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By Ian McConnell

Business Editor

The Confederation of British Industry’s director-general has flagged signs of “labour shortages everywhere”, highlighting this as a potential barrier to UK competitiveness over the long term.

Tony Danker, in an interview with The Herald, also warned of the risk that small and medium-sized enterprises would just “walk away” from exporting to European Union countries because of difficulties which have arisen in the wake of Brexit.

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Asked about the renewed focus on the independence question north of the Border, he said most Scottish businesses he spoke to were “not convinced of the notion this is the right time to be having this debate”.

Mr Danker added: “I think that would be a diplomatic way to put it.”

He revealed labour shortages had been one of the topics of discussion when he spoke with Scottish business leaders on Tuesday.

Asked about where these shortages were being seen, Mr Danker replied: “You see them in obvious places like hospitality and construction.

"You also see them in professional services and technology and engineering. There appears to be labour shortages everywhere."

He added: “The question is what of this is cyclical and what is structural.”

On the question of potential drivers of skills shortages, Mr Danker cited the impact of the UK furlough support scheme on the labour market, and asked: “Do we not really know what is happening in the labour market until furlough goes away?"

He also noted the effect of people moving away from working in sectors hit hardest by the pandemic.

Mr Danker highlighted the impact of people having returned home particularly to EU countries, flagging a general belief that this was primarily the result of the coronavirus pandemic but adding that the lack of return of these workers may be Brexit-related.

He said: “It is very hard at the moment to unpack people going home because of Brexit, people going home because of the pandemic.”

Mr Danker warned that labour shortages could contribute to wage inflation, and in turn put further upward pressure on consumer price inflation.

He declined to pass any opinions when asked for suggestions about what might be required in terms of immigration policy to address the labour shortages.

Mr Danker said: “All we know is we have a new immigration system that wants to be much more forensic about real skill shortages in the economy.”

He cited a need to look in the months ahead at what sectors were struggling most from labour shortages, and what was structural and what was cyclical.

Mr Danker added: “The labour shortage issue is real. In the long run, this is a barrier to competitiveness so we will look at it.”

Asked about problems experienced by exporters following the UK’s departure from the European single market at the end of last year, Mr Danker cited particular difficulties for small and medium-sized enterprises.

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He said: “It is fair to say the rules of origin and cost of compliance make this very difficult, particularly for SME businesses. Most SME exports are to the EU. SMEs are going to get out of that. They are just going to walk away from exporting because it is too complicated. I believe that is the biggest risk.”

Mr Danker hammered home his belief that politicians on both sides must drive “normalisation” of the UK-EU relationship.

He meanwhile welcomed an emphasis by First Minister Nicola Sturgeon on Tuesday of a focus on vaccination rates, and hospitalisation and death statistics in setting coronavirus-related policy.

Mr Danker, saying he hoped Westminster followed with “that sort of guidance”, added: “We can’t go into a world where we just follow growth in infections and view that as a legitimate reason to close the economy.”

Asked about international travel, he said: “I think businesses are quite confused at the moment about the Westminster Government’s approach.”

He highlighted confusion over the “amber” destinations category, and the previous belief of some people that they would be able to travel freely to these places if they quarantined on return.

Mr Danker said: “Then it looked like amber was red with a different name.”

Prime Minister Boris Johnson declared last month: “I think it’s very important for people to grasp what an amber-list country is. It is not somewhere where you should be going on holiday – let me be very clear about that.

“And if people do go to an amber-list country, they absolutely have to for some pressing family or urgent business reason, then please bear in mind that you will have to self-isolate, you’ll have to take tests and do your passenger locator form and all the rest of it.”

Mr Danker said: “Early next week, we are hoping the Government will publish the framework they are using for international travel decisions because businesses are currently confused.

“I think we now need real transparency about the framework.”

He highlighted the importance of international business as well as leisure travel, noting a perception among some that this was “men in suits flying to New York overnight” but emphasising it included the likes of employees of engineering companies servicing contracts all over the world.

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Asked about constitutional uncertainty, in the context of the Scottish independence debate, Mr Danker replied: “The Scottish businesses I have spoken to are either not really thinking about it or don’t want to think about it because they are so focused on getting the economy moving again.

“I think most of the Scottish businesses I am speaking to are not convinced of the notion this is the right time to be having this debate ...They don’t want to have the conversation. I don’t think it is the politics per se.”

He added: “To be distracted by the independence question I think would be a completely missed opportunity for Scotland …This is the time we should be talking about recovery. It is also the time, whether we like it or not …that investment is being made for the next decade.

"It is in nobody’s interests to get in the way of that potential momentum.”