Business warns of 'deep-seated and structural' skills shortage

The head of Vauxhall, the UK car giant, yesterday warned that business profitability was under threat from a "deep-seated and structural" shortage of skilled workers.

The head of Vauxhall, the UK car giant, yesterday warned that business profitability was under threat from a "deep-seated and structural" shortage of skilled workers.

Nick Reilly, speaking in his role as head of the economics affairs committee of the Confederation of British Industry, said the shortage was at its worst level for three years.

The warnings came as the CBI's latest survey of members found confidence has fallen for the third month in a row and that firms were cutting their profit margins savagely in a struggle to "keep their heads above water".

Mr Reilly said interest rates may have peaked at 6 per cent, adding that another hike would be very damaging for the sector. "There's a real possibility that the next move should be down, and as far as manufacturing alone is concerned, we would recommend that today," he said.

On skills shortages, he said the problem had spread out from the IT and computer sector - where the problem was actually easing - across the rest of the economy.

"There is a general need to reskill not just management but the shop floor as well," he said. "There are shortages in areas that business thinks should be ... coming out of the education system.

"You are talking about problem solving, team working, project management and leadership-type skills and there are issues coming up in marketing and legal areas. Businesses are reporting they are having to train or retrain their workforce for that sort of skill."

Skilled labour was cited by 17 per cent of firms as a constraint on future output - its highest level since October 1997.

It follows evidence this week from the Chartered Institute of Personnel and Development that the cost of replacing an employee, including searching and training, has hit an all-time record high.

The CBI's quarterly industrial trends survey found that manufacturers' profits were being squeezed amid fierce competition. "Manufacturers confidence is still weak," said Mr Reilly. "The relentless squeeze on margins is hitting jobs and investment intentions."

Capital expenditure plans are at their lowest level for 18 months, the CBI survey showed. "This is a major cause for concern as it will lead to a shrinking industrial base," said Mr Reilly.

"In the long term this will create supply capacity constraints in UK manufacturing industry and the ability to meet demand without inflationary consequences will be undermined."