UK small businesses struggling to attract talent despite wage growth

Xero’s Small Business Index for the last month rose 2 points to 88 due to higher wage growth across the country.

Wages increased by 4.7 per cent year-on-year (y/y) in August 2022, with the largest gains recorded in the hospitality sector at 5.7 per cent y/y, the strongest wage growth of any sector in the past 11 months. The smallest wage rises were in rental, hiring and real estate (3.9 per cent y/y growth).

Despite wage growth, small businesses are still struggling to attract talent back into the workplace. Jobs fell -5.3 per cent y/y in August, which is the fifth consecutive month of declining jobs.

This decline in jobs is not driven by less demand among small businesses looking to hire, with the latest ONS labour market figures showing vacancies are still near record highs at 1.26 million between June and August 2022. It is due to a lack of available workers to fill small- business jobs, with 642,000 fewer people in the labour market than before the pandemic in early 2020.

The index also found that late payments rose 0.7 days to 30.5 days in August. This is the fifth consecutive rise in payment times. Small businesses were paid an average of 8.3 days late in August, which was 0.9 days longer than July.

Alex von Schirmeister, UK managing director at Xero, said while it’s positive to see higher wages growth, this doesn’t seem to be translating into more jobs.

“This is leaving many small businesses short-staffed, with wages growth still failing to rise in-line with inflation. Coupled with another month of slow sales growth and the current economic instability, small businesses are feeling the squeeze,” he said.

“It remains to be seen if the Chancellor’s mini-budget will help small businesses with these issues in the longer-term. We need to see the government giving small firms the support they need to drive growth. This means tackling issues like late payments, which are having a devastating impact on cash flow, and also looking at ways to attract more people back into the workforce.”