Profits and skills shortage challenge 'levelling up'

The financial and skills challenges facing the UK government's 'levelling up' agenda – aimed at bringing business prosperity in the regions to the level of that in London and SE England – are highlighted in two surveys from global accountancy and business advisory firm BDO.

David Sapsted

29 November 2021

In a study this week of 220,000 UK businesses, the firm showed that London companies were on average the most profitable in the country, operating with average profit margins of 8.1 per cent, compared to the national average of 6.7 per cent.And in a survey earlier this month, BDO found that business leaders in the regions feared that they could continue to suffer from a shortage of the talent they needed because of the attractions of living and working in London and SE England.

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Regional picture for profit margins

The profitability report showed that London's success was boosted by the capital's financial services sector, which has an average profit margin of 14.4% and employs 750,000 people.Mark Lamb, Business Advisory Partner at BDO said: “It’s heartening to see City businesses still performing so well after the turbulence of the past few years, particularly with concerns around the financial services sector post-Brexit, but outside of London other industries are seemingly lagging behind when it comes to profitability.“The ‘levelling up’ agenda is central to what the Government wants to achieve. However, there is a real difference in the type of businesses that survive and thrive in each region."The recovery from the pandemic is the perfect opportunity for targeted policies and investments to make a big impact on regional economies and support the overall recovery of the UK.”The survey found that London's nearest competitors for profitability were in South West (6.2%) and North East England (6.1%), while the West Midlands lagged behind the rest of the country with a 2.8% profit margin, which BDO said "perhaps reflects a reliance on manufacturing in the region, an industry with lower average profit margins".

Maximising profits to level up

Mr Lamb added: “The last 18 months have brought a myriad of challenges for businesses, not least of which a global pandemic and Brexit uncertainties.“As businesses look ahead to their post-pandemic recovery and growth, they should be considering how to maximise profitability."Driving down costs like rent and utilities, increasing sales from existing customers and minimising the holding of unnecessary stock are steps that should be automatic."Beyond that, incentivising sales staff on the basis of margin rather than volume and an increased focus on improving governance can have an impact on profitability in the longer term.”

Lack of talent thwarting ambition

The survey of almost 500 leaders of medium-sized businesses earlier this month found that, while the vast majority believed the Government would achieve its levelling-up targets in the next decade, more than a third feared their companies' ambitions could be thwarted by a lack of available talent in regions outside London and SE England.All leaders of medium-sized businesses across England and Scotland said that access to skills could pose a threat to the growth, with a third saying that the biggest threat to their companies was a lack of available talent in their region.All the areas worst affected were outside London and SE England.Ed Dwan, Partner at BDO, said: “After experiencing a period of great uncertainty, it is pleasing to see that business leaders from across the country are optimistic that real progress on the ‘levelling-up’ agenda will happen in the not-too-distant future.“The investment in shovel-ready projects announced as part of the levelling-up fund will be a welcome boost to those areas that need them the most. However, it is clear there is more to levelling-up than just transport and infrastructure, and the Government must not overlook this.“Skills and staff shortages are being reported across the board and remain a large barrier to the growth of many businesses, particularly of those in some in the regions outside of London and the South East.“The newly announced £3.8 billion skills investment from the Government is crucial in order to ensure the skills gap doesn’t widen, but there is no quick fix. As businesses navigate complex challenges post-Brexit and pandemic, the Government must listen to their needs and implement long-term policies that will have an impact nationwide in order to truly ‘level-up’ the UK.”