26 February 2024

Skills and labour shortages hinder rural business performance and growth

State of Rural Enterprise Report

Labour shortages and skills gaps are major challenges for rural businesses which are hindering their performance and growth potential, according to a major new survey from the National Innovation Centre for Rural Enterprise (NICRE).

More than half of rural businesses in the North East, South West and West Midlands find it difficult to recruit or retain suitably-skilled staff with almost nine out of 10 of these firms citing a limited local pool of suitable labour, with low wage levels and a lack of suitable opportunities for apprenticeships or training also featuring highly.

Long-standing issues in rural areas exacerbate the situation with almost 40% of rural businesses experiencing staffing issues highlighting a lack of affordable housing and poor public transport for employees, both far less of a concern for urban firms.

As a result of these difficulties, a high proportion of rural firms report losing business or orders, having challenges meeting existing demand, and needing to outsource work, while 30% delay or withdraw from offering certain products or services altogether.

Alongside this, gaps in skills exist with the most prominent relating to technical expertise in the business.

NICRE’s State of Rural Enterprise Report Labour and skills availability: impacts on rural enterprise calls for a more integrated, collaborative approach to address common challenges and support skills development, and greater awareness of the knock-on economic impacts of inadequate infrastructure in rural areas.

Calls to facilitate collaborative action

Dr Barbara Tocco, Senior Research Associate and NICRE Centre Manager, based at Newcastle University’s Centre for Rural Economy, said: “Our findings highlighting that skills and labour availability are major challenges for rural businesses and are affecting current productivity and future growth is particularly concerning for the UK economy.

“Given the geography of rural areas and the limited pool of suitable labour locally, opportunities for skills improvement policies should concentrate efforts on facilitating collaborative action by sector and/or locality.

“As we approach a general election, attention must continue to be paid to tackling the deep-rooted infrastructure challenges that exist in rural areas which not only impact skills and staffing but, as our survey has shown, other areas of business growth and innovation.”

NICRE’s evidence found that rural firms use a variety of strategies to overcome labour shortages and skills gaps. Of those facing constraints, a fifth deploy targeted marketing or advertising and around one in 10 collaborate with other businesses/organisations on recruitment or apprenticeships.

Very few businesses report tapping into wider national/international labour pools, or recruiting people to work remotely. The latter is despite a third of rural businesses with recruitment or retention challenges citing some difficulties due to the shift to remote working post-pandemic which enables rural residents to work for large city-based firms.

Dr Tocco added: “Our research sheds light on the need for enhanced support for long-term strategies that can better address rural labour market needs, including opportunities and access to funds for skills improvement and training provision.

“It will be important for Local Skills Improvement Plans developed for all areas of England in 2023 to steadily address these issues through their current activities and future proposals.”

This report is the fourth to be published from NICRE’s survey of rural businesses and follows The rural economy post-pandemic: opportunities and barriers for business growth, Rural SMEs and the environment and The cost-of-doing-business crisis: rural impacts and adaptation.

Firm’s innovative solution

Otter Handmade, which hand crafts bespoke furniture and larger structures from wood,  is one rural business in Northumberland that has devised its own innovative solution to tackle skills and labour shortages.

Managing Director John Holt, pictured right, said: “It quickly became clear, in truth we already knew, that there wasn’t going to be a pipeline of ready-made timber craftspeople and cabinet makers in our local area.

"Efforts to collaborate with fellow wood crafts businesses in Northumberland didn’t work out due to geography and other factors so we needed to be more creative.”

With no suitable training provider in the north of England or south of Scotland, John and wife Kate, a fellow director in the business, set up an arrangement with Rycotewood School of Furniture in Oxford to provide an apprenticeship based on a week-long block of college work, rather than the traditional day-release.

Otter Handmade, based in Rothbury, established links with King Edward VI High School in Morpeth and recruited Cole Thompson as its first apprentice in furniture making, who joined after his A levels.

To complement the apprenticeship and further address skills and labour shortages, John and Kate, who both have a background in further education, also run a year-long internship programme, and, having been so impressed with his performance, have already offered current intern Jack Colledge a permanent position at the end.

Jack and Cole, pictured left, are contributing to the growth of the business, which has seen its floor space increase ten-fold since it was set up in a workshop in John’s garden in 2019, and now has three premises and a large order book.

John said: “From the outset one of my ambitions for the business was that it would play its role in developing a wood-based, traditional craft, workforce and help build a skills base in rural areas, and I’m delighted that we’re doing that.

“Cole and Jack are an asset to our business and we’re confident that they’re going to be rising stars in the furniture-making industry. We are really looking forward to guiding their progress to mastery of their craft.”

Government response and industry support

The Department for Environment, Food and Rural Affairs and Department for Education have responded to the report.

Rural Affairs Minister Robbie Moore said: “This government is committed to making sure that the needs of people and businesses in rural areas are at the heart of policymaking, and the latest State of Rural Enterprise Report provides valuable insight into the pressures facing rural communities and their long-term growth.

“Our Rural England Prosperity Fund provides £110 million of funding for local authorities to provide capital grants to businesses and organisations in rural areas to support jobs and promote economic growth. We also have also recently provided funding for Rural Housing Enablers to unlock housing by connecting people with affordable homes in their area.

“Rural businesses make a crucial contribution to our economy, and we will continue to provide the support needed to ensure that rural areas across the nation can thrive.”

Minister for Skills, Apprenticeships and Higher Education Robert Halfon said: “We recognise the skills challenges rural businesses and enterprises face, which is why we are increasing apprenticeship funding by £2.7 billion by the next academic year so more employers can tap into the skilled workforce they need. From environmental consultancy to turbine technology, apprenticeships offer the chance to climb the skills ladder of opportunity to thriving careers in sustainable industries.

“Our land-based colleges are also developing the future workforce rural enterprises need. They are hives of technical and vocational skills, offering high-quality T Levels in areas such as Agriculture, Land Management and Production and Skills Bootcamps in various green skills. These training opportunities have a mutually beneficial relationship for employers and learners as they provide employers with a solution to tackle skills shortages and nurture a tailored workforce while also providing learners with a pathway to a good career and better wages."

The British Chambers of Commerce has welcomed the report.

Jane Gratton, Deputy Director People Policy at the British Chambers of Commerce, said: “Attracting and retaining people with the right skills is crucial for business. But far too many firms are struggling to recruit and train the people they need.

“Across England, Chamber-led Local Skills Improvement Plans are convening employers and training providers to tackle skills shortages in local economies and to help ensure people can train for great jobs in their region. 

“NICRE’s State of Rural Enterprise report shines a light on the specific challenges rural firms are facing, including poor transport links and the lack of affordable housing. These create barriers for employers and the workforce, and limit people’s ability to progress in work. 

“Flexible workplaces, skills planning and better transport and digital connectivity are key to boosting opportunities and growth in rural economies. Government and employers need to work together to plan for growth in every part of the country.”

The survey was developed by NICRE's partners: Centre for Rural Economy and Business School at Newcastle University, ERC at Warwick University, and Countryside and Community Research Institute at the University of Gloucestershire and Royal Agricultural University.