North-east firms forced to refuse new work as labour cost becomes the biggest pressure on business – report

Rising wages and pay settlements are now the biggest drivers of inflation for businesses in the north-east of Scotland, according to new economic data published today.

Labour costs – fuelled by a shortage of staff – have now overtaken energy bills as the biggest pressure on companies in Aberdeen and Aberdeenshire, with some being forced to refuse to bid for new work as a consequence, a report has found.

There are also early indications that the economy of the north-east is outperforming the rest of the country, due largely to increasing activity in the North Sea oil and gas sector, the research by Aberdeen and Grampian Chamber of Commerce (AGCC) shows.

Buoyant oil and gas prices particularly in 2022 caused profits among North Sea operators to soar, with some inevitable trickle-down to smaller firms in the local supply chain.

However, the price of Brent crude could be worsening the impact of inflation in the north-east.

The chamber network’s Quarterly Economic Survey revealed that prices are rising faster in the region than other parts of the UK for the second quarter in a row.

Two-thirds (67%) of local companies say they plan to increase prices in the next three months, seven percentage points ahead of the rest of the UK (60%).

Meanwhile, businesses across the UK have reported concern over their ability to make profits at “Covid-crisis levels” – only one in three (34%) UK businesses believe their profits will increase over the coming year, while more (36%) expect a decline.

Bring in more workers

AGCC policy director Ryan Crighton said the survey highlighted the need for more flexible approach to immigration to address labour gaps.

“Businesses in this region are being squeezed from all sides, with by high energy bills, increasing labour costs and fuel all delivering significant inflationary pressure,” he said.

“Our members have been telling us for months that labour shortages are causing huge issues for them, and even preventing them from bidding for new work. If businesses can’t access the human capital they need, then we will not be able to grow our economy.

“Human mobility and migration are often misunderstood or misrepresented, perhaps more now than ever before. However, in the north-east’s case, it is very clear that we need more people to fill the vacancies now proliferating the region.

“What might be the right policy for one part of the UK could be the wrong policy for another part. Therefore, a one-size-fits-all approach to immigration may no longer be fit for purpose.

“A flexible, devolved approach to immigration which allows our regions to meet their human capital needs to be considered by government if they want to unleash our economic potential.”

Outlook for businesses ‘bleak’

The research took place between November 7 and November 30, across the period the Government’s Autumn Statement was announced.

Nationally, it shows that concern about inflation also remains at record highs; 80% of firms cited inflation as a growing worry to their business.

But there are also significant jumps in the percentage of firms concerned about taxation (38%) and interest rates (43%).

The survey of 5,200 UK businesses – 92% of who are SMEs – found that overall business confidence, conditions and sales have stabilised at low levels.

Responding to the findings, director general of the British Chambers of Commerce (BCC), Shevaun Haviland, said: “The outlook from businesses remains bleak. Now, more than ever, we need to create the right conditions for firms to invest and grow.

“Providing businesses with clarity regarding the new energy support package must be top of the Government’s agenda for the New Year, after they failed to do so before Christmas.

“We urge Government to promote business growth by investing in public infrastructure and incentivising international trade, with a particular emphasis on making the UK the global hub for green innovation.

“Barriers to trade must be removed in order to allow firms realise their full trading potential. The impasse over the Northern Ireland Protocol continues to loom and the UK Government must work with the European Commission to reach a negotiated solution on its business compliance burdens.

“The Government’s New Year’s resolution should be to put business support for SMEs at the heart of its agenda and get the UK back on the road to recovery.”