Successful and growing small businesses are essential to the UK’s economic success. Only when business owners and their staff are equipped with the right skills can their enterprise grow. Therefore, meeting the skills needs of small businesses is a key part of having a productive and growing economy. It is crucial that we evaluate how we can support individuals to develop the skills they require for successful careers, and ones that businesses require now and in the future.

The skills of business owners and their staff are central to running and growing a successful business. Aside from the more tangible benefits of learning new skills, such as the development of new products or technologies, training improves business competitiveness, efficiency and longer-term effectiveness. Essentially, keeping our skills up to date and learning new ones is an indispensable part of growing a business.

Yet even prior to the pandemic and Brexit, firms were facing challenges in recruiting the talented people they need to ensure economic growth. As the UK emerges from the Covid-19 pandemic, small businesses are experiencing both labour and skills shortages. There are simply not enough people, and enough suitably skilled people, to meet business demand.

A forward-looking, cross-departmental labour market strategy is a pre-requisite to solving the difficulties we have with skills mismatches in the labour market. We must also ensure all people have the basic skills they require to move onto higher level qualifications and developing more specialist skills sets. Ensuring that vocational training, such as apprenticeships and T Levels, are highly-regarded routes and are meeting business needs is also paramount.

Education and training can no longer be just for the first 20 or so years of life. With the country needing to respond to climate change, undergoing shifts in demographics, and with the ongoing automation and digitisation of work, lifelong learning must be more widely adopted. Effective support should be readily available to allow small business employers to support their staff to learn new and pertinent skills.

Leadership and management skills are widely accepted as being crucial to adopting innovation and productive businesses. As well as the skills required to effectively run a business, we need to also think whether we are delivering the skills to those who want to start an enterprise. The current young generation, “generation side-hustle”, have a huge amount of potential. Ensuring that they have the know-how to successfully turn their ideas into thriving businesses is an exciting prospect for them, and for the nation’s economic ambitions.

This report provides policymakers with information and suggestions to address these complex problems. FSB is keen to continue to work with national and local governments and other stakeholders with the ambition of creating an education and skills system that supports a high-growth and productive economy.

Key statistics

Key findings and recommendations

Skills and recruitment

Key findings: 
  • Of those that have tried to recruit in the past 12 months, 78 per cent have experienced difficulties in  recruiting staff due to various reasons, including:
    • A lack of individuals with relevant qualifications, skills and experience (82%) 
    • Low number of applicants generally (60%).

Our recommendations:

The UK Government should:

  • Establish an independent body that looks at the current and future labour market and provides policy recommendations across Government departments. This would make the Future Skills Unit independent of the Department for Education and give it the remit to work in close partnership with the Migration Advisory Committee as well as the Low Pay Commission.
  • Enable small businesses to automate processes by providing R&D tax credits to those sectors with difficulties recruiting and with a high cost of automating processes.
  • Introduce a ‘Kickstart’-style Disability Employment scheme to get more disabled people into employment for the first time.
  • Introduce a permanent, full Statutory Sick Pay rebate for small firms.
  • Target employability innovation funds announced in the Prisons White Paper at small businesses to increase the employment rate of ex-offenders.

Education and skills development

Key findings: 
  • Almost half (48%) of small business owners say that technical skills are important to achieving future growth.
  • Four per cent of small business owners engage with schools and 15 per cent with Further Education colleges.

Our recommendations:

The Department for Education should:

  • Establish a target in legislation that by 2035 no young person in England should complete compulsory education without at least Level 2 qualifications.
  • Establish in legislation that by 2035 three-quarters (75%) of the working age population (18 to 64 year olds) in England should have at least Level 3 qualifications. At least two-thirds of working age people in every English region should have these qualifications.
  • Reform Ofsted inspections to give careers advice a more prominent role as one of the ‘key judgement’ areas.
  • Ensure that young people have encounters with employers that reflect their local labour market through amending the statutory guidance for careers guidance to explicitly include reference to engaging with a range of employers.
  • Develop a long-term education and skills strategy, aligned to overarching economic aspirations and the labour market strategy.

Apprenticeships and T Levels

Key findings: 
  • To overcome recruitment difficulties, 16 per cent of small business employers are looking to hire an apprentice. 
  •  More than one in five small business employers (21%) say that reintroducing the £3,000 incentive to hire an apprentice over the next 12 months would lead to them hiring additional apprentices in that period. 
  • More than one in five small business employers (22%) say that financial support from the UK Government would encourage them to host additional T Level placements.

Our recommendations:

HM Treasury and HM Revenue and Customs should:

  • Maintain the Apprenticeship Levy, as this funding is needed for SMEs who want to hire an apprentice. The UK Government must continue to contribute 95% of the training costs for small businesses.
  • Amend the current financial incentive of £1,000 for employers hiring an apprentice under 19 years old to a £3,000 incentive for those hiring an apprentice under 25 years old, and make the incentive exclusively for SMEs.
  • Remove the 25 per cent cap on Apprenticeship Levy transfers so levy payers can transfer as much as they like to small businesses, and expand the regional levy transfer pilots.
  • Reintroduce the £1,000 incentive for employers hosting T Level industry placements. 

The Department for Education (and the Education and Skills Funding Agency) should:

  • Maintain the flexibilities introduced during the pandemic with hosting T Level placements, including the ability to host at least a portion of the placement virtually. 

The Institute for Apprenticeships and Technical Education should:

  • Fast-track intermediate Apprenticeship Standards in sectors that were until recently used regularly – namely in digital and business and administration. 
  • Ensure that Apprenticeship Standards work for SMEs by boosting engagement beyond trailblazer groups, through an annual survey and a review of occupation maps.

The Department for Transport should:

  • Introduce a bus pass scheme for all apprentices under 25, enabling them to travel for free.

Training at small business employers

Key findings: 
  • Five in six small employers (83%) provided training for their staff and/ or themselves over the past 12 months. 
  • Of those who provide training, the average number of days of training and development per staff member in the last 12 months is 7 days. 
  • 31 per cent have a training plan for the year ahead and 17 per cent have a budget related to training. 
  • Of the different types of training offered, three-quarters of small business employers (74%) say it was directly related to the employee’s job role. 
  • A quarter (26%) of small business employers say leadership and management skills are the most important to future growth, and 26 per cent say they have undertaken leadership and management training over the last 12 months.
  • The top incentives for small business employers to carry out more training include: 
    • More government assistance with costs (64%) 
    • More tax relief incentives (48%)
    • Improved information, advice and guidance on the training support available (37%)
    • More flexible training opportunities (37%) 
    • Improved course quality (25%).
  • Barriers to implementing training for the business owner or employee included: 
    • Relevant training is not available locally (23%)
    • No relevant training is available (13%)
    • The quality of courses and/or providers is not satisfactory (13%).

Our recommendations:

HM Treasury and HM Revenue and Customs should:

  • Encourage more people to train by offering tax relief to selfemployed people who attend training to develop new skills and/or expand their business, not just to refresh existing skills.
  • Increase the Corporation Tax relief for employers training low or medium-skilled employees. To encourage employers to train those with lower qualifications, the relief should remain at 100% for those employees with a prior Level 6 qualifications, boosted to 160% for those without a prior Level 6 qualification and boosted to 230% for those without a prior Level 3 qualification.
  • Provide vouchers for small business employers to purchase external support developing a training plan or a workforce development strategy.

The Department for Education should:

  • Support the self-employed in learning new skills, including the skills required to grow their business, through continued commitment to the EnterprisingYou project in Greater Manchester, supported by FSB and HM Treasury, and through expansion of the programme throughout England.
  • Maintain Skills Bootcamps in the long term as an easily accessible fix to overcome skills shortages; and introduce a Line Management Bootcamp to improve management skills within SMEs.
  • Build on the success of Skills Bootcamps by introducing 50+ Skills Bootcamps, which would provide the skills older people require to remain in or re-enter the labour market.

Self-employed training

Key findings: 
  • Two in five sole traders (40%) had not been on any training or development courses over the past 12 months.
  •  Four in five sole traders (80%) are without a training plan, a training budget or a relationship with a training provider.

Our recommendations:

The UK Government (England) should:

  • Launch a nationwide young enterprise competition for both school leavers and university/college leavers. This competition would provide a contest winner from each English region with start-up funding for their idea, access and advice from a mentor, and cost of living support for one year after they complete their studies.

The Department for Education should:

  • Provide grant funding so all schools can offer programmes to encourage enterprise, such as Young Enterprise’s Company Programme.
  • Revisit Lord Young’s proposal of an ‘Enterprise Passport’, which should also include technical training related to entrepreneurship and be the equivalent of an A Level.

The Careers and Enterprise Company should:

  • Develop a long-term strategy to promote enterprise to school children and ensure they have the knowledge and understanding of how to start a business.

The Office for Students should:

  • Amend its proposals on student outcomes so that students starting a business after graduation are given equivalent treatment to those entering managerial or professional employment or going onto further study. The number starting their own business should be included in university league tables.


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