all. While we expected the announcement of the new Prime Minister to take center stage for September, the passing of Queen Elizabeth II took the country by surprise. It was, however, the announcements in the Chancellor’s Mini Budget that hit the recruitment sector hardest.
Not-so Mini Budget
Kwasi Kwarteng’s statement towards the end of last month saw a wealth of revelations from the Truss administration. Perhaps the greatest shock for the recruitment sector was the repeal of the IR35 regulations. APSCo has been calling for a reversal on Off Payroll or at least a review of the legislation, which we felt was simply unsuitable for the modern world of work for some time. While we were surprised at the unexpected U-turn, it was certainly testament to the success of our public policy and lobbying teams who have worked tirelessly to communicate with the relevant Ministers and Government bodies to voice the concerns of the recruitment sector on this matter.
It was also highly promising to see the recognition that a localized, sector-based skills focus needs to be prioritized to drive growth. Changes to Income Tax and the reversal of plans to increase Dividend Tax will help grow the flexible workforce once again, following a decline in contractor activity post-IR35. And while plans for immigration reviews are in the pipeline, it’s encouraging to note that the government is currently recognizing the need to bolster the country’s skills and resources.
But that doesn’t mean that the talent troubles of the UK are over. In fact, the dearth of skills is still being widely reported. And according to our latest data, talent shortages could be set to increase further in the immediate future as salary increases fail to keep up with inflation.
Staff Demand Soars While Salaries Drop
When looking at APSCo’s own Recruitment Trends Snapshot, it is certainly interesting to see the changes in pay over the last few years. Looking back on August 2020, when Covid restrictions were first beginning to ease, the number of vacancies and placements across permanent and contract roles had spiked. In fact, the number of permanent jobs added between August 2020 and August 2022 increased by 48%, while contract vacancies rose by 71%. However, despite the growth in demand for staff since Covid hit the country and the current cost-of-living crisis, average permanent salaries dropped by 8% during the same period.
The data, provided by the global leader in software for the staffing industry, Bullhorn, also shows a similar picture in pre-Covid comparisons, with remuneration dropping 7% between August 2019 and August 2022. This suggests that salaries across the professional recruitment sector haven’t risen despite the record-breaking inflation rates and increased demand for talent, forcing people to look for new roles that offer them a competitive salary or a pay rise that can protect them from the rising cost of living.
Amplified Skills Struggles
The notion that the cost-of-living crisis isn’t inflating salaries is also supported by the latest ONS labor market statistics, which revealed that total pay between May and July 2022 — when adjusted for inflation — fell by 2.6%.
Increasing salaries while our economic stability is being questioned is understandably unlikely to be a priority or even feasible for many businesses, but to see a decline in pre- and post-Covid salaries is worrying. Since 2019, we’ve witnessed a demand for talent on a significant scale and an initial surge in economic activity as restrictions were lifted, but salaries across the professional, highly skilled sectors haven’t risen in line with this. The result is now being felt across the country. With the impact of Brexit also still playing out, this decline in financial incentives for new hires will only have a detrimental impact on the country’s ability to attract the skills needed to bolster the UK’s economy.
In a post-Brexit and Covid-hit economy, the strength of the labor market will be paramount to the UK’s ability to become — and, crucially, remain — a global powerhouse. While the Chancellor’s Mini-Budget demonstrated steps to help bolster the country’s labor market, more will be needed.