The vast majority (90%) of small and medium-sized enterprises (SMEs) in England expect to face skills shortages with the highest concern at entry level, according to a new report.
The latest Skills Horizon Barometer, released by the UK Government’s Skills for Life campaign, indicates that SMEs are more likely to experience gaps at entry level than in specialist roles, with 32 percent reporting the former compared to 29 percent for the latter.
However, fewer businesses now view staff retention as a key concern. Just over one in four (27%) SMEs highlighted it as a worry this year, a decrease from 40 percent in 2024 and 41 percent in 2023.
AI experience in demand
In addition to addressing basic skills gaps, employers are turning their attention to advanced capabilities, particularly around artificial intelligence. Nearly a quarter (23%) of SMEs plan to train staff in AI or recruit candidates with relevant knowledge in the field.
Regular use of AI is reported by 19 percent of SMEs, with a further 20 percent using it occasionally. One in five employers also regard AI experience as a valuable asset for job applicants.
While technical skills are important, employers are also focused on human characteristics and transferable skills. In 2025, the traits most in demand include a good work ethic (36%), the ability to work well in a team (28%), being a quick learner (28%), confidence (24%) and adaptability (23%). This is a shift from previous years, with adaptability replacing the ability to work under pressure in the top five.
SMEs value technical routes and early-career candidates
The research noted a trend among SMEs to offer opportunities to candidates early in their careers, particularly those with some practical experience. Forty-four percent of businesses said they would prefer candidates who are new to the workforce but already bring some work experience. A smaller proportion, 24 percent, continue to favour traditional academic routes such as university.
One in five (21%) businesses expressed willingness to hire directly from school or college, with a view to supporting young recruits through training. Thirty percent of SMEs would also consider candidates coming from entirely different sectors. These preferences reflect a growing openness among employers to alternative pathways and technical education.
Helping new talent grow
Louisa Doyle, CEO of Newcastle-based business Mesma, described the company’s recruitment policy. She said, “We’re a small business of just 10 people, but we’re looking to double our size by November this year. We have an apprenticeship-first policy when it comes to recruitment, and we’ve also taken on T Level students – both of these will continue to be a priority in the year ahead.”
Doyle explained that post-Covid recruitment has remained challenging, especially for software developers.
“We often have to be creative to ensure we offer benefits that allow us to compete with those that larger businesses offer. Technical education training routes allow us to access new talent who we can then help to grow, all whilst giving them space to create their own role.”
Government and employers back technical education as a solution
The report was supported by commentary from employers and government figures, including Minister for Skills, Apprenticeships and Higher Education Jacqui Smith.
She stated, “Meeting the skills needs of the next decade is central to delivering the Government’s Plan for Change. Employers are key partners in our mission, helping address skills needs across sectors like AI, green tech and construction.”
Smith pointed to a range of support options for both businesses and individuals, including Skills Bootcamps, apprenticeships, HTQs and T Levels – as well as the Government’s plan to establish Skills England, a body aimed at identifying and addressing skills gaps while supporting economic growth.