Is Britain’s economy being starved of talent?

How is the Prime Minister’s bid to turn Britain into a high-wage economy progressing? It couldn’t be going better just at the moment, to judge by a survey by IHS Markit for KPMG and the Recruitment and Employment Confederation. In September – data was collected between the 13 and 24 September – there was a sharp rise in hiring, while starting salaries were rising at their fastest pace in the 24 years in which the survey has been undertaken. The number of permanent as well as temporary appointments was high, although the latter fell back from a record high in August. The survey suggests that the jobs market turned in February and has been strong ever since then.

The survey reinforces ONS data suggesting a strong labour market. The last figures published by the ONS, for August, showed a month-on-month increase of 240,000 payroll employees, taking the overall level of employment back to where it was in February 2020. However, employment is still lower than it was before the pandemic in London, the South East and Scotland. The ONS survey also showed a record number of vacancies, with 1.034 million of them advertised during August, the first time this figure has ever exceeded a million.

It is good news if you are looking for a job, but is the boon in wages really such good news for the economy? The IHS Markit report suggests a straightforward reason for a record growth in starting pay – the number of available candidate also fell at a record rate. 

While the Prime Minister might like to present it as a positive thing — Britain moving to being a high-wage economy — it does rather raise the question: is the economy being starved of the talent it needs to grow? According to previous government pronouncements, Brexit was supposed to cut off the flow of cheap labour to Britain but it wasn’t supposed to interfere with the supply of well-qualified professional recruits. On the contrary, an Australian-style points system was supposed to make it easier for firms to recruit talent from abroad.

It is difficult if not impossible to disaggregate the effects of Brexit and Covid, given that they occurred almost simultaneously, but if professional salaries continue to be driven upwards through a shortage of suitable candidates, even as Covid restrictions on travel are eased, questions will start to be asked as to whether the new migration system really is feeding the economy with suitable skills.