Address the labour shortage to unlock equitable small business growth

By Jo Copestake, below, UK Director of Small Business, Xero

Small businesses have experienced more than their fair share of issues in recent years. From the COVID-19 pandemic to a cost-of-living crisis, they have faced uncertainty on all fronts. These macro issues have further exposed a fundamental problem that threatens to stunt the growth of small businesses, and as a result, the economy at large – access to labour.

Xero’s latest Small Business Index data showed some tentative signs of job growth across small businesses (increasing by 1.1 percent year-on-year in June). In line with previous trends, London led the way with jobs growth (averaging +1.7 percent y/y in the three months to June). But there is still a long way to go, particularly for rural small businesses that are often disproportionately impacted by talent shortages.

Research conducted by the British Chambers of Commerce (BCC) and Xero revealed small businesses’ overwhelming dissatisfaction with access to labour, with two in three (64%) stating that they do not believe their local area has a high availability of appropriately skilled workers.

Obviously, there is no quick fix to this widespread issue. However, there are steps that both the government and business owners can take to mitigate the impact on broader economic growth, such as the integration of new technology to ease the pressure on employees and attract new staff.

A nationwide issue

A shortage of skilled workers disproportionately impacts smaller businesses. In urban areas, they face fierce competition from larger firms who can offer greater incentives. They are also more likely to use technology to streamline key processes, which can present more opportunities both for greater efficiency and the flexibility that is so appealing to the post-pandemic workforce.

In rural areas, the problem looms even larger. Our research with BCC showed that firms in business, industrial or retail parks struggle the most with worker shortages – almost three in four (72%) state that they do not have access to appropriately skilled labour. While still concerning, this drops to 56% for firms based in urban areas.

At the same time, 58% of rural SMEs report being let down by unreliable public transport. This results in a smaller pool of labour available to SMEs, as prospective workers from outside the local area cannot travel there for work. Comparatively, only 39% of urban businesses face the same issue, highlighting the link between infrastructure and access to talent that is reinforcing a rural-urban divide in the UK.

Calling on government

The government’s continued efforts to reduce regional disparities, which include improving job prospects and investing in town centres and high streets, are key to ensuring a future where we see sustained, equitable small business growth. For example, to narrow the gap with larger firms – and smaller ones in urban areas – there are proactive steps to be taken to support small businesses.

Ensuring every business is equipped with the necessary digital tools and infrastructure is crucial. Aside from helping them collaborate better with suppliers and customers, it also enables them – depending on the industry – to engage remote staff beyond their immediate locality. With only 56% of businesses in rural areas stating that their area has reliable broadband compared to 82% in urban areas, boosting digital infrastructure will be essential for small businesses to conduct business and access labour.

Making a head start

But government action is far from an immediate solution. Small businesses can also take steps to set themselves up for success and attract new employees. Making smaller, incremental changes to internal systems by modernising them can elevate hiring potential for small businesses. Whether becoming more appealing to younger generations or providing the opportunity for existing staff to upskill in new platforms and work alongside innovative technologies, digital adoption can make a big difference.

With many larger, tech-savvy competitors offering hybrid working, it could allow small businesses to offer incentives that much of the workforce now expects as standard – from flexible working to regular learning and development opportunities.

Creating an equal playing field

When small businesses can’t hire the right talent, it seriously restricts their growth potential. With longstanding issues such as limited public transport and reliable broadband also affecting rural businesses more heavily than their urban counterparts, a regional divide is helping to highlight this issue. It’s essential that an equitable trading environment is created, underpinned by fair access to the workers they need.

While government support will be crucial to catalyse long-term changes and put the right infrastructure and regulation in place, small businesses can help themselves too. Through greater digitalisation and connections with external partners to ease the burden on stretched resources, they can open up their access to labour and become more attractive employees.