A shortage of skills in the labour market is putting the brakes on investment and growth in Wales, says a new economic report. The joint report, published by the Federation of Small Businesses (FSB) and the CIPD in Wales, found that addressing skills shortages among small-to-medium enterprises was vital for overall productivity and economic growth.

The report examined the experiences of 30 businesses from different sectors across Wales and how the skills shortage was impacting them. Key findings showed that experiences of recruiting, training, up-skilling and accessing funding vary dramatically across regions and sectors with most Welsh SMEs saying they are time-poor and lack the formal HR function to facilitate effective and consistent skills development and analysis.

FSB’s own research shows that almost 80% of small firms struggled to recruit in the past 12 months. The report said that, at present, businesses are faced with a fragmented system of business support for skills that has a particular negative impact on SMEs, that make up 99% of the Welsh economy and provide 63% of private sector employment. Many reported a lack of business support for those firms that fall between the start-up and multi-million pound funding phases.

Read more: Panasonic earmarks Cardiff for £20m net zero investment

Head of FSB Wales Ben Cottam said: “The findings of the report underscore the urgent need to address the skills challenges facing SMEs in Wales. The case studies shine a light on the reality many small firms in Wales are facing, telling the story of the impact of a mismatch between skills provided by the education system and those that businesses need—an often overlooked but essential perspective from small businesses.

“In complement with evidence from central institutions and skills experts, the report aims to paint a full picture of the skills landscape in Wales and bring into focus key policy interventions to make a real difference. Long-term resourcing for providers like Business Wales and Careers Wales, along with closer links between the business community and teaching institutions, can greatly benefit learner outcomes and small businesses in harnessing the right skills to grow, thus bolstering our economy and communities. It is only through tackling the challenges together that we will see the benefits a skillful Wales can bring.”

The report highlights that Wales has a real opportunity at present with the establishment of the Commission for Tertiary Education and Research (CTER) earlier this year. It recommends that the body has the potential to become a point of engagement between businesses, education and support organisations as well as becoming a central hub for the analysis of skills gaps to predict future requirements.

It makes a series of recommendations for the Welsh Government to show its commitment to skills and the economy with support geared towards SMEs. The authors are calling for adequate long-term resourcing for providers like Business Wales and Careers Wales to fulfil their role of supporting businesses, learners and future workers. It also says a more regional focus to developing talent and skills in key geographic areas such as aerospace and automotive in North East Wales or Fintech in the South East of the country would be beneficial.

Lesley Richards, head of the CIPD in Wales, said: “The report findings mirror what we hear from our HR consultant members who support small firms. They are often owner-managers engrossed in the firefighting that comes with running a business, leaving little time to think longer-term and strategically about skills development and future proofing their workforce.

“While the report identified some good examples of best practice, it was only occurring in small pockets and in many cases undertaken in the absence of support services – such as professional HR and people development advice – which could dramatically alter a business’ experience. There’s a real opportunity, especially with the creation of CTER to develop a skills system that meets the needs of small firms and has a regional approach suited to the needs of businesses in a particular area or industry”.

One business involved in the report is Cardiff-based Tech and IT support company, B2B IT Services. Director John Hurst said: “The pandemic exacerbated the skills problem for us with the sudden move to hybrid working. London companies that had a higher payroll were sourcing candidates within Wales and offering more money with the ability to work from home, so our margins were being squeezed. Wales was left behind as we couldn’t keep up with the pay scales. The skilled candidate pool became a much smaller space, and suddenly we were competing with companies from all over the world.

“We believe in home grown talent and nurturing people who understand our culture and how we communicate with clients. We want to be the best place to work and deliver exceptional customer service, and we try to stick to those values for everyone we train. But the problem we face as a customer centric business is making sure the environment we’re acting within in Wales is conducive to providing that.

“As a company, we also have the challenge of finding a skillset which helps us move from a small business into a medium sized business. It’s really hard to find skilled individuals to help businesses expand in Wales, we’re missing the middle ground of medium sized businesses in this country, and there isn’t the expertise available to help us achieve it.”

The report and its recommendations are being launched at an event this week by the FSB and the CIPD in Wales with a speech by Education Minister, Jeremy Miles.