GROWTH FOR EVERYONE CBI/ACCENTURE EMPLOYMENT TRENDS SURVEY 2014

GROWTH FOR EVERYONE CBI/ACCENTURE EMPLOYMENT TRENDS SURVEY 2014 Sponsored by

CBI contact Fionnuala Horrocks-Burns Policy adviser CBI Cannon Place 78 Cannon Street London EC4N 6HN Accenture contact Joanna Brown Accenture 1 Plantation Place 30 Fenchurch Street London EC3M 3BD T: +44(0)20 7395 8024 E: fionnuala.horrocks-burns@cbi.org.uk www.cbi.org.uk T: +44(0)20 7844 7344 E: joanna.brown@accenture.com www.accenture.com About the sponsor Accenture is a global management consulting, technology services and outsourcing company, with more than 305,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0bn for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com

CONTENTS Foreword by Katja Hall, CBI 4 Foreword by Olly Benzecry, Accenture 5 Overview 6 1. The employment landscape 10 2. The 2014 employment trends survey 14 3. More job opportunities opening up in 2015 16 4. Ensuring the UK remains competitive 24 5. Tackling barriers to work for young people 28 6. Maintaining the momentum on positive employee relations 32 7. Maximising future talent 38 8. Boosting flexible working practices 42 9. Upholding flexibility within the UK s regulatory framework 46 Footnotes 54

4 Growth for everyone: CBI/Accenture employment trends survey 2014 FOREWORDS As the economic recovery becomes more soundly based, businesses are increasingly optimistic. For the first time since the financial crash of 2008 the perception of the UK as a competitive place to create jobs is positive with firms seeing the UK as a place to invest and grow their business. The story of the recovery so far has been one of employment growth but limited wage rises, both of which have been reflected in previous editions of this survey. Last year, we saw a thaw coming in the pay freezes and low rises that have dominated since 2009, and that has been borne out this year with those remaining in regular work through the year seeing a return to inflation-matching and above-inflation rises. Overall wage inflation remains low, however, as we still have almost two million people unemployed and those with more broken employment histories are still seeing low or no rises. This year s survey suggests that this picture may be starting to change though. The great success of the UK over the past five years has been flexibility ensuring unemployment didn t rise to the levels many feared in the recession, and getting us back on the path to job creation quickly. In total 95% of businesses believe a flexible labour market it either vital or important to the future of the UK. It is disappointing, therefore, to see politicians of all political hues increasingly talking about new controls and regulations, whether that is on employment law, pay or immigration. Such steps are not in the longterm interest of workers or businesses. Businesses across all sectors have identified raising productivity and addressing skills shortages as crucial to ensuring the recovery continues and is felt by all. Concern about the level of skills has become the top threat to business identified in the survey this year. This needs to be tackled in two ways: aligning vocational education to employer needs for young people and adults and better practice in firms on people management, development and progression, and skills utilisation to boost productivity. Katja Hall CBI deputy director-general

Growth for everyone: CBI/Accenture employment trends survey 2014 5 The results of this year s survey underline employers confidence in the recovery and what might be described as realistic optimism. Despite the global market and political uncertainties that exist, businesses across the UK are reflecting they are employing more people and more of this employment is full time. It is also good to see, in the spirit of inclusive growth, that many plan pay growth at, or ahead of, the cost of living. While the employment prospects for many improve, including graduates, it remains apparent that critical to sustaining and sharing growth is the availability of the right skills. Put another way, businesses cite the skills gap as the key barrier to growing their business and success. It is clear that to maintain the growth in our economy and increase investment we need a workforce that is fit for purpose and able to compete globally. While much has been done, the pattern across the UK remains piecemeal. We must become better at replicating and formalising the relationship and engagement between employers, educators and trainers closing the gap between the skills we have and those we need. Nowhere is this more critical than in the area of digital skills, as the link between digital capability, productivity and economic growth becomes ever more apparent. It is also clear that business and educators recognise that they need to be more flexible in the paths by which talent is developed and can enter the workforce. This will lead to both an increased speed to getting the skills that are needed as well as more inclusive opportunity. Accenture is delighted to remain part of the CBI s research into employment trends and the opportunities and challenges that exist. Much has been achieved in the last few years, but as ever, more can be done. A truly modern, highly skilled workforce with the skills to achieve their ambitions and meet the needs of businesses must be top of everyone s agenda as we move forward. This requires business to play its part at the heart and soul of the process to make growth work for everyone. It is clear from this survey that business wants to be part of the solution it is now a matter of getting better at how this happens. Oliver Benzecry Accenture UK managing director

6 Growth for everyone: CBI/Accenture employment trends survey 2014 a OVERVIEW The employment trends survey 2014 The survey was conducted between August and October 2014 There were 323 respondents, employing more than 1.25 million people between them Respondents came from businesses of all sizes and sectors across the UK The survey was completed by senior executives. In small and medium-sized companies this tended to be the managing director, chief executive or chairman. In larger firms, it was the human resources director or equivalent. More job opportunities opening up in 2015 Half of employers (50%) expect their workforce to be larger in 12 months time, while just 12% expect the workforce to be smaller, producing a positive balance of +38% of businesses looking to recruit additional employees Private sector jobs growth is expected in every part of the UK, with the positive balance of businesses expecting to grow their workforce ranging from +36% in Northern Ireland to +49% in the north west The number of permanent jobs is expected to increase faster than temporary positions, with a positive balance of +28% of businesses expecting to expand permanent hiring and +16% expecting to grow their temporary workforce over the coming year Job prospects for graduates are rapidly improving, with a positive balance of +30% of businesses planning to increase their graduate hiring over the next 12 months compared with a balance of +20% in our 2013 survey Openings for apprentices are also increasing, with a balance of +33% of businesses looking to recruit additional apprentices in 2015 Competitive pressures and weak productivity limit the scope for pay growth, but over half of businesses intend to raise pay at least in line with the RPI measure of inflation in the coming year. The proportion of firms planning a pay freeze at their next pay review is very low (8%) by the standards of recent years Three quarters (74%) of businesses think that an independent Low Pay Commission should continue to take an evidence-based approach to recommending national minimum wage rates While business see the living wage campaign as an important reminder of cost of living pressures, paying it must be a voluntary decision to avoid job losses. Ultimately, to be sustainable, pay needs to reflect productivity, with people progressing to better pay on the basis of skills. Ensuring the UK remains competitive Assessments of the UK as a place to invest and do business have improved significantly over the past 12 months, jumping from a negative balance of -2% to +22% There remains work to be done to cement this positive assessment as we look ahead: the balance of respondents expecting the UK to become a better location for business in five years time has dropped from +31% in 2013 to +25% this year

Growth for everyone: CBI/Accenture employment trends survey 2014 7 Concerns about low levels of skills (63%) have overtaken employment regulation (61%) as the biggest perceived threat to the UK s competitiveness as a place to employ people Businesses recognise the long-term nature of the issue, with low levels of skills anticipated to remain the biggest threat in five years time (by 54% of respondents) Concerns about regulation (53%) and labour costs (25%) are also seen by employers as risks to future competitiveness With less than one in ten (7%) businesses reporting they have no need for digital skills, developing greater digital competence is essential to enable UK businesses to compete internationally. Tackling barriers to work for young people New job opportunities for young people will open up over the coming year, with almost three quarters (73%) of businesses expecting to have entry roles suitable for young people aged 16-24 Despite some improvements in recent years, without a clear programme of careers advice and guidance in schools, too many young people find they are poorly prepared for working life: the main obstacles facing young people are lack of the right attitude and behaviours (58%) and lack of knowledge and skills (54%) Businesses cite the most important actions to improve young people s employability as more relevant high quality vocational educational options (48%), better links between business and education (47%), improvement in skills (41%) and better careers advice (37%) While over half of respondents (58%) are informally engaging with schools, there is more to be done to develop a systematic approach. For example, less than a third (31%) of businesses are involved in structured outreach programmes with schools. Maintaining the momentum on positive employee relations The proportion of businesses assessing the employee relations climate as cooperative or very cooperative has increased to a new high of 76% (up from 72% in 2013). Just 2% report an adversarial climate In those firms which recognise a trade union for collective bargaining the balance reporting a positive employee relations climate was lower (at +52%) than in other businesses (+84%) Nearly three quarters of businesses (73%) anticipate their employee relations climate remaining cooperative over the next 12 months Employee morale is also at a new high, with 55% of respondents describing their organisation s morale levels as high or very high, up from 49% in 2013 From the employers perspective, the major benefits of high levels of engagement are seen as improvements in productivity and performance (80%) and increased customer/client satisfaction (65%) Maintaining this positive climate is a key focus for businesses over the next 12 months, with high levels of engagement one of the two top workforce priorities, together with improving leadership skills (cited by 44% and 50% of respondents respectively). Maximising future talent Considering diversity in its broadest sense, just over half of firms (52%) report at least some barriers in developing a more diverse workforce The key challenge faced by business is an insufficient number of people from diverse backgrounds in their sector or profession (61%). This is particularly acute in certain sectors such as manufacturing and construction (both 81%), highlighting the need to change attitudes and attract more young people from diverse backgrounds into non-traditional roles and careers

8 Growth for everyone: CBI/Accenture employment trends survey 2014 Other obstacles to greater diversity include working practices and work culture (both 20%), pointing to the importance of businesses reviewing policies to tackle unnecessary barriers In relation to gender diversity, businesses are stepping up to the challenge and are taking steps to boost diversity including the implementation of family friendly policies for employees returning from parental leave (64%), improvements in the recruitment process (35%) and targeted advertising or head-hunting when filling vacancies (35%). Boosting flexible working practices Almost all businesses (95%) believe flexibility is vital or important to the competitiveness of the UK s labour market and the prospects for investment and job creation The top three reasons why a flexible workforce matters to UK businesses are responding to growth opportunities (82%), managing fluctuating demand (81%) and creating employment opportunities (61%) Flexibility in the workplace takes many forms flexibility over location for work is most widely offered by 84% of businesses, followed by non-standard hours schemes (81%) and multiskilling of employees (80%) The use of temporary workers/freelancers/ contractors has dropped sharply to two thirds of businesses (67%), possibly driven by a combination of greater economic confidence enabling businesses to add to permanent positions and wariness about possible future restrictions on flexible contracts Obstacles to implementing flexible working practices include practical problems posed by company infrastructure (59%), the mind-set of some managers (52%) and the need to ensure continuity in business activities (44%) Agency working is a vital component of the UK s flexible labour market. Tampering with the existing regulations to impose new restrictions such as abolishing the so-called Swedish derogation would result in 41% of businesses reducing their use of agency workers but just 13% would increase hiring of permanent employees instead. Upholding flexibility within the UK s regulatory framework The individual working time opt-out remains an essential element of the UK s flexible labour market: more than seven in ten (72%) businesses report its loss would have an impact on them, with most of these saying the impact would be significant or severe The most widespread impact from loss of the opt-out would be the negative effect on employee relations (55%) followed by reduced capacity for businesses to respond to growth opportunities (47%) Businesses are facing the risk of significant additional costs from tribunal cases challenging the normal calculation of holiday pay. Eight in ten (80%) businesses report a negative impact if the calculation is changed with over a quarter (26%) reporting a severe impact In terms of impact, the major costs of any backdated liabilities would be the major concern to business (71%), but the ongoing increased costs of employment (69%) and additional bureaucracy and administration costs (68%) are just as important Businesses report a drop in the number of employment tribunal claims over the past year, with less than one in four (23%) receiving any claims in the past year, down from 39% in 2013 Despite the reduction in the number of cases going to tribunal, businesses report there has been little change in the time taken to resolve tribunal claims with three quarters (73%) believing it has stayed the same or increased Many businesses (23%) remain uncertain about how best to manage the retirement of older workers following the abolition of the Default Retirement Age in 2011.

Growth for everyone: CBI/Accenture employment trends survey 2014 9 Respondents to this survey employ over 1.25 million employees collectively

10 Growth for everyone: CBI/Accenture employment trends survey 2014 SECTION 1 The employment landscape Recovering from the recession has taken time. But the UK economy s positive progress has continued in 2014, with output now above its pre-crisis peak. Renewed growth has been driven primarily by the services sector, although manufacturing and construction too have been picking up. The flexible nature of the UK s labour market has proved its worth, with employment rising yet again, driven by job generation in the private sector. Challenges clearly remain, however, with weak productivity acting as a drag on pay and living standards. Key points As the economic recovery has become ingrained, output has surpassed its pre-recession peak. But the UK economy is still facing headwinds, including political and economic uncertainties at home and abroad The UK labour market has continued to strengthen and, thanks to job creation in the private sector, there are now more people in work then before the crisis began The UK has performed well in comparison to other leading economies: the employment rate stood at 70.8% in 2013 compared to 63.5% in the euroarea, while the UK s unemployment rate of 7.6% in 2013 was well below the EU average of 11.9% Young people have been benefiting from a stronger labour market, but rising youth unemployment even before the downturn indicates more action is needed to prepare young people for working life Productivity growth has continued to disappoint. Productivity is still 16% lower than it would have been had it continued to grow at the same pace as before the recession. Turning this around is essential to enable sustainable increases in pay. The recovery is on a firmer footing The UK economy was hit hard in 2008-09 when the financial crisis began and it has been a long road to recovery since. But the economy is now growing at a good rate and has fared well in comparison to its G7 counterparts. GDP grew by 0.7% in the third quarter of 2014, and output is now 3.4% higher than before the downturn. But the UK economy faces headwinds which could put the sustainability of the recovery at risk. In the eurozone growth has continued to disappoint, contracting in Germany and grinding to a halt in Italy and France. Together with the danger of a slide into deflation, this has prompted the IMF to warn of a 40% risk that the eurozone could fall back into recession. 1 With net trade already contributing little to the recovery any further economic disappointments, in the Eurozone and the global economy, could present a risk to our export growth. On top of this, productivity growth, a key determinant of growth and pay, remains worryingly weak. Output per hour is still 16% below where it would have been had it continued to grow at the same pace as before the crisis. The CBI is forecasting GDP growth of 3.0% in 2014, 2.5% in 2015 and 2.5% in 2016. CPI inflation is expected to remain below target this year and next (1.5% in 2014 and 2015) before rising to 2.0% in 2016. 2 The UK s labour market has continued to strengthen Just as the UK s flexible labour market saved jobs during the downturn, so it has also helped create them in the recovery. The number of people in employment increased by 694,000 in the past year and there are now more people in work than before the crisis began. The employment rate has also continued to improve and recently regained its pre-downturn level. 3 The private sector has been the driving force behind this robust employment growth. In the past year alone 704,000 more people found work with a private sector business. This more than offset declining employment in the public sector.

Growth for everyone: CBI/Accenture employment trends survey 2014 11 Exhibit 1 The number of people working for an employer is rising Change in employment compared to first quarter of 2008 (000s) 1,500 1,200 900 Employees Self-employed Total employment 600 300 0-300 -600-900 08 09 10 11 12 13 14 Source: ONS with more people finding work with an employer Even before the recession, the number of people choosing to work for themselves was rising. But as the downturn took hold and fewer jobs were available with employers, the number of self-employed started to increase at a faster pace. As the economy is regaining its health, more and more people are finding work with a business (Exhibit 1). In the past year the number of employees increased by 454,000, while the number of people working for themselves rose more slowly, up by 279,000. and taking up full-time work An increased number of people working for themselves was not the only way the UK economy adapted to cope with the downturn. By working with their employees businesses also saved as many jobs as possible by increasing part-time working. This trend has now started to reverse too as the recovery has strengthened. Full-time working is on the up. In the past year 85% of the increase in employment was among people working full-time. There is still some ground to be made up though. While the number of people who couldn t find a full-time job fell by 125,000 over the last year, the proportion of people working part-time who want to work full-time is still seven percentage points higher than before the recession began. Using and building skills in the workplace is the best way to increase the chances of moving up the career ladder. So people in part-time work will be well placed to take advantage of fulltime positions as they become available something business will be increasingly able to offer as the economy continues to improve. After a fall in vacancies during the initial stages of the crisis, the number of positions on offer is now on the up (Exhibit 2). Exhibit 2 Vacancies (Q1 2008= 100) 110 100 90 80 70 60 50 08 09 10 11 12 13 14 Source: ONS

12 Growth for everyone: CBI/Accenture employment trends survey 2014 Exhibit 3 International comparisons of employment rates (%) 75 Exhibit 4 International comparisons of unemployment (%) 30 70 25 65 20 15 60 10 55 5 50 08 09 10 11 euro area Germany Ireland Spain France UK US 12 13 Source: Eurostat 0 08 09 10 11 euro area Germany Ireland Spain France UK US 12 13 Source: Eurostat The UK is doing well on employment compared to international peers The UK s strong performance on employment becomes clear when we look at how other leading economies have fared (Exhibit 3). The UK employment rate in 2013, the latest date for which comparable data is available, was 70.8%. This was significantly higher than the average for the euroarea as a whole (63.5%) and higher than in the US (67.4%). Only Germany had a higher employment rate than the UK (73.3%). Progress over the past 12 months is likely to have closed this gap still further. Mirroring the UK s robust growth in employment, the picture on unemployment is also a positive one. When the UK first entered recession our unemployment rate was lower than in other leading economies such as Germany and France. This positive performance was sustained during the downturn, with the UK unemployment rate remaining consistently below that seen elsewhere (Exhibit 4). By 2013, unemployment in the UK stood at 7.6%, significantly below the average for the euroarea of 11.9% and well below the rates in Spain, Republic of Ireland and France. Only Germany outperformed the UK with an unemployment rate of 5.3% in 2013, the latest year for which comparable data has been published. 4 Since then, more recent data for the UK shows that unemployment has continued to fall fast. It dipped below the two million mark for the first time in six years in the three months to September 2014, meaning that only 6.0% of those aged over 16 are now out of work and looking for work. 5 Young people have benefit from a strengthening labour market During an economic downturn it is often young people who are most affected. The experience in the UK was no exception. Unemployment among those aged 16 to 24 topped one million in the three months to November 2011, a youth unemployment rate of 22.5%. This is a worry as the scaring effects of a period of unemployment early on in working life are well established, increasing the risk of further periods of unemployment and reducing future earnings potential. More recently, however, young people have seen the benefits of a strengthening labour market. Since mid-2013 youth unemployment has dropped markedly (Exhibit 5). Indeed, in the past year, the decline in youth unemployment accounted for 46% of the fall in Exhibit 5 Youth unemployment (%) 24 22 20 18 16 14 12 08 09 10 11 12 13 14 Source: ONS

Growth for everyone: CBI/Accenture employment trends survey 2014 13 total unemployment, reducing the number of young people that are out of work and looking for work to 737,000. Excluding unemployed young people in fulltime education, this number falls further to 489,000. 6 These are encouraging trends. But youth unemployment was rising even before the recession began, indicating there are more ingrained challenges that need to be tackled beyond an upturn in the number of jobs on offer in the economy. Enabling young people to get into work and stay in work starts with structured preparation. This requires an education system that supports the development of rounded and grounded young people who have a bit of work experience under their belt and a good idea of the career path they would like to follow. It also means making sure we have a system which sets every young person off on a clear, valued route to success, regardless of whether that path is vocational or academic in nature. And there s a role for business too in helping young people get their foot on the career ladder. By providing personalised feedback to all candidates attending interviews and assessment centres and a general list of top tips for those who don t get that far, young people can learn from their experiences and improve their chances of success next time around. 7 To boost living standards we need to improve productivity The UK economy has been through a tough period. While the jobs market held up relatively well, productivity the value added to the economy every hour worked has been badly affected. The UK needs to raise productivity growth if it is to continue to compete on the global stage and improve the living standards of those in work by securing sustained wage growth. If we are to reverse the 7% fall in the purchasing power of average pay seen since the downturn began, this is an issue we need to tackle. One of the reasons why productivity growth has been so weak is that, despite the UK economy producing a little more now than it did before the crisis, more people are at work to produce it. Other reasons which help to explain this productivity puzzle include firms having to work harder than usual to win and deliver work, impaired access to finance during the crisis which limited the potential for firms to grow during the recovery and lower levels of investment in capital Exhibit 6 Productivity growth compared to a continuation of pre-crisis trend 20 15 10 05 00 95 90 05 06 07 08 09 10 11 12 13 14 Output per hour worked Real GDP 16% Pre-crisis trend in output per hour worked Source: ONS such as machinery or computers. Although output is now rising, productivity is still 16% lower than it would have been had it continued to grow at the same pace as before the recession (Exhibit 6). This won t be an easy nut to crack. In the CBI s recent report A better-off Britain we highlight the need for businesses to take a long-term approach to raising employee value-added, and make it a firm priority. While higher spending on new equipment and technologies can help, in the service sector, for example, raising productivity is more about innovation in business organisation and investment in activities like design, branding and advertising. Businesses need to ensure that managers have the support and the skills they need to develop staff and look at the way that jobs are designed. We should also apply the lessons of our industrial strategy more widely: business leadership, collaboration with customers and suppliers, and the spread of best practice can help raise productivity in a broader range of sectors. And government has a part to play. The policy environment influences many of the factors that determine how fast productivity grows over the long run levels of competition, regulations, the skills system and incentives to encourage firms to invest and export. The government could do more to support firms of all sizes but especially small and mediumsized firms by removing the barriers that can prevent the most productive firms from growing, such as accessing finance and highlighting export support. 8

14 Growth for everyone: CBI/Accenture employment trends survey 2014 SECTION 2 The employment trends survey 2014 Now well into its second decade, the CBI s employment trends survey has charted the shifting patterns of employment and workplace practices under successive governments and through fluctuating economic conditions. For the past 17 years the survey has monitored trends through periods of growth, the economic crash of 2008-09 and the subsequent recovery. The 2014 edition of the survey maps business opinion as the economic recovery becomes more soundly based and looks at the employment opportunities and challenges ahead. This year s survey has been conducted in partnership with Accenture, the technology, consulting and outsourcing specialists. The survey was carried out between August and October 2014. There were 323 respondents in total, from firms employing more than 1.25 million people between them. The combined workforce of respondents was equivalent to over 4% of those in employment in the UK. 9 The survey was completed by a senior executive in each organisation. In larger firms it tended to be the human resources director or equivalent. In small and medium-sized enterprises in was usually the managing director, chief executive or chairman. Sectoral analysis There was a wide spread of responses across all sectors (Exhibit 7). As in previous years, manufacturing firms made up the largest single category, accounting for about one in five respondents (19%). Professional services firms (13%) were also well represented. Organisations classed as other services (11%) or other (13%) together accounted for nearly a quarter of responses. These included higher education, housing and healthcare providers, aviation and power generation companies and waste management firms. Businesses in the construction sector, the finance sector, retail and hospitality, and transport and distribution each accounted for 7% of respondents. Exhibit 7 Respondents by economic sector (%) Other services 11% Energy & water 3% Banking, finance & insurance 7% Public sector 7% Other 13% Transport & distribution 7% Manufacturing 19% Professional services 13% Construction 7% Science/hi-tech & IT 6% Retail & hospitality 7% Respondents by company size Businesses of all sizes took part in the survey. Small businesses, employing up to 49 employees, represented just over one quarter of respondents (27%) while one in eight respondents (12%) represented large businesses employing more than 5,000 employees (Exhibit 8). Overall, medium-sized businesses (MSBs) employing between 50-499 employees accounted for around a third (34%) of participants. While MSBs make up a relatively small proportion of the UK business landscape, they are responsible for earning 22% of private sector revenue and employing 16% of all employees. 10

Growth for everyone: CBI/Accenture employment trends survey 2014 15 Exhibit 8 Respondents by company size (%) Exhibit 9 Respondents employing staff in each region (%) 5000+ 12% 1-49 27% 1000-4999 17% Scotland 28% 250-999 23% 50-249 21% The majority of private sector businesses in the UK fall into the official definition of small and medium sized enterprises (SMEs) organisations with fewer than 250 employees. 11 Looking at the proportion of SME businesses taking part, nearly half (48%) of respondents were from firms of this size category. Larger firms, those with 250 or more employees made up the balance of respondents (52%). Respondents by region The majority of respondents had employees based in several regions of the UK. Many respondents had employees based in London, with two fifths (40%) having at least some employees located there (Exhibit 9). After London, the most common locations where employees were based were the south east (34%), the south west (32%) and the north west (32%). In all, two in five participant businesses (40%) had at least some employees based in one or more of Scotland, Northern Ireland or Wales, where devolved parliaments or assemblies have a strong role in areas of business policy. Northern Ireland 25% Wales 25% North west 32% North east 24% West Midlands 31% South west 32% Yorks & Humber 29% East Midlands 28% East of England 31% South east 34% London 40%

16 Growth for everyone: CBI/Accenture employment trends survey 2014 SECTION 3 More job opportunities opening up in 2015 Private sector employment has grown rapidly over the past three years. And the growth in jobs looks set to continue into 2015, with half of businesses expecting to expand their workforces in the coming year. Firms anticipate creating more permanent jobs in addition to more openings for both graduates and apprentices. As the recovery becomes further ingrained, most businesses expect to be able to raise pay in the coming year but the rate of increase will need to reflect productivity, growth and a tough competitive environment. Key findings: Half of employers (50%) expect their workforce to be larger in 12 months time, while just 12% expect the workforce to be smaller, producing a positive balance of +38% of businesses looking to recruit additional employees Private sector jobs growth is expected in every part of the UK, with the positive balance of businesses expecting to grow their workforce ranging from +36% in Northern Ireland to +49% in the north west The number of permanent jobs is expected to increase faster than temporary positions, with a positive balance of +28% of businesses expecting to expand permanent hiring and +16% expecting to grow their temporary workforce over the coming year Job prospects for graduates are rapidly improving, with a positive balance of +30% of businesses planning to increase their graduate hiring over the next 12 months compared with a balance of +20% in our 2013 survey Openings for apprentices are also increasing, with a balance of +33% of businesses looking to recruit additional apprentices in 2015 Competitive pressures and weak productivity limit the scope for pay growth, but over half of businesses intend to raise pay at least in line with the RPI measure of inflation in the coming year. The proportion of firms planning a pay freeze at their next pay review is very low (8%) by the standards of recent years Three quarters (74%) of businesses think that an independent Low Pay Commission should continue to take an evidence-based approach to recommending national minimum wage rates While business see the living wage campaign as an important reminder of cost of living pressures, paying it must be a voluntary decision to avoid job losses. Ultimately, to be sustainable, pay needs to reflect productivity, with people progressing to better pay on the basis of skills. Strong private sector jobs growth remains in prospect UK businesses have been major generators of jobs since the recession of 2008-09. Our 2013 survey found just over half (51%) of respondent businesses expected to increase the size of their workforces over the months ahead. This year s results maintain this positive picture, with half (50%) of all respondents expecting their workforces to be larger in 12 months time (Exhibit 10). As in 2013, only one in eight businesses (12%) expects their workforce to be smaller in 12 months time and just over a third (37%) anticipate no change. Overall this produces a positive balance of +38% of companies expecting to have more employees in a year s time. Job creation will be spread fairly evenly across all sizes of businesses, with 52% of SMEs and 48% of larger businesses expecting to take on more people. MSBs are expecting to lead the employment expansion, with 55% anticipating a larger workforce in a year s time. With less than one in ten (8%) expecting reductions, this produces a positive balance of +47% of MSBs anticipating growth in their workforce over the next year.

Growth for everyone: CBI/Accenture employment trends survey 2014 17 Exhibit 10 Expected size of workforce in 12 months time All respondents 2014 (%) Smaller than today 12% Don t know 1% Larger than today 50% Exhibit 11 Positive balance of firms expecting workforce growth 2011-14 (%) 38 2014 39 2013 20 2012 28 2011 0 5 10 15 20 25 30 35 40 Same as today 37% All respondents 2013 (%) Smaller than today 12% Don t know 0% Larger than today 51% Jobs growth will be balanced across sectors Almost every part of the private sector is expected to see jobs growth in the year ahead. In manufacturing, the positive balance of businesses expecting to add employees has climbed to a new high (from +35% in 2013 to +41% this year Exhibit 12). The construction industry is also expecting to create jobs at an increased pace, with even stronger jobs growth expected a positive balance of +54% now expect to have a larger workforce in 12 months time, up from +51% in 2013 (Exhibit 13, page 18). If businesses in these sectors are to be able to achieve job growth at this rate and fill the newly created roles, there is a pressing need to step up activity on skills development an issue we explore in section 5. Same as today 37% Exhibit 12 Expected workforce changes in manufacturing (%) building on the workforce growth of recent years The positive hiring intentions of respondents to the 2014 survey indicate that the jobs growth of recent years is likely to continue (Exhibit 11). The positive balance of firms expecting to add employees over those expecting to shed jobs jumped in 2013 to +39% from +20% in 2012. The latest results with a positive balance of +38% of businesses anticipating workforce expansion in the coming year suggest more openings will become available for people to move into work and progress in their careers. Smaller than today 7% Same as today 43% Don t know 2% Larger than today 48%

18 Growth for everyone: CBI/Accenture employment trends survey 2014 Exhibit 13 Expected workforce changes in construction (%) Exhibit 15 Positive balance of firms expecting workforce growth, by region/nation (%) Smaller than today 5% Don t know 0% Same as today 36% Larger than today 59% Scotland 50% Most parts of the services sector also expect to add jobs in the coming year. In professional services, for example, nearly two thirds of firms (64%) expect to have more employees in a year s time than today, with just 7% expecting to shed employees (Exhibit 14). This gives a positive balance of +57% of businesses anticipating extra hiring. and businesses in every part of the UK expect to add jobs A positive balance of businesses in all regions across England and in Scotland, Northern Ireland and Wales anticipate adding jobs over the coming year (Exhibit 15). The results suggest firms in every part of the country are growing in confidence that the economic recovery is becoming more securely based. Northern Ireland 36% Wales 45% North west 49% West Midlands 44% South west 37% North east 44% Yorks & Humber 42% East Midlands 43% East of England 41% South east 44% London 43% Exhibit 14 Expected workforce changes in professional services (%) Smaller than today 7% Same as today 29% Don t know 0% The north west is leading the way in England, with a balance of +49% expecting a larger workforce next year. Across the UK as a whole, employers anticipate particularly strong rates of workforce expansion. With six in ten (60%) looking to grow their workforce over the next year and just 10% anticipating reductions, the positive balance stands at +50%. Even at the other end of the scale, strong positive balances of businesses in Northern Ireland and the south west are anticipating growth in their workforces of +36% and +37% respectively. Larger than today 64%

Growth for everyone: CBI/Accenture employment trends survey 2014 19 Recruitment to permanent jobs will be stronger than for temporary posts Jobs growth through the early stages of the recovery was weighted towards temporary jobs. As the recovery becomes more soundly based, however, the balance has shifted. Building on last year s results, two fifths (40%) of respondents in 2014 now plan a higher recruitment of permanent employees across all or some parts of their organisation in the next year (Exhibit 16). In contrast, just 12% of businesses anticipate lower levels of recruitment across all or some parts of their organisation. This gives a positive balance of over a quarter (+28%) of firms planning to increase recruitment to permanent posts. The previous two surveys indicated a positive balance of organisations planning to increase permanent positions by +9% in the autumn of 2012 and +18% in the autumn of 2013. The rise this year to +28% suggests that business confidence is continuing to grow as the economic recovery beds in. Exhibit 16 Plans for permanent recruitment over the next 12 months (%) 11 Higher levels of recruitment across the whole organisation 23 18 14 Higher levels of recruitment in specific parts of the organisation 15 Higher levels of recruitment in some parts but lower recruitment in other parts No overall change in recruitment levels 6 7 7 Lower levels of recruitment in specific parts of the organisation 6 9 Lower levels across the whole organisation 8 3 8 No recruitment 10 14 17 17 2 1 5 Don t know 0 5 10 15 20 25 30 35 2014 2013 2012* * intentions for next six months 19 24 25 31 Just under a third (30%) of businesses are planning to increase levels of recruitment of temporary workers across all or parts of their organisation (Exhibit 17). The proportion of businesses anticipating reducing their temporary hiring over the next 12 months is 14%, producing a positive balance of +16% of businesses looking to expand their temporary hiring over the coming year. This is a significantly smaller proportion than the +28% balance planning to expand permanent recruitment in the next year. More graduate job opportunities are opening up This year s survey indicates further growth in job openings for graduates (Exhibit 18, page 20). More than a third (36%) of businesses plan to grow their graduate recruitment across all or parts of their organisation. Just 6% are planning a reduction, giving a positive balance of +30% for the year ahead, up from +20% in 2013. Exhibit 17 Plans for temporary recruitment over the next 12 months (%) 12 6 Higher levels of recruitment across the whole organisation 20 17 12 Higher levels of recruitment in specific parts of the organisation 9 Higher levels of recruitment in some parts but lower recruitment in other parts No overall change in recruitment levels 5 5 6 Lower levels of recruitment in specific parts of the organisation 12 Lower levels across the whole organisation 13 7 No recruitment 1 4 6 Don t know 10 9 10 9 12 12 27 0 10 20 30 40 50 2014 2013 2012* * intentions for next six months 32 42

20 Growth for everyone: CBI/Accenture employment trends survey 2014 As the economy moves towards more high-value and high-skill activities, the demand for higher level skills is set to increase. The improving job prospects for graduates reflects business demand for higher level skills and increasing confidence about the economy, as businesses feel more able to take on and develop young people. However, businesses are continuing to report major skill shortages in sectors such as manufacturing, engineering, construction and digital. In the CBI s most recent education and skills survey, Gateway to growth, close to half of businesses (42%) would like to see an increase in the number of science, technology, engineering and maths (STEM) graduates. 12 As we explore in section 5, there remains a significant mismatch between the supply of skilled graduates leaving higher education and the skills demanded by business. Exhibit 18 Plans for graduate recruitment over the next 12 months (%) We must keep up momentum on the apprenticeship agenda Apprenticeships have the potential to play a crucial role in providing valuable routes into work for young people while delivering the skills including the higher level skills that businesses need. In parts of the UK, ambitious reforms are underway designed to raise the quality and relevance of apprenticeships by putting employers in the driving seat. To date employers have responded positively with, for example, over 1,000 employers from across 37 different sectors currently involved in the trailblazer initiative to design top-quality apprenticeships in England. 13 This year s survey shows that nearly two in five firms (38%) are planning to expand their apprentice recruitment around the same level as last year (Exhibit 19). Exhibit 19 Plans for apprentice recruitment over the next 12 months (%) 11 Higher levels of recruitment across the whole organisation 18 21 11 Higher levels of recruitment in specific parts of the organisation 5 6 Higher levels of recruitment in some parts but lower recruitment in other parts No overall change in recruitment levels 3 6 5 Lower levels of recruitment in specific parts of the organisation 3 7 1 Lower levels across the whole organisation 21 12 8 No recruitment 2 2 8 Don t know 9 12 18 0 10 20 30 40 50 2014 2013 2012* * intentions for next six months 30 30 50 11 Higher levels of recruitment across the whole organisation 18 12 Higher levels of recruitment in specific parts of the organisation 7 3 Higher levels of recruitment in some parts but lower recruitment in other parts No overall change in recruitment levels 2 3 Lower levels of recruitment in specific parts of the organisation 2 3 2 Lower levels across the whole organisation 9 No recruitment 3 2 5 Don t know 9 12 17 18 20 20 23 24 0 10 20 30 40 50 2014 2013 2012* * intentions for next six months 27 48

Growth for everyone: CBI/Accenture employment trends survey 2014 21 Just 5% of businesses are anticipating a reduction in apprenticeship hiring in the coming year, giving a positive balance of +33% planning to increase their number of apprenticeship openings in 2015. Looking at the results by sector, a positive balance of +52% of manufacturing firms and +64% of construction businesses expect to increase their apprenticeship starts in the year ahead. The picture on pay is slowly improving but we need progress on productivity In last year s survey we anticipated a return of pay rises to a level matching that of inflation. In the private sector, this has largely happened, with company pay settlements at 2.3% and latest data from the Annual Survey of Hours and Earnings (ASHE) suggesting employees who remained in work for a year saw a wage increase of 4.1%. 14 Average earnings growth for all employees has been lower, due to a number of factors like public sector pay restraint, job creation in lower-paying sectors which were hit relatively hard during the recession, and have since been recovering and an increase in employment for young people, who typically start off on lower wages. As businesses look ahead, the impact of labour costs on competitiveness is at the forefront of employers minds. With future changes to the calculation of holiday pay (see section 9) and the majority of businesses in the UK auto-enrolling their employees from 2015, 15 the cost of employment is set to increase. Prudence on the paybill costs has supported strong employment growth since the 2008-09 downturn and remains essential if the economic recovery is to be sustained. Real growth can only come with improvements in productivity. Businesses therefore continue to take a cautious line on pay (Exhibit 20). Nonetheless, over half of respondents (55%) to this year s survey plan a pay rise for employees in line with inflation (as measured by the RPI) or better. This reflects the fact that productivity is likely to improve next year, feeding through into pay, although there is a significant amount of ground still to be made up and productivity growth will remain weak by historical standards. The proportion of firms planning a pay freeze remains at very low levels (8%) by the standards of recent years. Exhibit 20 Firms approach to their next pay review (%) 4 General increase above RPI General increase in line with RPI 19 General increase below RPI 17 Targeted pay increase for some staff only Pay freeze 4 Other 7 7 8 8 10 12 12 15 16 16 23 43 42 0 10 20 30 40 50 2014 2013 2012 And measures must address the cause rather than the symptoms The rhetoric around the cost of living, the national minimum wage (NMW) and the living wage is likely to intensify as we move towards the 2015 general election. Given the squeeze on living standards we ve seen since the financial crisis, tackling the incidence of low pay is certainly important. But politicising the NMW or pushing for universal adoption of the living wage, regardless of other factors, fails to address the drivers behind low pay and the squeeze on real incomes. 37

22 Growth for everyone: CBI/Accenture employment trends survey 2014 Exhibit 21 Business views on who should set the national minimum wage (%) Exhibit 22 Business views on the living wage (%) Don t know 4% Sector-based rates agreed through collective bargaining 8% Other 1% Don t know 2% Other 2% A good idea that should be made mandatory 19% Pay has to reflect productivity 40% The government should set the basic rate 13% Assessed by an independent body the Low Pay Commission (LPC) based on economic data, alongside employer and employee views (the current mechanism) 74% Must be a voluntary decision to avoid job losses 37% Business is clear that the NMW and role of the independent Low Pay Commission (LPC) in recommending rates is a policy that works and it is one politicians should not interfere with. Three quarters (74%) of businesses think that an independent LPC should continue to take an evidencebased approach to recommending NMW rates (Exhibit 21). This has proven its worth over time, with a large body of evidence confirming that the introduction of, and upratings to, the NMW have had few or no negative effects on employment. Reflecting this, only one business in eight (13%) would like to see the government set the NMW. Even fewer (8%) think sector-specific NMWs should be set through collective bargaining. Businesses are clear that pay must reflect productivity and that the decision to pay wages above the NMW must be voluntary (Exhibit 22). Asked for their views on the Living Wage campaign, 37% of businesses think it is an important reminder of cost of living pressures but believe its adoption must remain a voluntary decision to avoid job losses. Two in five firms (40%) highlight that pay has to reflect productivity, so getting people into work and supporting skills development are the best ways to help employees progress to higher pay. Less than one fifth (19%) of businesses think the living wage should be mandatory this group of respondents is concentrated in higher-paying sectors and the public sector, indicating the impracticability of imposing such a rate across all businesses.

Growth for everyone: CBI/Accenture employment trends survey 2014 23 Jobs growth is expected in every part of the UK in 2015

24 Growth for everyone: CBI/Accenture employment trends survey 2014 SECTION 4 Ensuring the UK remains competitive Ensuring the UK is an attractive place to invest and do business is essential for job prospects and our future prosperity. The perception of the UK among businesses has improved sharply over the past 12 months against the backdrop of stronger economic growth. But there are concerns about the future. Skills shortfalls, the burden of employment regulation and a risk of rising labour costs all have the potential to undermine perceptions of the UK as a good place for businesses to invest. Key findings Assessments of the UK as a place to invest and do business have improved significantly over the past 12 months, jumping from a negative balance of -2% to +22% There remains work to be done to cement this positive assessment as we look ahead: the balance of respondents expecting the UK to become a better location for business in five years time has dropped from +31% in 2013 to +25% this year Concerns about low levels of skills (63%) have overtaken employment regulation (61%) as the biggest perceived threat to the UK s competitiveness as a place to employ people Businesses recognise the long-term nature of the issue, with low levels of skills anticipated to remain the biggest threat in five years time (by 54% of respondents) Concerns about regulation (53%) and labour costs (25%) are also seen by employers as risks to future competitiveness With less than one in ten (7%) businesses reporting they have no need for digital skills, developing greater digital competence is essential to enable UK businesses to compete internationally. Economic recovery has boosted assessments of the UK as a place to do business Ensuring the UK is an attractive place to invest and do business is essential for sustained economic growth and job generation. As the economic recovery has become more ingrained, assessments of the UK as a place to do business have steadily shifted from negative to positive (Exhibit 23). Back in 2012, only 15% of respondents believed the UK had become a more attractive location over the preceding five years, considering issues like skills, employment regulation and the labour market. In contrast, 56% believed the UK had become less attractive as a place to do business over the previous five years, producing a negative balance of -41%. Last year, with the upturn in the economy and a more positive outlook for the future, assessments started to improve, with the negative balance shrinking to -2%. Exhibit 23 The UK as a place to invest/do business over the past five years (%) 5 2 2 Much more attractive 13 Slightly more attractive About the same Slightly less attractive 6 6 13 Much less attractive 18 27 29 29 30 36 41 43 0 10 20 30 40 50 2014 2013 2012

Growth for everyone: CBI/Accenture employment trends survey 2014 25 Exhibit 24 The UK as a place to invest/do business in five years time (%) 7 3 4 Much more attractive Slightly more attractive About the same Slightly less attractive 4 3 6 Much less attractive 15 14 19 0 10 20 30 40 50 2014 2013 2012 Building on the progress made last year, the views of our respondents this year have tipped the balance back in favour of the UK as a good place to invest. Close to half of businesses (46%) believe the UK has become a more attractive place to invest over the past five years, up from less than a third (31%) last year. With just 24% of respondents viewing the UK as a less attractive business location over the past five years, this produces a positive balance of +22% of businesses who rate the UK as having become a better place to invest and employ people. This is the first time since the downturn businesses have reported a positive outlook on average. we must build upon this momentum and sustain the positive outlook The challenge now is for the UK to maintain this competitive advantage and to go further in ensuring it is seen as one of the best business locations among advanced economies. When asked about their expectation of the UK as a place to invest in five years time, there is still considerable optimism: two fifths (44%) of businesses anticipate that the UK will be much more or slightly more attractive in the future (Exhibit 24). This is, however, lower than the 48% of respondents last year who believed the UK would become a more attractive location for investment in the next five years. 32 35 37 37 39 45 Exhibit 25 Current threats to UK labour market competitiveness (%) Low levels of skills in the workforce Burden of employment regulation Impact of EU regulation 27 Inflexible working practices Uncompetitive labour costs 17 20 Under-utilisation of skills 12 12 6 Access to migrant workers 7 5 10 Other 22 28 34 32 39 38 47 45 44 63 65 0 10 20 30 40 50 60 70 80 2014 2013 2012 Just under one in five firms both this year and last believe the UK will become a less attractive location in five years time (19% in 2014 and 17% in 2013). As a result, the overall balance of respondents expecting the UK to be a more attractive place to invest and do business in future has declined from +31% in 2013 to +25% in 2014. While still encouragingly in positive territory, the fall in the positive balance shows how important it is that the progress of recent years particularly in supporting flexibility in the labour market is not squandered by the next government. Shortcomings in skills are threatening the UK s ability to compete We asked respondents what they see as the current weaknesses that threaten the UK s competitiveness (Exhibit 25). Concerns about skills levels have been a long-standing issue in the UK. But our results indicate they have grown in prominence as the economic recovery has become more securely based. 50 61 68 67

26 Growth for everyone: CBI/Accenture employment trends survey 2014 This year and last almost two thirds of businesses identified low skill levels in the workforce as a troubling weakness (63% in 2014 and 65% in 2013). With businesses looking to grow in the coming years, skills gaps that once were in the distant future are looming ever closer. This year, for the first time, worries about skills rank ahead of concerns about employment regulation. As we ll see in the following chapters, there is a renewed focus on closing the gap between education and the world of work to ensure young people are better prepared for the workforce but challenges within the current workforce will also need to be addressed to prevent the UK lagging behind international competitors. Alongside apprenticeships for the young, there is a pressing need for a new approach to adult retraining. with employment regulation also putting labour market competitiveness at risk The burden of employment regulation is regularly highlighted as a threat to the UK s current labour market competitiveness by more than three in five respondents (61% in 2014 and 68% in 2013). It is felt most heavily by smaller businesses, with over two thirds (69%) of the smallest firms (with 1-49 employees) ranking it as a major concern. Nevertheless larger businesses, firms employing 250 or more employees, also feel the pressure of employment regulation and over half of these respondents (56%) cite it as a threat to the UK s competitiveness. Regulation emerging from Brussels is also a concern for almost half (47%) of businesses of all sizes, with concern virtually as widespread among SMEs (49%) as among large businesses (46%). Developing and deploying skills top the list of future challenges We asked businesses to identify the most likely threats to the UK s competitiveness and attractiveness as a place to employ people in five years time (Exhibit 26). Worryingly, over half (54%) of respondents believe low levels of skills in the workforce will continue to be the most significant threat to the UK s competitiveness in five years time. Employers are not confident that the current challenges will be effectively addressed over the period of the next parliament. Exhibit 26 Likely threats to UK labour market competitiveness in five years time (%) Low levels of skills in the workforce Burden of employment regulation Impact of EU regulation Inflexible working practices 23 Uncompetitive labour costs 18 7 Under-utilisation of skills 22 Access to migrant workers 4 5 8 Other 13 19 18 26 25 25 36 39 48 48 52 0 10 20 30 40 50 60 70 80 2014 2013 2012 There has been a noticeable shift in the skills composition of the labour market over the last few decades which is set to continue as we move forward. The recent CBI report A better-off Britain identifies the shift to higher levels of skills across the economy; jobs that once required level 3 skills (eg A-Levels or equivalent) now require level 4 skills (eg a BTEC professional diploma). It has been estimated by 2022 half of all jobs will require a level 4 skills. 16 With the UK s skills system focused on the provision of lower skills, the lack of routes to higher skills other than degrees will continue to make it much harder for people to progress and move up the career ladder. 17 The political rhetoric around capping immigration is also a worry to businesses as migration plays an important role in plugging skills gaps. The proportion of businesses seeing access to migrant workers as likely to be a problem in five years time has jumped to just under a fifth (rising from 13% in 2013 to 18% in 2014). 54 53 53 55 61 62

Growth for everyone: CBI/Accenture employment trends survey 2014 27 Exhibit 27 Business reasons to invest in digital skills and literacy (%) To work more efficiently To build a more digital working culture 46 To develop new revenue streams 38 To win new business 31 For better networking 19 To retain talent 0 20 40 60 80 100 Results for respondents investing in digital skills and literacy with regulation and labour costs also posing future threats A majority of respondents (53%) are concerned that the burden of employment regulation will still be a threat to the UK s competitiveness as a place to employ people in five years time. Its second-place ranking as a threat in the future shows businesses are not holding out much hope that the burden will be significantly reduced in the coming years. Similarly, respondents see little likelihood of change in the impact of EU regulation, with 47% highlighting it as a current threat and 48% highlighting it as a likely future threat. Despite a more buoyant economic outlook, labour costs remain a concern for more than a quarter of businesses, both currently (28%) and in the future (25%), although the proportion of respondents voicing concern this year is lower than in 2013 and 2012. The period 2015-18 will see the vast majority of businesses auto-enrolling or re-enrolling their employees in pensions which will be a substantial cost and for many smaller businesses this will be a first-time cost. Businesses recognise the need for digital skills As global competition intensifies, the UK will need to raise productivity, find new ways to add value and improve processes at every level if it is to be an attractive location for businesses to employ people. Use of online and digital technology will play an increasingly central role. From communicating with customers to opening the door to global markets, optimised online platforms, payment methods and use of mobile technology are revolutionising business. 69 92 Being digital is no longer the preserve of high-tech industries, creating opportunities for those with digital know-how (Exhibit 28). Fewer than one in twelve (7%) respondents report they have no need for digital skills within their firms. Among those businesses making improvements to workforce digital skills and literacy a priority, the need to work more efficiently (92%) and building a more digital working culture (69%) emerge as the key drivers (Exhibit 27). But UK businesses may not yet be exploiting all opportunities fewer than half point to the opportunity through digital upskilling to develop new revenue streams (46%) and less than two fifths identified using digital to win new business (38%). Providing digital training opportunities in order to retain talent is a driver for around one fifth (19%). As digital skills and competence become increasingly important across UK businesses, it will be vital to ensure a reliable supply of employees with the right skills. Exhibit 28 Investing in digital Digital skills are a win-win for business and employees. Digital skills can support employee progression into a wide variety of high-value, high-skilled occupations and, for businesses, digital technology has the potential to unlock a broad range of economic benefits. CBI research shows the vast majority of businesses feel wellinformed about the benefits that greater digital connectivity can bring to their operations, but nearly half (46%) feel that they could be making better use of digital networks and technology in practice. 18 The UK has the largest digital economy in the G20, with UK consumers spending more per annum online ( 1,175 per head in 2013) than other developed economies. But only 14% of UK SMEs are selling online the figure for Norway is 30%. The sooner businesses recognise the benefit of investing in upskilling their entire workforce, not just IT professionals, the sooner they can unlock the potential that being truly digital can bring.

28 Growth for everyone: CBI/Accenture employment trends survey 2014 SECTION 5 Tackling barriers to work for young people With skills levels emerging this year as respondents top threat to UK competitiveness the issue of youth unemployment has been brought into sharp relief. While youth unemployment is falling we need to do more to resolve the underlying structural challenges that make it hard for young people to make a smooth transition into the workplace. Many employers are stepping up to help young people into work, but it is critical that businesses, schools and government work together to ensure that every young person is better prepared for life outside the school and college gates. Key findings New job opportunities for young people will open up over the coming year, with almost three quarters (73%) of businesses expecting to have entry roles suitable for young people aged 16-24 Despite some improvements in recent years, without a clear programme of careers advice and guidance in schools, too many young people find they are poorly prepared for working life: the main obstacles facing young people are lack of the right attitude and behaviours (58%) and lack of knowledge and skills (54%) Businesses cite the most important actions to improve young people s employability as more relevant high quality vocational educational options (48%), better links between business and education (47%), improvement in skills (41%) and better careers advice (37%) While over half of respondents (58%) are informally engaging with schools, there is more to be done to develop a systematic approach. For example, less than a third (31%) of businesses are involved in structured outreach programmes with schools. The recession shone a light on youth unemployment Youth unemployment was rising before the onset of the economic downturn in 2008-09. The rocketing numbers of young people out of work across Europe once the financial crisis hit put a spotlight on the issue. While the UK fared comparatively well in contrast to many EU states, far too many young people found themselves unable to move into work. Despite a fall in numbers, five years into the economic recovery, it is clear the problem persists earlier this year there were enough unemployed young people to fill Wembley Stadium eight times over. 19 but economic recovery is bringing opportunities for young people As the recovery becomes more soundly based, job opportunities for young people are growing. When asked about the availability of entry level roles suitable for people aged 16-24 seeking work, almost three quarters (73%) of firms say they expect to have vacancies of this kind in the next 12 months (Exhibit 29). This figure is far higher than in 2012 (51%) at an earlier phase of the recovery although it is below last year s level (81%). These job opportunities will occur in businesses of all sizes. Over half of SMEs (57%) expect to have vacancies suitable for this cohort, whilst nearly nine in ten larger businesses (88%) anticipate having entry roles in the coming year suitable for those aged 16-24. Among medium-sized businesses, three quarters (75%) expect to have vacancies over the next 12 months suitable for young people seeking to start their working lives.

Growth for everyone: CBI/Accenture employment trends survey 2014 29 Exhibit 29 Firms expecting to have roles suitable for young people aged 16-24 in the coming year (%) 73 81 51 All 57 68 32 SME 88 89 63 Large 0 20 40 60 80 100 2014 2013 2012 Young people still face barriers to securing work With so many potential entry roles likely to be available in the next 12 months, it is critically important young people are in a position to secure those jobs. We asked businesses what barriers they believe out-of-work 16-24 year-olds face in securing available vacancies (Exhibit 30). Respondents highlighted two main issues: a lack of the right attitudes and behaviours among young people (58%) and a lack of appropriate knowledge and skills (54%). These obstacles point clearly to the underlying issue of work-readiness. These concerns are even more acute when we analyse responses from those businesses expecting to recruit young people in the next 12 months nearly seven in ten (68%) highlight aptitude and behaviours as an obstacle and 64% point to a lack of appropriate knowledge and skills. Exhibit 30 Main obstacles to taking on an out-of-work young person (%) 58 Lack of appropriate attitude and behaviours 54 Lack of applicants with appropriate knowledge and skills 33 No business need to recruit 13 Lack the necessary management capabilities 7 Lack of applicants 6 Individuals are too great a risk 0 10 20 30 40 50 60 A third of respondents (33%) report they have no business need to recruit for entry level roles. This is particularly the case among SMEs (43%) as opposed to larger firms (21%). As we will see below, however, even for firms not looking to take on 16-24 year-olds there are a range of activities that businesses can undertake to support young people as they move from education to employment. All businesses have a shared responsibility in helping make the transition process a success. and we must tackle the underlying obstacles facing young people Respondents were asked about actions that could help overcome the obstacles facing young people seeking employment (Exhibit 31). Improvements in education and skills emerge as the most important areas for action. Almost half (48%) highlight the need for more relevant vocational routes to be made available to young people, while two in five (41%) want a sharper focus on developing the skills of young people to prepare them better for the demands of working life. Close to half (47%) want links between business and education to be strengthened, with more than a third (37%) pointing specifically to the need for better careers advice in schools. Exhibit 31 Action to help overcome obstacles to employing young people (%) 48 More relevant vocational options 47 Better links between business and education 41 Improvements in skills 37 Better careers advice 35 Financial incentives to offset the cost of hiring 24 More opportunities for work experience 22 New transfer schemes such as traineeships 20 Stronger economic growth 17 Greater confidence in the value and transferability of qualifications 11 Less criticism of flexible contracts 0 10 20 30 40 50

30 Growth for everyone: CBI/Accenture employment trends survey 2014 CBI members are in no doubt about the fundamental importance of investment in education. It enhances productivity and innovation across the economy, improves people s chances of securing employment and reduces their risk of low income and poverty. Education and skills open up opportunities to participate in, and benefit from, growth. Ensuring everyone has the potential to enter and progress in the labour market expands the pool of talent available to business making growth work for everyone makes business sense. (Exhibit 32). Exhibit 32 Making growth work for everyone makes business sense Our recent report A better-off Britain demonstrates that babies born in the UK will see their lifetime income more heavily influenced by their parents income than anywhere else in the OECD. This means that by the time young people make it into work they are already likely to be on very different tracks. As a result many people s talents remain untapped and we waste valuable potential. It is a structural problem that the UK needs to address to ensure we are able to make the most of the talent of the entire labour force. Short-term fixes will not resolve these structural issues. A long-term plan needs to be developed to prepare the UK for sustained success in the global economy. Our report looks to both business and government to take action to ensure growth works for everyone, including: A new statement of outcomes for the education system that delivers rigorous, rounded and grounded young people Reform of the Ofsted framework so that schools and colleges focus both on academic progress and the development of those attitudes and attributes that will set young people up for success in work and life Restoration of work related learning at Key Stage Four in England so that every young person in years 10 and 11 can be inspired by the world of work. Many employers are playing their part. Employers across the UK recognise the importance of investing in the next generation of workers. Providing workplace experience is the single most important contribution business can make to getting young people ready for the world of employment. They can also help open young people s eyes to the huge variety of career avenues available and the entry routes. As our survey results illustrate, many employers are already undertaking action or considering doing so in the next 12 months to help young people prepare for work (Exhibit 33). Almost three fifths (58%) of respondents report their business is already actively engaged in an informal way such as going into schools to give talks. A further 8% are considering taking this type of action over the next year. This informal engagement is more likely to be undertaken by larger firms, with 69% of respondent firms with more than 1,000 employees reporting they are involved in this way. But over a third (35%) of small businesses are also active, as are more than half (54%) of MSBs. but a more systematic approach is needed Almost twice as many employers engage with schools informally rather than through structured outreach programmes (31%). So there is scope for a more systematic approach. Two fifths (40%) of larger firms are involved in structured activities in relation to schools, but just 16% of SMEs are engaged in this way.

Growth for everyone: CBI/Accenture employment trends survey 2014 31 Exhibit 33 Employers plans to boost young people s work prospects (%) 8 Informal engagement with schools 12 Structured outreach programme with schools 13 Work experience/internships 16 Mentoring schemes Traineeships 19 27 31 11 3 Other 0 10 20 30 40 50 60 Undertaking Getting a foot in the door for both schools and businesses is often the first stumbling block, as there is too often no clear point of contact. To enable collaboration by businesses with schools and colleges to flourish, the government needs to step in and mandate a brokerage system to help forge those links. The CBI has recommended a system of Local Brokers shared between groups of schools to give new momentum (Exhibit 34). By bringing more businesses and schools together in this way we can get better at setting up young people properly for the world of work. 39 Currently under consideration 44 58 Exhibit 34 The local broker model In our brief Future possible 20 the CBI recommends the development of a local broker model a single point of contact that would make it easier for businesses to engage with schools and colleges. These brokers would be nationally mandated but locally run to ensure that the needs of the local economy are met. This would also allow the brokers to build on any existing arrangement already in place. Their function would be to build strong links between schools and the local business community and help young people explore career options through regular contact with employers and the world of work. We need substantive change of this nature if we are to successfully transform careers provision in schools and colleges and better inform young people about careers, about the different pathways available and about the workplace. To reward schools for working actively with their Local Broker, engagement with the business community should be one of the broader outcomes Ofsted uses to assess school performance.

32 Growth for everyone: CBI/Accenture employment trends survey 2014 SECTION 6 Maintaining the momentum on positive employee relations Good relationships between employers and their employees are critical to making the UK more competitive and providing great places to work. The benefits to business of an engaged workforce are well known irrespective of sector and business size. The employee relations climate within businesses is largely positive and employee morale is at high levels. The challenge for the future will be maintaining this positive climate and building on recent success. Key findings The proportion of businesses assessing the employee relations climate as cooperative or very cooperative has increased to a new high of 76% (up from 72% in 2013). Just 2% report an adversarial climate In those firms which recognise a trade union for collective bargaining the balance reporting a positive employee relations climate was lower (at +52%) than in other businesses (+84%) Nearly three quarters of businesses (73%) anticipate their employee relations climate remaining cooperative over the next 12 months Employee morale is also at a new high, with 55% of respondents describing their organisation s morale levels as high or very high, up from 49% in 2013 From the employers perspective, the major benefits of high levels of engagement are seen as improvements in productivity and performance (80%) and increased customer/client satisfaction (65%) Maintaining this positive climate is a key focus for businesses over the next 12 months, with high levels of engagement one of the two top workforce priorities, together with improving leadership skills (cited by 44% and 50% of respondents respectively). The climate of positive employee relations has reached a new high The 2008-09 financial crisis and the downturn were characterised by relatively low levels of unemployment, but not as high as many predicted, while relations within workplaces remained positive. Businesses and their employees worked together to protect jobs. With the economic recovery, concerns arose that the positive relationship between businesses and their employees might come under strain. Results from our surveys in 2013 and this year, however, indicate that this is not the case (Exhibit 35). Over the past two years the proportion of businesses assessing their employee relations climate as cooperative or very co-operative has been rising. In 2013 around seven in ten (72%) respondents assessed their employee relations climate as co-operative or very co-operative. The positive climate has reached a new high this year, with over three quarters (76%) of respondents assessing their employee relations climate as co-operative or better. Just 2% of businesses report an adversarial climate. The overall balance between co-operative and adversarial relations therefore currently stands at +74%, the highest level recorded since this question was asked in this survey. This provides further evidence of the changing nature of the employment relationship in recent years and suggests that the positive relations developed in many businesses during the depths of the recession are being sustained during the recovery.

Growth for everyone: CBI/Accenture employment trends survey 2014 33 Exhibit 35 Businesses view of employee relations climate in their workplace (%) Very co-operative Co-operative Balanced 2 5 5 4 Adversarial 0 0 1 Very adversarial 22 23 28 27 0 10 20 30 40 50 2014 2013 2012 2011 the challenge now is to strengthen co-operation still further Businesses are keenly aware that maintaining strong relationships with employees and developing a co-operative culture in the workplace is essential for success. They understand that better engaged workers produce better outcomes for customers and business. In the public sector, for example, fostering more co-operative relationships is seen as vital to the success of adapting to deliver public services fit for the 21st century. 21 Despite the overall positive results on the employee relations climate, looking at the results in detail for different types of businesses indicates there is still scope for improvement. Just over a fifth (21%) of respondents from large businesses report a very co-operative climate, whereas among small businesses this proportion stands at 41%. We asked respondents if they recognise trade unions for collective bargaining in at least part of their organisation. One third (33%) reported that they do. Comparing the results for these businesses with those who recognise a union but do not bargain reveals a significant fall in the proportion viewing 27 29 31 31 37 40 43 45 Exhibit 36 Current employee relations climate in the workplace by union recognition (%) Very co-operative Co-operative Balanced 0 0 Adversarial 0 0 5 14 0 Very adversarial 15 17 27 0 10 20 30 40 50 60 TU recognised for collective bargaining TU recognised but does not bargain No TU their employee relations climate as very co-operative from 27% to just 15% among those that undertake collective bargaining (Exhibit 36). Our survey illustrates that those businesses that do not recognise a trade union report the most co-operative relationships, with 42% of these respondents assessing their employee relations climate as very co-operative. Where a union is recognised the balance of respondents assessing the spirit of employee relations as co-operative or better is +52%, compared to +86% across those businesses not recognising a union. Businesses believe they can keep the climate positive Looking ahead to the next 12 months, businesses are expecting to maintain the positive employee relations climate. In all, nearly three quarters of respondents (73%) expect a co-operative or very co-operative climate (Exhibit 37, page 34). With just 3% anticipating an adversarial climate, this gives a positive balance of +70% of businesses expecting a co-operative or better employee relations climate in the coming year. Looking back to the 2013 survey results, the expectations for the year ahead have been fulfilled: a positive balance of +70% of respondents expected a positive employee relations climate. 38 42 42 44 56

34 Growth for everyone: CBI/Accenture employment trends survey 2014 Exhibit 37 Businesses expectation of employee relations climate in their workplace next year (%) Very co-operative Co-operative Balanced 0 1 Adversarial 0 0 0 3 9 13 1 Very adversarial 15 17 24 0 10 20 30 40 50 60 All respondents TU recognised for collective bargaining TU recognised but does not bargain 29 31 No TU The continuity of largely positive expectations again this year suggests co-operative employee relations are becoming embedded as a key feature of workplaces across the UK. This is a welcome conclusion. On a cautionary note, among those organisations that recognise a trade union for collective bargaining nearly one in ten (9%) respondents expects an adversarial climate in the time ahead. In stark contrast, among businesses that do not recognise a union, only 2% of respondent expects an adversarial or very adversarial climate next year. This difference in responses could reflect concern about potentially difficult pay negotiations with trade unions next year, as businesses face the need to increase productivity if they are to remain competitive, raise pay and if jobs are not to be put at risk. 37 41 42 42 41 54 Exhibit 38 Businesses view of employee morale in their organisation (%) 3 Very high High Moderate Low 1 2 4 6 6 3 Very low 9 11 44 43 0 10 20 30 40 50 2014 2013 2012 Employee morale is climbing Levels of employee morale have risen to a new high, with 55% of respondents describing their organisation s morale levels as high or very high, up from 49% in 2013 (Exhibit 38). Employee morale ran at remarkably high levels during the recession as employers worked closely with their employees to keep as many people as possible in employment. There were concerns that it would be hard to maintain high levels as the immediate pressures of the financial crisis receded. This year s results show a balance of +50% of businesses reporting positive morale across their workforce, a nine point increase on the balance in 2013 (+41%). Maintaining this positive climate is an essential focus for business, with high levels of employee engagement one of the most important priorities for businesses over the next 12 months (Exhibit 41, page 36). 37 40 43 48

Growth for everyone: CBI/Accenture employment trends survey 2014 35 Exhibit 39 Major benefits of higher levels of employee engagement (%) 80 Improvements in productivity and performance 65 Increased customer/client satisfaction 45 Reduced absenteeism/higher levels of wellbeing 42 Increased retention 22 Income growth 15 Increased innovation 8 Improved health & safety record 0 10 20 30 40 50 60 70 80 90 Better employee engagement delivers better business outcomes The major benefits of high levels of engagement are seen as improvements in productivity and performance (80%) and increased customer/client satisfaction (65% Exhibit 39). Businesses also point to a connection between better levels of engagement and positive employee behaviours and attitudes. Almost half (45%) of businesses see a link between higher levels of engagement and reduced absence and higher levels of employee wellbeing, while more than two in five (42%) see strong engagement as a driver of employee retention. With economic recovery opening up more job opportunities, employee retention particularly of those with skills in greatest demand will become an increasing concern for many businesses. There are clear routes to achieving employee engagement We asked respondents what they believe to be the three top drivers of employee engagement in their business (Exhibit 40). Personal interest in the work (43%) emerges as the single most important driver of employee engagement, followed closely by career opportunities and the ability to progress (41%). Exhibit 40 Drivers of employee engagement (%) Personal interest in the work Career opportunities/ability to progress Effective line management Shared, company-wide values Having the right skills & resources to do the job Pay Training & development opportunities Flexible working practices 13 Brand/organisational reputation 12 Other rewards & recognition 9 Dependable colleagues 7 Safe working environment 3 Other 2 Diversity in the workplace 17 25 26 0 10 20 30 40 50 These top-rated drivers of employee engagement are largely dependent on the quality of leadership and communication, so it is unsurprising that effective line management ranks as the next most important driver of employee engagement, cited by nearly a third (31%). Ranking just slightly lower are having the right skills and resources to do the job (29%) and a set of shared, company-wide values (29%). These are important in giving people a strong sense of identity and purpose and the means to deliver on it. Pay received a mid-ranking place among the drivers of employee engagement (cited by 26% as one of the top three drivers), and training and development opportunities are seen as similarly important (25%). As we saw in the previous section, having the right skills and aptitudes are essential to getting into work. These results show that, once in work, supporting individuals to develop their skills and progress, combined with a clear understanding of what needs to be achieved, are key drivers of engagement. In our blueprint for living standards, A better-off Britain, the CBI recommends firms make a board-level commitment to developing their own talent and to ensuring line managers are properly equipped and incentivised to develop staff more effectively. 22 29 29 31 41 43

36 Growth for everyone: CBI/Accenture employment trends survey 2014 Exhibit 41 Workforce priorities in the coming year (%) 50 Improving leadership skills/capabilities 44 High levels of employee engagement 33 Containing labour costs 28 Business transformation/restructuring 28 Recruiting for key vacancies 23 Employee retention 22 Predicting future talent requirements 19 Changing the skills mix of the workforce 18 Reviewing reward and recognition systems 9 Improving digital literacy across the workforce 3 Other 0 10 20 30 40 50 Increasing employee engagement and better leadership are key priorities for business Our survey asked respondents to identify their top three workforce priorities in the coming year as the economic recovery beds in. Improving leadership skills (50%) and high levels of employee engagement (44%) emerge as the top priorities across businesses of all sizes (Exhibit 41). As highlighted in section 4, businesses are acutely aware of the skills challenges facing them in the coming years and leadership and management skills are expected to see the highest growth in demand. 23 With effective leadership and management skills essential to the success of every business, it is no surprise that improving these tops the list of workforce priorities. As discussed above, the business benefits of highly engaged employees are well understood by businesses of all sizes and in all sectors. Maximising these benefits will be essential as the economic recovery becomes more soundly based. Managing labour costs remains a concern for business A third of respondents (33%) highlight the need to contain labour costs to a realistic level in the coming year. With competition increasing and companies facing input cost inflation, there is widespread concern among businesses about the risks of their labour costs becoming uncompetitive if allowed to rise excessively. This is particularly so given the political pressures around cost of living issues as the general election approaches and the cost of potential changes to the calculation of holiday pay (explored in section 9). with restructuring and filling key roles also a focus For more than one in four businesses (28%) restructuring to adapt to changing markets and technology will be among their main workforce priorities in the coming year. The need to be able to respond quickly to emerging trends is important in business, and it is essential that regulation does not become an obstacle to this process of necessary adaptation. A similar proportion of businesses (28%) will be concentrating on recruiting to key vacancies to ensure they have the right people in place to meet the challenges and opportunities of the future.

Growth for everyone: CBI/Accenture employment trends survey 2014 37 The proportion of businesses assessing their employee relations climate as co-operative or very co-operative has increased to a new high

38 Growth for everyone: CBI/Accenture employment trends survey 2014 SECTION 7 Maximising future talent Achieving the right combination of skills, talent and experience is essential to the success of all businesses. Making the most of all the potential talent in our society is good for business and the economy, as well as being the right thing to do. In recent years the spotlight has been on expanding gender diversity in the boardroom and good progress has been made. But there is still work to do if we are to deliver truly diverse workforces. Key findings Considering diversity in its broadest sense, just over half of firms (52%) report at least some barriers in developing a more diverse workforce The key challenge faced by business is an insufficient number of people from diverse backgrounds in their sector or profession (61%). This is particularly acute in certain sectors such as manufacturing and construction (both 81%), highlighting the work to change attitudes and attract more young people from diverse backgrounds into non-traditional roles and careers Other obstacles to greater diversity include working practices and work culture (both 20%), pointing to the importance of businesses reviewing their policies to tackle unnecessary barriers In relation to gender diversity, businesses are stepping up to the challenge and taking steps to boost diversity including; the implementation of family friendly policies for employees returning from parental leave (64%), improvements in the recruitment process (36%) and targeted advertising or head-hunting when filling vacancies (35%). Engaging all talent is critical for growth Talent is too valuable to be wasted. So UK businesses have a real interest in maximising the talent pool and ensuring that as little as possible goes untapped. Our findings on priorities for the year ahead, analysed in section 6, show businesses are focused on strengthening their leadership skills and capabilities and ensuring they have in place the right people with the right abilities. To meet this challenge businesses need to draw on talent from every available source. Just over half of respondents (52%) to our survey report that there are at least some barriers to developing a more diverse workforce when considering diversity in its broadest sense. The proportion of businesses reporting barriers has fallen in comparison to last year s results (from 59% in 2013). But while the trend is going in the right direction, with so many firms still seeing barriers to achieving greater diversity in their workforces it is clear that more needs to be done. but there are still barriers to fuller diversity Among businesses reporting barriers, by far the most common obstacle reported is a lack of individuals from diverse backgrounds in their sector or profession (61% Exhibit 42). This problem is particularly widely reported in some major sectors, with eight in ten (81%) reporting it as an obstacle in both the manufacturing and construction sectors. Banking, finance and insurance sector respondents also cite this as a barrier (60%).

Growth for everyone: CBI/Accenture employment trends survey 2014 39 Exhibit 42 Obstacles to a more diverse workforce (%) 61 Not enough people from diverse backgrounds in your industry/profession 20 Working culture 20 Working practices 18 Stereotyping 18 Lack of progression/opportunities 16 Loss of people mid-career eg to take on caring responsibilities 15 Other 0 10 20 30 40 50 60 70 One in five businesses perceiving obstacles point to working practices (20%) and working culture (20%) as barriers to achieving greater diversity in their organisations. The extension of the right to request flexible working to all employees and the roll-out of shared parental leave in 2015 represent important steps in changing cultural norms and assumptions. But businesses will also want to review their working practices and policies to ensure they do not have in place any unnecessary barriers and disincentives that could unknowingly deter potential employees from the widest possible range of backgrounds. And they will want to challenge stereotype impressions of occupations or sectors that can mean they miss out on talent (seen as an issue by 18%). Achieving diversity means tackling underlying, structural problems Untapped talent is a waste of valuable potential and it is a systemic problem in the UK. Among respondents identifying barriers to greater diversity, nearly one in six (16%) identify the loss of employees mid-career for example to take on caring responsibilities as an issue. Tackling the cost of childcare is not just going to provide a much needed boost for working families incomes, it will also help more parents get back into work, take on more hours or switch to full-time employment. 24 An example of this is the effect of current childcare provision on greater diversity. Delivering flexible, high-quality, affordable childcare needs to be the next challenge government takes on, so parents with caring responsibilities can remain active in the labour market. In the recent CBI report A better-off Britain, we recommend 15 hours of free childcare for all children aged one and two in addition to an extension to statutory maternity pay from 39 to 52 weeks, in order to close the gap that currently exists between free childcare and maternity pay. 24

40 Growth for everyone: CBI/Accenture employment trends survey 2014 Business has made great strides in promoting gender diversity A step-change in gender diversity is under way in business. Gender imbalance has for too long been a feature of the UK labour market, with women under-represented in boardrooms and at senior management levels. However, with a growing hunger for talent across businesses as well as recognition that it is right to take action, imbalances are rapidly being addressed. There has been real progress since Lord Davies independent review into women on boards in 2010 (Exhibit 43). The women on boards target set by the Davies review required FTSE 100 companies to aim for 25% of board positions to held by women by the end of 2015. By October 2014 women filled nearly 23% of these posts, so the goal now looks achievable. 25 Our survey asked businesses what steps they are taking to improve gender diversity among their next generation of business leaders (Exhibit 44). Among businesses reporting initiatives to boost gender diversity within their workforces, family friendly policies for returners from parental leave emerge as the most popular approach (64%). These help avoid the loss of highly capable employees at mid-career point. Other actions to help develop a more diverse future generation of leaders include mentoring schemes (32%) and networking programmes (31%). These can be especially valuable in helping individuals learn from role models who can act as sources of inspiration and in developing networks across the organisation. Exhibit 43 Building on progress Gender diversity was put in the spotlight by the Lord Davies review, but we cannot become complacent. Educators, businesses and government all have a role to play in ensuring that everyone can achieve their potential and business has access to the talent pipeline they require for the future. Our report published earlier this year makes key recommendations for schools, business and government: For schools Schools and businesses need to work together to ensure all young people are receiving the support they need to fulfil their potential We need to take active steps to widen the pipeline of young people making it into STEM work, in particular to attract more girls and young women to consider STEM careers. For business Businesses need to commit to meaningful diversity policies and aspirational targets that can deliver real progress Placing renewed focus on effective recruitment, retention and succession planning is one part of the strategy while continued robust support for women at all levels is another The equal pay agenda should be highlighted as an important issue within any business diversity strategy And businesses need to make sure managers are engaged with the agenda. For government The government needs to do more to push a wider awareness and understanding of the benefits and options for flexible working Delivering flexible, high-quality, affordable childcare needs to be the next challenge government takes on. Parents with caring responsibilities need to maintain contact with the labour market.

Growth for everyone: CBI/Accenture employment trends survey 2014 41 Exhibit 44 Steps to improve gender diversity among the next generation of business leaders (%) 64 Family friendly policies for returners from parental leave 36 Other action in recruitment process 35 Targeted advertising or head-hunting for vacancies 32 Mentoring schemes 31 Networking programmes 31 Action in shortlisting candidates for non-exec board positions 29 Action in shortlisting candidates for executive board positions 0 10 20 30 40 50 60 70 Action in the recruitment process can also help foster gender diversity at senior levels by bringing in new talent. Over a third of businesses (35%) looking to improve the gender mix among their future leaders report taking action through targeted advertising or head-hunting. At board level nearly three in ten (31%) are taking action in shortlisting candidates for non-executive positions and 29% are taking a similar approach for executive board positions. Gender imbalance has for too long been a feature of the UK labour market, with women under-represented in boardrooms and at senior management levels.

42 Growth for everyone: CBI/Accenture employment trends survey 2014 SECTION 8 Boosting flexible working practices Flexible working practices are essential to the success of British business and offering employees the option to work flexibly is fast becoming the new normal for employees. Flexibility within the workplace takes many forms and helps support both employees and businesses. Despite regulatory change to support flexible working practices this year and further change due in the next year some businesses are still facing implementation challenges that need to be addressed. Key findings Almost all businesses (95%) believe flexibility is vital or important to the competitiveness of the UK s labour market and prospects for investment and job creation The top three reasons why a flexible workforce matters to UK businesses are responding to growth opportunities (82%), managing fluctuating demand (81%) and creating employment opportunities (61%) Flexibility in the workplace takes many forms flexibility over location for work is most widely offered by 84% of businesses, followed by nonstandard hours schemes (81%) and multi-skilling of employees (80%) The use of temporary workers/freelancers/ contractors has dropped sharply to two thirds of businesses (67%), possibly driven by a combination of greater economic confidence, enabling businesses to add to permanent positions, and wariness about possible future restrictions on flexible contracts Obstacles to implementing flexible working practices include practical problems posed by company infrastructure (59%), the mind-set of some managers (52%) and the need to ensure continuity in business activities (44%) Agency working is a vital component of the UK s flexible labour market. Tampering with the existing regulations to impose new restrictions such as abolishing the so-called Swedish derogation would result in 41% of businesses reducing their use of agency workers but just 13% would increase hiring of permanent employees instead. Almost all businesses see flexibility as essential Enabling flexible working practices works. It creates jobs, keeps unemployment down and provides opportunities while enhancing competitiveness, so flexibility must be maximised and safeguarded. The flexibility offered by the UK s employment arrangements has been recognised as among the best features of our economy. Almost all respondent firms (95%) see a flexible workforce as either vital or important to the competitiveness of the UK labour market and to business investment and job creation (Exhibit 45). This is the only employment issue on which businesses, irrespective of size or sector, hold such a near unanimous view. In comparison with other EU economies, the UK s flexibility offers strong advantages for businesses to invest and grow, handin-hand with benefits for individuals. Exhibit 45 Importance of flexible employment patterns for the UK economy (%) Important 50% Unimportant 3% Don t know 2% Vital 45%

Growth for everyone: CBI/Accenture employment trends survey 2014 43 and flexibility works for employees too Commentators sometimes worry that the UK s flexible employment arrangements are leading to a structural shift away from full-time, permanent jobs. But people working full-time on a permanent contract of employment remains the norm. In the 12 months to September there were 589,000 more people in full-time employment compared to 105,000 more in part-time employment. 26 Overall, fewer than one in 20 people work part-time because they cannot find full-time work. And the share of part-time workers reporting that they would prefer a full-time job, although still higher than before the crisis began, is down by 1.8 percentage points this year, to 16.5%. Flexible forms of employment, such as temporary work and zero hours contracts, play an important role in providing opportunities for individuals such as students, parents and carers to fit work with other commitments. They also help keep unemployment down, boost job opportunities and give those who would like to move into other work arrangements the best chance of securing the next step in their careers. This flexibility must be defended. Flexibility makes for a thriving economy and opens opportunities More than four in five UK businesses see flexible employment arrangements as critically important in enabling them to respond rapidly to growth opportunities (82% Exhibit 46). A similar proportion (81%) point to the value of flexibility in enabling them to cope with fluctuating customer demand. Flexibility is integral to the capacity of British businesses to compete successfully in global markets and meet the rising expectations of customers and clients. Businesses also recognise the importance of flexible arrangements in creating employment opportunities for people who are unable or unwilling to work full-time in permanent jobs (61%). Flexibility allows those who would otherwise be shut out of the labour market to work in ways that suit them. Over half of businesses (53%) also point to the value of temporary and other flexible work as a stepping stone into the jobs market for those who find entry hardest, such as young people and the long-term unemployed. Exhibit 46 Impact of flexible employment patterns (%) 82 Increased ability to respond rapidly to growth opportunities 81 Increased business ability to cope with fluctuating demand 61 Work opportunities for people not wanting full-time jobs 53 A stepping stone into work for vulnerable groups 44 Ability to limit job losses during downturns 8 Increased likelihood of discontinuing certain business activities 6 Reduced capacity to use the skills of key staff 1 Other 0 10 20 30 40 50 60 70 80 90 Flexibility in the workplace takes many forms Different types of employment contracts have dominated the discussion around flexibility for much of the past 12 months. In reality, however, flexibility at work takes many forms. Working away from the office continues to be the most common method of flexible working across the UK, offered by more than four in five businesses (84% Exhibit 47, page 44 ). Use of non-standard hours arrangements is an almost equally widespread form of flexible resourcing, with 81% of businesses currently implementing it in some form. For example, arrangements of this kind can enable customer needs to be met outside standard hours and at weekends, or can be used to cope with seasonal variations in activity. Another important form of flexibility is multi-skilling (operated by 80%). This enhances employee skills while improving organisations productivity and capacity to adapt. In contrast to 2013, the use of temporary workers, freelancers, and contractors has dropped by 15% to 67% of respondents. While two thirds of businesses are operating these forms of flexible resourcing, the fall in numbers is striking. This drop is due in part to the economic recovery which has given more businesses the confidence to add to their permanent payrolls.

44 Growth for everyone: CBI/Accenture employment trends survey 2014 Exhibit 47 Forms of flexible resourcing in use (%) 84 Flexible working outside office (eg home-working) 81 Non-standard hours 80 Multi-skilling of staff 68 Flexible working within office (eg hot-desking) 67 Use of temps, freelancers, contractors etc 0 10 20 30 40 50 60 70 80 90 Less positively, attention has focused on zero hours contracts in the past 12 months, so some of the fall may reflect increasing wariness among businesses about the use of flexible employment contracts. The bill currently going through parliament on the use of zero hours contracts which aims to tackle rare examples of bad practice by banning exclusivity clauses strikes the right balance for both employers and workers. It is essential that legislative action is firmly focused on tackling areas of concern and does not impose a straitjacket on a jobs market that is successfully creating work for people who want to work. and a one size fits all approach will not work When it comes to flexibility, the challenge is making sure models of flexible working match both business and employee requirements. Arrangements need to work for everyone. With the right to request flexible working now a statutory right for all employees, businesses will have to take an individual caseby-case approach, considering each request on its merits. It will not be practical for every firm to agree every request, regardless of other circumstances. Some of the obstacles to flexible working businesses highlighted this year (Exhibit 48) include inadequate infrastructure to enable flexible working (59%). And some jobs and technologies simply do not lend themselves to individual flexibility. Exhibit 48 The main obstacles facing business in implementing flexible working practices (%) Ensuring the infrastructure is appropriate Changing the mind-set of management Ensuring continuity of key business activities Changing the mind-set of the workforce 38 Ensuring sufficient knowledge or expertise to implement 25 Ensuring a robust business case for change Costs/budgets 19 20 15 23 Overcoming legal or regulatory hurdles 7 6 No significant obstacles 25 30 34 0 10 20 30 40 50 60 70 2014 2013 Ensuring the continuity of key business activities, for example maintaining service levels to customers, is a further constraint (highlighted by 44%). Where there is a clear business reason for turning down flexible working requests, employers are within their rights to do so. Adoption of flexible working practices poses a cultural challenge for many organisations. Over half (52%) point to the mind-set of some managers as an obstacle to flexible working, while just over a third (34%) indicate the attitude of the workforce presents an obstacle. It is encouraging to see the proportion of firms citing these barriers has fallen in comparison with last year (from 58% and 41% respectively). 41 44 52 54 59 62 58

Growth for everyone: CBI/Accenture employment trends survey 2014 45 It is clear, however, that there is still work to be done to embed recognition of the benefits flexible working can bring and to ensure that flexible arrangements are implemented successfully. Agency workers are a central element of the UK s flexible workforce Agency workers form a vital component of the UK s flexible labour force. Whether covering holidays or other absences, enabling businesses to scale up activity rapidly or providing additional capacity to carry out operations, the flexibility of agency workers is highly valued across businesses. Many prefer to pay an agency to provide temporary workers using the Swedish derogation, which also gives those employees security of income between jobs. The Agency Workers Directive is clear that a derogation from the principle of equal treatment is permitted where workers are paid between assignments. It was introduced in the UK with the agreement of employers, trade unions and the government and is clear that implementation includes a pay between assignments derogation. The terms of the derogation were thoroughly consulted on before being finalised, ensuring that it met the principle as well as the letter of the directive....and changing the regulations would have a negative impact on business and jobs Undermining this flexibility would put at risk a central plank of the flexible system that kept unemployment down during the recession. This is a real concern for business. Of those businesses that use agencies to supply them with some staff, more than two in five (41%) report that removing the Swedish derogation would cause them to reduce their use of agency workers, while 5% would stop all use of agency workers (Exhibit 49). Exhibit 49 Business views on the impact of removing the Swedish derogation (%) Reduced use of agency workers Increased use of fixed term contracts Change model of temp use 16 Increase of self employed 13 Increased permanent hiring 5 Increased use of agency workers 5 Stop all use of agency workers 26 0 10 20 30 40 50 Our survey reveals that removing the option of pay between assignments would have only a very limited impact in increasing the hiring of permanent staff: just over one in ten businesses (13%) say they would take this approach. An increase in the use of fixed term contracts (32%), a changed model of temp use (26%) and an increased use of self-employed individuals (16%) would all be more likely. The net result of removing the Swedish derogation would be a reduction in work opportunities and it would hit hardest many of those who find it most difficult to secure permanent jobs. 32 41

46 Growth for everyone: CBI/Accenture employment trends survey 2014 SECTION 9 Upholding flexibility within the UK s regulatory framework Our regulatory framework should help, not hinder, the ability of UK businesses to compete internationally, generate prosperity and create jobs. But there are regulatory threats from the EU on the horizon. It is imperative that the UK government acts to safeguard domestic employment law from unwelcome external interventions, enabling British businesses to operate within a stable, predictable framework. Key findings The individual working time opt-out remains an essential element of the UK s flexible labour market: more than seven in ten (72%) businesses report its loss would have an impact on them, with most of these saying the impact would be significant or severe The most widespread impact from loss of the opt-out would be the negative effect on employee relations (55%) followed by reduced capacity for businesses to respond to growth opportunities (47%) Businesses are facing the risk of significant additional costs from tribunal cases challenging the normal calculation of holiday pay. Eight in ten (80%) businesses report a negative impact if the calculation is changed with more than a quarter (26%) reporting a severe impact In terms of impact, the major costs of any backdated liabilities would be the major concern to business (71%), but the ongoing increased costs of employment (69%) and additional bureaucracy and administration costs (68%) are just as important Businesses report a drop in the number of employment tribunal claims over the past year, with less than one in four (23%) receiving any claims in the past year, down from 39% in 2013 Despite the reduction in the number of cases going to tribunal businesses report there has been little change in the time taken to resolve tribunal claims with three quarters (73%) believing it has stayed the same or increased Many businesses (23%) remain uncertain about how best to manage the retirement of older workers following the abolition of the default retirement age in 2011. The working time opt-out must be preserved... The basic regulation of working hours, rest periods and paid annual leave is not contested by British business. The Working Time Directive has been adequately transposed in the UK to set minimum standards on the grounds of health and safety. But regulating workers rest periods, putting a soft cap on weekly working hours and providing for paid annual leave comes at a significant cost the directive is officially measured as one of the most costly EU regulations. 27 The individual opt-out from the Working Time Directive s 48-hour maximum working week is an integral part of the UK s flexible labour market, which underpins the international competitiveness of the UK economy. Individual workers must be allowed the choice of opting out from maximum weekly working hours if they so wish. The retention of the opt-out is a critical issue for business year after year, our surveys consistently show that losing the opt-out would have a damaging impact on businesses. This year more than seven in ten firms (72%) indicate that loss of the opt-out would impact their business (Exhibit 50). Firms need to be able to plan ahead, confident that they will be operating within a stable regulatory framework. Among those respondents who report that removal of the opt-out would have an impact, most say the impact would be severe or significant. Levels of concern have not lessened over the years they are virtually the same in 2014 as they were in 2010.

Growth for everyone: CBI/Accenture employment trends survey 2014 47 Exhibit 50 Business impact if the UK lost the working time opt-out (%) Severe impact Significant impact Minor impact No impact 4 4 6 6 Don t know 9 14 12 11 13 17 18 21 19 22 0 10 20 30 40 2014 2013 2012 2011 2010 as losing the opt-out would hit businesses of all sizes Businesses of all sizes would be affected by loss of the opt-out. More than four in five large firms (85%) report they would see an impact, while around three in five smaller firms (58%) would be affected. Our results indicate that smaller firms are particularly concerned about the impact on their employee relations if the opt-out were removed six in ten (60%) cite this as a negative impact. It would also be SMEs that would be more likely to discontinue some business activities (20%) if the opt-out were removed, damaging their growth prospects. The government has an essential role to play within the EU by bringing this uncertainty to an end and securing the future of the opt-out for the long term. Continual speculation about how long it will remain a provision of the directive and whether new conditions on its use will be imposed is disruptive and damaging to investor and business confidence. 24 28 28 28 28 27 26 30 30 35 39 Exhibit 51 Nature of the impact if the UK lost the working time opt-out (%) 52 Negative impact on employee relations as a result of restricting their choice 48 Reduced capacity to respond to growth opportunities Reduced capacity to use skills of key staff 31 Negative impact on attractiveness of the UK as a place to invest 21 22 Increased reliance on temporary workers 14 24 Reduced capacity to match international competition 15 18 Recruitment of new permanent staff to compensate for reduced hours of those previously opted out 17 15 Increased likelihood of discontinuing business activities 10 17 20 20 21 24 7 12 Increased likelihood of moving business activities overseas 5 2 6 Other 0 10 20 30 40 50 60 70 2014 2013 2012 28 35 Losing the opt-out would damage employee relations and business confidence The great majority of businesses view the individual opt-out as benefitting employees and employers alike. The greatest impact of losing the opt-out, according to businesses, would be a negative effect on employee relations, cited by over half of respondents (55%) (Exhibit 51). The opt-out enables employees to choose when they want to be available for work, supporting those looking to boost earnings as well as those who recognise the need and are happy to work at times that fit with fluctuating business demand. Loss of the opt-out would take away these freedoms and 43 47 46 48 55 60

48 Growth for everyone: CBI/Accenture employment trends survey 2014 flexibilities for individuals and their employers, which have become a well-established aspect of the UK labour market. Loss of the opt-out would also hit the capacity of individual businesses to respond rapidly and flexibly to new opportunities (cited by 47%), undermining their ability to compete in global markets. Another worrying consequence would be the impact on inward investment, as well as on additional investment by businesses already based in the UK. In all, more than one in four respondents (28%) say that without the opt-out the UK would be a less attractive place to invest. In response to the argument that removing the opt-out would create extra jobs, our survey indicates fewer than one in five businesses (17%) would recruit more permanent staff were the opt-out lost. Worryingly, the same proportion (17%) report it would increase the likelihood of their discontinuing some business activities, illustrating the damage the loss of the opt-out could cause. Holiday pay cases are exposing businesses to significant new costs One of the biggest threats facing businesses at the time of this survey involves the calculation of holiday pay. Four in five respondents (80%) report they would be affected by changes to the calculation of holiday pay, with nearly three in five (58%) anticipating a severe or significant impact (Exhibit 52). The European Court of Justice (ECJ) has ruled that commission payments must be taken into account when calculating holiday pay 28 and the Employment Exhibit 52 Impact on business of additional payments being included in the calculation of holiday pay (%) 26 21 31 Severe impact 32 26 39 Significant impact 22 19 25 Minor impact 20 34 5 No impact 0 10 20 30 40 2014 SME Large Exhibit 53 The holiday pay challenge Holiday pay in the UK is calculated on the basis of a week s pay based on basic salary only, excluding payments such as overtime and commission. A number of cases have challenged this approach, deciding that additional payments must be taken into account when calculating holiday pay where they are intrinsically linked to the duties to be carried out by the employee. Commission payments In May the ECJ handed down a judgment on how holiday pay in the UK should be calculated which redefined holiday pay to include an allowance for commission. The method of calculating the commission to which a worker is entitled has not been set out by the ECJ but referred back to the UK employment tribunal where the ECJ ruling will be given effect in UK law. As we await the decision about how this ruling is applied in the UK, the CBI is encouraging the UK government to intervene to limit the damage of this ruling and to minimise the potential for it to set a precedent in related cases. Overtime payments In November the UK Employment Appeals Tribunal (EAT) ruled that some overtime payments should also be included in the calculation of holiday pay. The judge stated that normal pay is that which is normally received and should be calculated against a reference period. While the EAT concluded that claims for back pay would be limited by any gaps of more than three months between periods of holiday this interpretation remains open to challenge, and still leaves employers facing backdated claims despite having been fully compliant with UK law within any business diversity strategy. Appeal Tribunal (EAT) has similarly ruled that some overtime payments should be included in the calculation of holiday pay. 29 Businesses are facing the risk of significant additional costs, including some risk of backdated costs, from these challenges.

Growth for everyone: CBI/Accenture employment trends survey 2014 49 We await an interpretation from the UK courts as to how the ECJ ruling will be implemented, and further clarification is required as to the extent of the application of the EAT ruling, but it is clear that these rulings go far beyond what could have been foreseen when the Working Time rules were introduced, and do not respect the EU treaty this reserves matters of pay to the member states (Exhibit 53). These rulings will have a major financial impact on employers who pay commission and overtime both in terms of retrospective claims and future costs to Exhibit 54 Nature of impact on business (%) Major costs if liabilities are backdated Increased cost of employment going forward Additional bureaucracy and administration costs 27 38 Negative impact on employee relations 38 Changes to reward packages 31 Negative impact on the attractiveness of the UK as a place to invest 31 Reduced capacity to match international competition 19 18 39 Reduced capacity to respond to growth opportunities 5 4 7 13 13 20 19 6 Possible insolvency 29 28 29 32 36 32 33 40 47 53 71 70 73 69 68 70 76 81 81 88 business. But what is clear from our survey is that the ongoing cost is as much of a worry as retrospective claiming. The three most frequently cited impacts were; around seven in ten citing retrospective costs (71%), a similar proportion (69%) anticipating an increase to the cost of employment going forward and more than two thirds (68%) citing additional administration costs (Exhibit 54). Any change will also have significant implications for jobs, hours and pay. These changes could result in opportunities for overtime replaced with increased use of temporary or agency staff, or by the removal of commission schemes which reward high performance. Commission and overtime payments are popular with employees, offering workers the chance to increase their pay packet. However, firms may now have to make changes to their reward packages to remove popular commission schemes. Almost a third (32%) indicated they would take this course of action which could cause problems attracting the right people into roles in the future. UK businesses are now facing an anxious wait to see how the UK courts interpret the ECJ decision on commission, and whether the EAT ruling on overtime will face further challenge. If liabilities on holiday pay are backdated, individual firms may face bills of tens of millions of pounds, with almost one in ten (9%) SMEs reporting the consequence of this ruling could push their otherwise profitable businesses into insolvency, resulting in significant job losses....that could damage the UK s recovery and stall future investment The potential long-term effects of any changes are hugely significant including a reduced ability to deliver major infrastructure projects and a negative image of the UK as a place to invest. Looking across the business landscape it is evident that very few sectors will be entirely unaffected by this issue. We asked respondents if they expected the challenge to have an impact on their business. The majority of businesses, large and small, will be affected with two thirds of small businesses (66%) reporting some type of impact while 95% of large firms expect to be affected (Exhibit 55, page 50). 0 10 20 30 40 50 60 70 80 90 All Manufacturing Retail Transport & distribution

50 Growth for everyone: CBI/Accenture employment trends survey 2014 Exhibit 55 Net impact of additional payments being included in the calculation of holiday pay (%) Large Manufacturing Transport & distribution Retail All SME 0 20 40 60 80 100 Our survey indicates that the manufacturing sector will be particularly affected with nearly nine in ten (89%) manufacturing firms reporting that the challenge to holiday pay would affect them. Other sectors that would see a significant impact are the retail sector (83%) and transport and distribution firms (84%). As we said in Our global future last year, it is time to stop back-door EU employment law being made by the ECJ. 30 Member states should not face the major difficulty of transposing ECJ rulings that go well beyond the health and safety considerations required by the directive. Resolving the difficulties caused by these cases would not entail a reduction in protection for workers. Instead it would bring the directive back into line with what was originally intended by member states, consistent with the legal basis of the directive as a health and safety measure. Introduction of fees for employment tribunals has curbed claims There has been a significant fall in the number of claims being heard by employment tribunals since the introduction of fees in July 2013. 31 And the introduction of Early Conciliation in May 2014, which is designed to encourage dispute resolution within the workplace, should also have an impact on the number of claims being heard. The CBI supports the use of fees though greater consideration needs to be given to the level at which they are set to ensure access to justice. Nevertheless, the decision to take a claim to a tribunal can no longer be made on an act first, think later basis without due consideration of an alternative method of dispute resolution. 66 80 84 83 89 95 The prospect of an employment tribunal hearing is daunting for any business, but particularly small businesses. The proportion of respondents to our surveys who have faced one or more tribunal claims peaked in 2010 and 2011, with over 50% reporting they had faced such claims in the preceding 12 months. The number declined slightly over later years but since the introduction of fees it has dropped substantially in the past year less than a quarter of respondents (23%) have received any employment tribunal claims (Exhibit 56). and means stronger claims are being heard The employment tribunal system is an essential mechanism for enforcing individuals rights. Too frequently in the past, however, it has been used as a threat to encourage settlement of weak claims. Our survey results suggest that fees have improved the strength of claims being taken through employment tribunals (Exhibit 57). The proportion of claims being withdrawn by applicants has fallen significantly from over a third in 2013 (35%) to around one in ten (13%) over the last year. Similarly, the proportion of claims being heard at the tribunal has risen, suggesting both claimants and respondents are benefiting from the reforms a third of respondents who fought a case won (34%) whilst 10% fought the case and lost. Businesses are, however, continuing to take the conscious decision to settle claims outside of court. Despite advice the company would win, around a quarter of claims (24%) were dealt with in this way over the past year. The decision to settle is taken for a range of reasons including to avoid potential reputational damage. Exhibit 56 Companies facing at least one ET claim in the past 12 months (%) 2014 2013 2012 2011 2010 2009 23 0 10 20 30 40 50 60 34 39 44 52 54

Growth for everyone: CBI/Accenture employment trends survey 2014 51 Exhibit 57 Outcomes of tribunal claims in the past year (%) 13 Claim withdrawn by applicant 21 Settled out of court, after advice company was unlikely to win 29 Settled out of court, after advice company was likely to win Claim fought at hearing and won 10 1 4 4 4 Claim fought at hearing and lost 19 17 18 18 18 20 0 10 20 30 40 2014 2013 2012 2011 2010 However such a high proportion of settlements, despite advice they would win, suggests there remains concern among businesses about the tribunal process. It is not yet regarded as an effective method of dispute resolution. but the wider system still isn t performing Before the introduction of fees the tribunal system was facing major problems in handling the volume of cases presented. This created long periods of uncertainty for both respondents and claimants, tying up management time and running up costs. This was the CBI s priority concern about the employment tribunal system. In the three months to June 2013, only half of cases were cleared in under 47 weeks. The average case was taking 102 weeks to clear. 32 21 22 23 24 27 26 26 31 35 34 34 Exhibit 58 Time taken to resolve employment tribunal claims (%) Decreasing 12% Stayed the same 32% Don t know 15% Increasing 41% More than a year on from launch of the fees system, the tribunal service is still working through the case backlog. In the three months to June 2014 the overall average time for claims to be heard had fallen slightly to 93 weeks, with single claims on average dealt with in 38 weeks. 33 Our survey asked respondents whether they feel the tribunal system has become timelier over the past 12 months (Exhibit 58). Just 12% of businesses report the time taken to resolve a case at tribunal has fallen, while nearly a third (32%) think the time has remained the same. A worrying two in five businesses (41%) think the length of time taken to resolve claims is increasing but this could reflect the recent disposals of older multiple cases that have been going through the system for a number of years. Businesses want to see workplace disputes speedily resolved. One of the best ways to achieve this is to reduce the legalism in the tribunal system as this not only creates complex process but also adds to costs. The principle of fees should remain as a tribunal should never be the first port of call during a workplace dispute, but we need wider reform. The Republic of Ireland, for instance, is in the process of launching a new approach which may offer some lessons for the UK. 34

52 Growth for everyone: CBI/Accenture employment trends survey 2014 Exhibit 59 Responses to phasing out the Default Retirement Age (%) Don t know 2% No need to retire employees at a fixed age 69% Continue to retire employee using an Employer-Justified Retirement Age 6% Need to retire employees but there is too much risk and uncertainty to do so 23% This indicates that many employers are coping with the changes. The increase from 61% in 2013 may also reflect the positive use of flexible working arrangements. But there are still many businesses worried about managing the retirement process. Nearly one in four (23%) report that they need to retire employees but feel uncomfortable about doing so. While it is encouraging that this proportion has fallen from just over a third (34%) in 2013, it shows a significant proportion of employers feel there is too much risk and uncertainty involved with an employerjustified retirement age. A legal vacuum still exists over managing older workers and how to apply age discrimination rules. A long-term solution is needed, based on clearly guidance especially on the use of an employer-justified retirement age. As the CBI has repeatedly argued, it is time for government to stop ignoring this issue. Uncertainty remains for many firms following abolition of the default retirement age In the three years since abolition of the default retirement age (DRA) businesses have had to develop new approaches to the sensitive issue of retirement. This fundamental change in employment arrangements was not welcomed by business, and our survey highlights there is still widespread uncertainty about managing the departure of older workers. Businesses recognise the benefits of having a diverse workforce. There are clear advantages in enabling younger workers to engage with, and learn from, more experienced colleagues. A diverse workforce can also help better reflect the customer base and help in meeting customer demand. The proportion of businesses reporting they have no need to retire employees at a fixed age has increased to almost seven in ten (69% Exhibit 59).

Growth for everyone: CBI/Accenture employment trends survey 2014 53 It is imperative that the UK government safeguards domestic employment law from external interventions

54 Growth for everyone: CBI/Accenture employment trends survey 2014 FOOTNOTES 1 World economic outlook, legacies, clouds, uncertainties, International Monetary Fund, October 2014 2 CBI economic forecast, CBI, November 2014 3 For those aged 16-64. Note that the employment rate for those aged 16+ remains below its pre-recession level. Labour market statistics bulletin, ONS, November 2014 4 Employment rate for those aged 15-64 and unemployment rate for those aged 15-74, Eurostat, accessed November 2014 5 Labour market statistics bulletin, ONS, November 2014 6 Labour market statistics bulletin, ONS, November 2014 7 Future possible: the business vision for giving young people the chance they deserve, CBI, August 2014 8 A better-off Britain: improving lives by making growth work for everyone, CBI, November 2014 9 Based on 30.76 million employees aged 16 and over in the three months to August 2014, ONS Labour market data, October 2014 10 Future champions: Unlocking growth in the UK s medium-sized businesses, CBI, 2011 11 99.9% of private sector businesses are SMEs, Business population estimates for the UK and regions 2013, BIS/ONS, 2013 12 Gateway to growth: CBI/Pearson education and skills survey, CBI, July 2014 13 Speech by the secretary of state for business innovation and skills, 23 October 2014 14 IDS Pay, median pay settlement in the private sector, three months to October and ONS annual survey of hours and earnings, change in earning for those in employment in 2013 and 2014 15 Automatic enrolment monthly declaration of compliance report, The Pensions Regulator, October 2014 16 Analysis of Wilson, R et al. (2014) Working futures, 2012-2022, UKCES 17 A better-off Britain: improving lives by making growth work for everyone, CBI, November 2014 18 Connect more: digital infrastructure survey, CBI, 2013 19 Labour market statistics bulletin, ONS, November 2014 20 Future possible: the business vision for giving young people the chance they deserve, CBI, August 2014 21 Our future public services: a challenge for us all, CBI, October 2014 22 A better-off Britain: improving lives by making growth work for everyone, CBI, November 2014 23 Gateway to growth: the CBI/Pearson education and skills survey 2014, CBI, July 2014 24 A better-off Britain: improving lives by making growth work for everyone, CBI, November 2014 25 Boardwatch, http://www.boardsforum.co.uk/ 26 Labour market statistics bulletin, ONS, November 2014 27 Jobs for the future, CBI, July 2009 28 Lock v British Gas Trading Ltd [2014] IRLR 648 ECJ 29 Bear Scotland Ltd v Fulton and another, Hertel (UK) Ltd v Wood and others, Amec Group Ltd v Law and others EATS/0047/13, EAT/0160/14 &EAT/0161/14 30 Our global future: the business vision for a reformed EU, CBI, November 2013 31 Comparing Q1 2013/14 with Q1 2014/15 there was an overall fall of 81%. Employment Tribunal National User Group, President s report, HMCTS, October 2014. 32 Tribunal statistics quarterly: April to June 2013, Ministry of Justice, September 2013 33 Tribunal statistics quarterly: April to June 2014, Ministry of Justice, September 2014 34 House of the Oireachtas, Workplace Relations Bill, 2014 Note: Some charts do not sum due to rounding.

For further information on this report, or for a copy in large text format contact: Fionnuala Horrocks-Burns Policy adviser T: +44 (0)20 7395 8024 E: fionnuala.horrocks-burns@cbi.org.uk December 2014 Copyright CBI 2014 The content may not be copied, distributed, reported or dealt with in whole or in part without prior consent of the CBI. Printed by Colourscript on Revive 100 pure white silk, containing 100% recovered fibre certified by the FSC. Colourscript is certified to ISO 14001 and registered to EMAS environmental management systems NEZ052. Product code: 10571 www.cbi.org.uk