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Manufacturing: higher wages for lower quality output

Author: ICAEW Insights

Published: 21 Jun 2021

ICAEW Insights spoke to the owner of a manufacturing business about how problems posed by Brexit and COVID have pushed their company to raise staff pay in return for a 40% downgrade in productivity.

In the latest from ICAEW’s five-part series ‘Companies face up to post-pandemic bounce back risks’, ICAEW Insights turns the spotlight on manufacturing as a business owner and chartered accountant (who wishes to remain anonymous) explores the issues faced by the sector as the UK emerges from the pandemic.

The first major problem is staff retention - keeping workers in the business so they can develop their skills and move up the ranks.

“We are terrified of losing any of our skilled operators because we know they'll be almost impossible to replace,” said the interviewee. “We are really held hostage to whatever salary demands they make because the concept of having to find somebody that a) has the capability of doing the work and b) is happy with the package is a tall order. We are trying to avoid recruiting by retaining, but it has been an incredible pain and very unpleasant.”

They added: “That's the only way you can actually keep these individuals on your table. However, you'll put up the salary and then two weeks later they'll go and come back and say they’ve been given a job offer elsewhere. This turns retention into a bit of an auction.”

Does Brexit pose a threat to specialists?

The interviewee says that Brexit only made the retention issue worse by establishing an obstacle for skilled workers.

“Poland is a centre of excellence for our particular niche and you tend to get a lot of skilled Polish operators working in the UK,” they said. “But with Brexit legislation and COVID travel restrictions in place, as these workers went home they just decided to stay rather than come back to the UK. This has resulted in the loss of a rich recruiting ground for us.”

The manufacturing sector always knew the skills gap was going to be an issue, it’s just unfortunate that it has come at the same time as COVID. “You just have to get on with it by paying more and hoping that a few of the apprentices being trained will eventually match their predecessors,” said the interviewee. “Until that day comes, manufacturers are having to de-spec and make simpler products because they haven’t got the same skills set as they did have”. 

This results in a less skilled workforce that is slower and can’t handle the same complexity as their predecessors. According to the interviewee, this leaves two options: putting the cost up to enable more time to make things, or importing from overseas. “It's like a 40% downgrade in their productivity for these individuals,” they commented.

How accountancy is affected, from a client perspective

The interviewee also points out they notice a similar staffing problem occurring in the accountancy sector, with different faces getting involved in their company’s audit. “It’s really frustrating that firms can’t keep up with their staff during the audit,” they commented.

They continued: “You get through numerous people before the end of the audit because they are losing staff so quickly. You normally want to have some continuation of the same people involved but that is just not happening, which is annoying from the point of view of client service.”

Follow this link for ICAEW’s exclusive five-part series - ‘Companies face up to post-pandemic bounce back risks’ - which gathers chartered accountant insight on problems faced by hospitality, retail, tourism and agriculture.

Stay up-to-date with the latest news and developments in the manufacturing sector by signing up to ICAEW’s dedicated Manufacturing Community.