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Labour and skills shortages could cost the UK economy £30 billion annually unless something is done, according to research by the Recruitment and Employment Confederation.

It found that with a 10% spike in demand — and the labour market restricted by shortages — the UK economy would shrink by between 1.2% and 1.6% by 2027 relative to where it would be without these shortages.

“We haven’t had to look far for evidence that labour shortages have the power to bring segments of the UK economy to their knees recently,” REC Chief Executive Neil Carberry said. “From chaos at airports to driver shortages and NHS waiting lists growing — the underlying issue of labour shortages has burst out into the open.”

A report by the REC, “Overcoming shortages: How to create a sustainable labour market,” includes recommendations for business and government on what can be done.

However, Carberry noted neither government nor business alone can solve the problem.

“It’s time for both to get the ‘people stuff’ right and get serious about long-term workforce thinking,” he said. “For companies, that means prioritising workforce planning at the highest level, investing in a skills pipeline — cooperating with other firms and local education providers to do it — and treating recruitment with the importance it deserves.”

An approach to staffing that only focuses on cost is a highway to nowhere, Carberry said.

“For its part, government needs to create the environment for businesses to be able to invest and thrive — with a long-term workforce strategy that includes skills, immigration, good local transport links and robust support for people who aren’t currently working,” he said.

REC data show a 10% rise in demand across the UK economy would require approximately 1.7 million new jobs as well as improving productivity. If these roles cannot be filled, the UK could expect to see average wage growth of around 4% compared to around 6.2% if they were filled.

Lower productivity and GDP together with suppressed wage growth would also mean government tax revenue would be 10.6% lower than in a scenario where those extra roles were filled.

The REC’s specific recommendations for businesses:

The organisation’s recommendations to government:

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