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David Richardson: Staffing crisis is having big impact on Highlands and Islands businesses

By David Richardson

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David Richardson, development manager for the Federation of Small Businesses in the Highlands and Islands, looks at the impact of staffing struggles in the region

The North Coast 500 is giving businesses in the northern Highlands a boost over the rest of the region.
The North Coast 500 is giving businesses in the northern Highlands a boost over the rest of the region.

How are the nation’s businesses doing post-pandemic and in the midst of an inflation crisis? This matters, for no government, public agency or institution can operate effectively without knowing the answer.

FSB Scotland sought to find out and, in particular, we wanted to better understand the issues that businesses face, and if they are the same throughout Scotland, or whether their importance varies from area to area.

Our Big Small Business Survey covered a very wide range of issues, but here I’ll focus on the overall health of our business community, and on the biggest long-term problem facing businesses – staffing.

With a third of the 602 responses coming from the Highlands and Islands (Shetland, Orkney, the Western Isles, Highland, Moray and Argyll), we had a wealth of information to play with. So, what have we learned?

Well, last year, six in ten businesses in both Scotland and the Highlands and Islands (H&I) saw their turnovers either increase or stay the same, but this is down from three quarters in our 2021 H&I business survey. Also, the cost-of-living crisis seems to have hit H&I businesses harder, for if your turnover decreased, it was much more likely to have been due to the cost-of-living crisis and much less likely to overall economic uncertainty than if your business had been in the rest of Scotland.

Moreover, looking back over the past three years, 2021 was a significantly better trading year right across Scotland than both 2020 and 2022 – presumably people wanted to get out and about as soon as they were unlocked. However, presumably reflecting our visitor-based economy, H&I businesses performed slightly worse than the rest of Scotland in 2020, when the pandemic was at its height, and slightly better in 2022.

Of course, turnover is one thing and profitability quite another – especially in an era when double-digit inflation can wipe out any modest increase in takings. While three quarters of H&I businesses generated profit or broke even last year, a quarter made a loss – clearly worrying times for these given the lean pandemic years that went before. However, looking forward, more than three fifths of Scottish SMEs plan to grow their businesses in the next two years, particularly younger entrepreneurs.

How best to explain all of this? As Scotland’s geography differs so do its local economies, and the relative importance of tourism to the H&I would appear to explain many of the differences between our region and the rest of Scotland – the strong and weak years; the confidence in consumer demand; and the impact of escalating costs.

Oh, and it’s also worth noting that, based on a comparatively small sample of 91 responses, businesses in the northern Highlands have performed slightly better than in the H&I as a whole and the rest of Scotland. Why? Well, it’s hard to come up with anything more likely than the impact of the North Coast 500.

Squeezed margins and uncertain trading conditions are major issues, but perhaps the most frightening long-term structural worry for employers in the H&I is the shortage of staff. For while FSB surveys found that a third of employers on Skye were short staffed in August 2016 and 37 per cent of island-based businesses were similarly afflicted in 2017, by 2021 almost a half (47 per cent) of H&I businesses were in that predicament, and last year it increased to nearly six in ten (57 per cent).

And, based on smallish sample sizes, the indications are that approaching 70 per cent of businesses in the West Highlands & Islands and 70 per cent of those in accommodation and food services were understaffed. Meanwhile, in the rest of Scotland, ‘only’ 45 per cent of businesses did not have the headcount they needed. Needless to say, H&I businesses were not confident about their ability to recruit enough staff in 2023 – the direction of travel is obvious.

David Richardson is concerned about staffing levels in local businesses.
David Richardson is concerned about staffing levels in local businesses.

Staff shortages have consequences – serious consequences. In fact, eight in ten H&I businesses had to cut back on the range of services they offered, opening hours or both. How many people couldn’t eat out because staff shortages had forced restaurants to reduce the number of people they could feed? And what happens to the H&I’s reputation as a world-class holiday destination if staff shortages reduce service quality and perceived value for money?

Businesses in the Highlands & Islands do what they can, a third visiting education establishments to talk to pupils and students – it’s only a quarter in the rest of Scotland – and three quarters provide in-house training. Moreover, around two thirds pay the Real Living Wage, though most are not accredited, and most of those that don’t, don’t because they can’t afford to.

However, the bottom line is that there are nothing like enough job-seekers within the Highlands and Islands to meet businesses’ needs, which explains why a 14-year-old kitchen porter earning £10/hr in one West Highlands and Islands hotel was offered £11/hr to move to another. The minimum wage for a 16-year-old is £5.28/hr.

This problem is not going away any time soon, and without the staff they need, businesses can’t run on all cylinders, delight their customers, or create the vibrant local economies that retain young people and attract others to move in. No wonder some are downsizing. All of this perpetuates demographic decline and the staffing crisis.

While many Highlands and Islands businesses feel that they have weathered the storms of recent years and are looking ahead to brighter skies, that is not universally the case. Many are not doing well, as we have seen, for even if sales are comparatively buoyant, margins are being cut to the quick by unprecedentedly high costs, and a lack of staff is undermining abilities to function efficiently and effectively.

Quite simply, these are matters for governments, and at FSB Scotland we will continue to do all we can to bring the realities of business life, and the solutions necessary to giving businesses and local economies the brightest possible futures, to their attention.

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