The CIPD’s latest Labour Market Outlook found that 55% of employers expect to raise base or variable pay further in 2023 to better recruit and retain staff. It said this isn’t surprising given that UK employer hiring confidence remains strong and there are high reported levels of hard-to-fill vacancies and skills shortages.

With these factors in mind, the CIPD is urging the government to reform the failing Apprenticeship Levy to make it more flexible and boost employer investment in training.

The CIPD’s survey of 2,012 employers found that seven in 10 employers (71%) expect to hire in the next three months while anticipated redundancies remain below pre-pandemic levels.

Despite strong hiring intentions, more than half (57%) of employers said they have hard-to-fill vacancies. Many expect this problem to persist to either a significant (29%) or minor (36%) extent in the next six months.

Of those organisations that have or plan to raise pay in response to hard-to-fill vacancies, 57% plan to achieve this by raising prices rather than lowering profits and absorbing costs (47%). The opposite was true 12 months ago, suggesting that the tight labour market will increasingly feed through into price rises for organisations’ goods and services.

The most common approaches used by employers to address hard-to-fill vacancies in the past six months are to upskill existing staff (47%), raise wages (43%), increase the duties of existing staff (36%), improve job quality (27%) and hire more apprentices (26%).

The CIPD survey also suggests that employers appear to be more receptive to hiring people who are returning to work after having time out of the labour market, for reasons other than having a child, such as other caring responsibilities or a health condition.

Skills and labour remain scarce

Jon Boys, CIPD senior labour market economist, said: “Skills and labour remain scarce in the face of a labour market which continues to be surprisingly buoyant given the economic backdrop of rising inflation and the associated cost-of-living crisis.

“It’s positive to see many employers taking steps to tackle skills shortages by upskilling existing staff and hiring apprentices. However, the UK government could provide much-needed support by making the Apprenticeship Levy more flexible, to boost employer investment in training and reverse the decline in apprenticeship starts we’ve seen in recent years.

“Many employers are recognising the potential to attract certain groups to fill vacancies – particularly older workers, carers and those with health conditions – but this also requires a focus on improving job quality, particularly flexibility.

“The forthcoming introduction of a day one right to request flexible working should prompt more employers to ensure that they advertise jobs as flexible and provide a range of flexible working practices to attract and retain a more diverse workforce.

“However more needs to be done to help provide employers, particularly SMEs, with access to occupational health services or support, to help them to keep our ageing workforce healthy and in work.”