High employment costs outrank energy bills as the reason SMEs feel pressured to raise prices, according to a new report from Enginuity.

Enginuity, a UK charity formerly known as the Sector Skills Council for Engineering and Manufacturing, has published its inaugural SME Snapshot Report. 

The aim of the report is to provide an insight into how SMEs are responding to current economic and policy conditions, particularly challenges around skills shortages.

Over 135 manufacturing and engineering micro and SMEs from across the UK were surveyed for the report. Together these firms represent 6,500 employees and £1.1bn in annual sales.

The headline finding is that nine in 10 (89%) of SMEs identified labour costs as a source of pressure to raise prices, outranking energy and utilities (57%). To offset these costs, most SMEs (76%) plan to pass them on to customers through raising prices. 

Last year’s Autumn Budget announced that the rate of employers’ National Insurance contributions would rise by 1.2% from 13.8% to 15% from April 2025. This rise in employment costs have been challenging for many businesses, especially SMEs. 

Findings of the Enginuity report also show that skills shortages and difficulties in filling vacancies are hampering SME business growth, with 80% of these firms having experienced difficulties finding suitable staff over the past six months. 

Only 15% of SMEs think that the UK labour market is attractive, and only 24% said that labour and skills shortages have not affected their business. 

Poppy Bramford, Enginuity’s policy manager, said: “This report is a striking confirmation of how severely the skills system is failing the majority of engineering and manufacturing SMEs, stifling their ability to grow.”

However, despite operating in a labour market they find challenging, the report found that SMEs remain optimistic about the year ahead, with many expecting to invest in training. 

In June, the UK government launched its long-awaited industrial strategy that aims to support businesses through trade investment, skills training and lower energy prices. 

Awareness of the strategy was high among those SMEs surveyed, but only one in three said it had made them more optimistic for the year ahead.

To unlock public and private sector investment in skills, Enginuity is calling on government to focus on cohesion and clarity. 

Bramford said: “For SMEs to realise the ambitions of the UK government on economic growth, the skills landscape must move beyond policy chop and change by injecting longevity and SME engagement into policy creation.”