A fifth of the UK’s small companies are suffering from skills shortages that prevent them from expanding, according to new research that underlines the longstanding gaps in the labour market.

The Federation of Small Businesses found that 22 per cent of small companies said a shortage of skilled workers would be a “stumbling block for growth in the upcoming year”, with the information, communication, and technology sector reporting one of the largest skills gaps. Thirty eight per cent of ICT companies said they were struggling to find workers with the correct skill levels to take up jobs.

A host of UK industries have said that they are struggling with labour and skills shortages over the past two years as inward migration from the European Union has declined after Brexit and total labour force participation has declined since the Covid-19 pandemic.

The Bank of England said this month that workers were struggling to find jobs to match their skill levels, a factor that would lead to higher unemployment until 2026. Jonathan Haskel, a Bank rate-setter, has said the deteriorating ability of the labour market to match workers to appropriate jobs could mean interest rates have to stay higher for longer.

The FSB’s study of more than 800 small companies also found that nearly half of all construction companies said they were dealing with a skills gap and 28 per cent of manufacturing companies reported similar shortages.

Tina McKenzie of the FSB said companies were struggling to hire “at all skill levels” and called on the government to maintain an apprenticeship levy which covers the bulk of a company’s training costs.

“Small businesses are eager to grow but many find themselves at a standstill, with skills shortages putting a brake on their ambitions. At a time where the economy needs it the most, firms are left hamstrung,” McKenzie said.

“This impact is especially sharp in construction, where small housebuilders are instrumental. As we shift to the digital age, too, it’s essential to support the self-employed to branch out and upskill without being held back by the tax system.

A separate study from the Institute for Fiscal Studies found that high-paid and high-skilled graduate jobs were becoming more concentrated in London and the south of England, forcing graduates in other parts of the country to work in jobs that were below their skills levels. The report said 42 per cent of all graduates in the UK were in a job that did not require a university education, rising from 31 per cent in 1993.

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Skills shortage holds back UK SMEs