Why Local SMEs Remain Underused in the Skills System

UK government and organisations are constantly discussing ongoing skills shortages and apprenticeships and employability, yet one of the biggest untapped resources that  often gets overlooked in the conversation, is local SMEs.

Small and medium-sized enterprises account for more than 99% of the UK business population according to government data, yet much of the education and skills infrastructure still appears geared toward larger employers with established HR teams, levy budgets and dedicated recruitment pipelines.

Because while large employers absolutely play an important role in apprenticeships and workforce development, local SMEs are often the businesses closest to regional economies, local hiring needs and real-world skills gaps. They are the engineering firms, manufacturers, hospitality groups, trades businesses, digital agencies and service providers that students are far more likely to encounter in their own communities.

Yet often, they’re underrepresented in how skills partnerships are built.

Recent Department for Education statistics showed that 61% of apprenticeship starts were with large employers, while only 25% were with small employers.

That matters, because the UK’s workforce challenge is about qualifications alone. It’s increasingly about relevance, local economic alignment and speed.

SMEs understand regional demand faster

Large organisations typically have longer hiring cycles, more structured graduate programmes and national recruitment strategies. Whereas, SMEs operate differently, by responding to economic shifts in real time.

If demand rises in digital marketing, cyber security, green energy installation, logistics or manufacturing support, smaller businesses often feel it first. They know quickly which roles are hard to fill, where practical skills are lacking and what capabilities young people entering the workforce genuinely need.

This is where FE colleges, training providers and local enterprise partnerships have a major opportunity.

Instead of treating employer engagement as a periodic exercise, the sector could benefit from far deeper and more consistent relationships with smaller businesses operating at community level.

Administrative complexity can push SMEs away

One of the biggest reasons SMEs remain underused is down to capacity. Many smaller employers simply do not have the internal resource to navigate apprenticeship systems, funding structures, paperwork or compliance requirements.

For a business owner managing operations, staffing and commercial growth simultaneously, taking on an apprentice can feel administratively heavy, even if they support the principle behind it.

The issue becomes even more pronounced in sectors already facing recruitment pressure.

Research highlighted in national reporting last year, found that many employers continue to struggle to fill entry-level and specialist vacancies, while participation in training schemes among businesses has fallen. (See Explore Education Statistics.)

At the same time, other reports around apprenticeships have repeatedly shown concerns from SMEs around bureaucracy, funding flexibility and operational pressures (FE News article, August 2025).

If the education sector wants stronger SME participation, systems need to become easier to navigate, quicker to implement and more commercially realistic for smaller employers.

Employer engagement needs to become more localised

There has been significant national focus on skills reform in recent years, including the development of Skills England and the wider discussion around the Growth and Skills Levy.

But some of the most effective progress may ultimately happen locally rather than nationally.

For example, a college of further education in Manchester, will not be faced with the same economic conditions as those in Cornwall or Cumbria. Regional economies differ, as does employer demand differs as well as infrastructure.

Which means employer engagement strategies should also differ.

Local SMEs can help education providers build a far clearer picture of:

• emerging regional industries
• changing workforce needs
• employability skill gaps
• technology adoption
• customer-facing skills requirements
• practical workplace expectations

The challenge is creating systems where smaller employers feel genuinely included rather than consulted occasionally, to get more SME’s onboard and genuinely involved in apprenticeship conversations.  

Students benefit from proximity and visibility

There is also a student-side issue here. Young people are often exposed repeatedly to large national brands during careers discussions, while smaller local employers remain largely invisible despite employing significant numbers of people within regional economies.

That is the missed opportunity as for many learners, especially those wanting to remain within their local area, SMEs can provide:

• faster progression
• broader hands-on experience
• closer mentorship
• earlier responsibility
• more varied operational exposure

In smaller businesses, apprentices and junior staff gain commercial exposure far earlier than they might inside a larger corporate structure and that experience can be enormously valuable.

Skills partnerships need commercial thinking

The education sector increasingly talks about collaboration with employers, but collaboration only works if both sides see practical value.

SMEs are not looking for endless meetings or bureaucracy. They want clearer access to talent, simplified engagement processes and confidence that education providers understand what local businesses genuinely need.

This in turn, requires a more commercially aware approach to employer engagement. If the UK wants a more agile, regionally responsive skills system, local SMEs have to become central stage to the discussions and processes.

By Adam Herbert, CEO & Co-founder, Go Live Data