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Which firms are most impacted by employment costs?
David Bharier, Business Insight Manager at the British Chambers of Commerce, looks at some of the highlights from our 2017 Workforce Survey.
Each year, the British Chambers of Commerce undertakes its annual Workforce Survey to understand how UK businesses are impacted by both employment policies and changes to the workforce environment. Specifically, the survey focused on three key themes:
- How certain statutory changes are impacting on business costs;
- How firms seek to address skills shortages;
- how firms are responding to the introduction of the Apprenticeship Levy.
The Workforce Survey was conducted online between 17 July and 1 August 2017 and completed by 1,461 business people. The profile of the respondents to the survey was characteristic of the wider profile of businesses within the membership of the Chamber of Commerce network. Around 94% of respondents said they were SMEs – firms with fewer than 250 employees, and 71% said they operate in the services sector, 29% in the manufacturing sector.
This blog post lists some of the key insights from the survey:
1. Employment costs are disproportionately impacting firms in the Midlands and the North of England
In the survey, we asked respondents, relative to their overall cost base, what impact the following statutory changes have had on their business: the National Living Wage, the Apprenticeship Levy, the Immigration Skills Charge, and pensions auto-enrolment. The below table shows the proportion of respondents impacted by each.
Significant increase in costs
Slight increase in costs
No increase in costs
The two statutory changes with the largest impact on businesses were the National Living Wage (NLW) and pension-auto-enrolment. This can be explained simply by the fact that the NLW and pensions auto-enrolment affects all firms – the latter on a staggered basis – whereas businesses in scope for the Apprenticeship Levy must have a pay bill exceeding £3m, and firms impacted by the Immigration Skills Charge are those with foreign workers on Tier 2 visas.
However, when the data are broken down by region, a geographical disparity emerges. Businesses in the North of England and the Midlands are more likely than businesses in the South to report that the National Living Wage and pensions auto-enrolment are increasing their cost base.
Geographical impact of National Living Wage
South of England
North of England
Significant increase in costs
Slight increase in costs
No increase in costs
When comparing respondents from who reported an impact from the NLW in the South with the combined regions of the North and the Midlands using a chi-square test, we get a p-value of .0005. This means that the difference in impact felt by the regions – the North and the Midlands, and the South – is not due to random variation and is statistically significant at p < .01.
When testing the impact of pensions auto-enrolment, the relationship between respondents’ region and impact is slightly less clear, but is still significant at p < .05, with a p-value of .04.
As well as showing a geographical disparity, the results also clearly show a deep divide in the impacts faced between business sector. Overall, 50% of firms reported that the NLW had increased their cost base. However, in the business to consumer (b2c) sector – comprising mainly of retail, accommodation, and food activities – 73% of firms reported an increase in costs from the NLW, with 45% reporting a ‘significant’ increase.
2. Businesses receive applications from non-UK nationals at a far higher rate than they employ them
In the survey, we wanted to understand what approaches businesses were taking to addressing skills or labour shortages, and whether they were actively targeting non-UK nationals to fill vacancies.
Half of respondents faced skills or labour shortages in the last year, but only a minority (8%) sought to address these shortages by actively looking overseas to fill vacancies. Instead, the majority of respondents said they addressed skills shortages by increasing investment in recruitment (35%), training (31%), and pay & benefits (29%).
We asked respondents what proportion of applications for job vacancies were from candidates who were EU-nationals and non-EU nationals (i.e. from the rest of the world). 50% of firms reported that job applications come from EU nationals and 30% reported that job applications come from nationals outside the EU.
However, only 30% of firms reported that they had one or more employees from the EU and 23% reported that they had one or more employees from outside the EU. Firms with fewer than 10 employees were even less likely to be currently employing EU nationals (15%) and non-EU nationals (9%).
3. Businesses whose pay-bill is below £3m have, on average, little or no awareness of the Apprenticeship Levy
The Workforce Survey sought to test whether businesses awareness of the Apprenticeship Levy (AL) and whether businesses are changing their behaviour as a result of its introduction. Introduced in April 2016, the AL is a 0.5% charge on firms with an annual pay bill of more than £3 million.
The survey found that businesses with a pay bill of £3m or more – i.e. those in scope to pay the Levy –are far more likely to be 1) aware of the AL, 2) impacted by the charge, and 3) adapting their behaviour as a result of its introduction. This may be intuitive – we’d expect the subjects of a tax to be more acutely aware of its existence.
However, the reach of the AL goes beyond simply those in scope to pay it. Businesses with a pay-bill of less than £3m, i.e. those who fall under the levy threshold – can still apply for apprentice funding, yet 66% of these companies have little or no awareness of it, nor have taken action to use the funds.
Comparing awareness levels:
When asked what changes their business would make as a direct response to the introduction of the AL, firms with a pay bill exceeding £3m were far more likely to be taking action than firms whose pay bill is below £3m. The p-value of this relationship is < .00001, and is statistically significant at p < .01.
Comparing behavioural change:
The most favoured courses of action for firms with +£3m pay bill were to convert some or all existing training/graduate schemes into apprenticeship programmes (33%) and to recruit more apprentices (30%). By contrast, 28% of firms with a pay bill below £3m had limited or no understanding of the AL, or did not know what changes they would make (38%).
The relationship between respondents whose pay bill exceeds £3m and those impacted by the AL could not be clearer. 86% of firms with a pay bill exceeding £3m report that the AL has impacted on their cost base, with only 12% of firms with a pay bill below £3m reporting an impact. In applying a chi-square test, we get a p-value of < .00001. The result is therefore extremely significant at p < .01.
Across each of these areas, insights from our Workforce Survey have strengthened our understanding of how firms are responding to both statutory and environmental changes to the labour market. The results highlight the cost pressures many businesses are facing, especially from up-front taxation. These up-front employment costs come as a high proportion of firms reported skills and labour shortages, not only in this survey, but across our Quarterly Economic Survey.
The distribution of impacts clearly varies by geography and business sector, with firms in the North of England, and firms in the B2C sector particularly impacted.
On the Apprenticeship Levy, the results demonstrate a knowledge gap on the part of many firms, and reinforce the need for clearer guidance and support for businesses wanting to utilise the Levy.
However, the results also challenge the myth that UK businesses favour non-UK nationals where there are skills shortages. Chamber member businesses seek to invest in local recruitment and training in the first instance, despite an economy with record low unemployment.