The CBI and Mercer Human Resource Consulting annual survey of employment trends shows 29 per cent of firms will recruit fewer people without qualifications over the next three years. But demand for well-qualified people will grow, with 47 per cent of firms expecting to take on more graduates.

According to government data, the UK has around six million adults with no qualifications. Only about 2.6 million of these are in work, partly because less than a third of jobs are open to unqualified people. The survey shows that 30 per cent of firms believe skill shortages have a "significant" or "severe" impact on business. Worst hit are firms in construction and professional services such as accountancy and legal consultancy.

In addition, 23 per cent of employers expressed dissatisfaction with the numeracy and literacy of school leavers. Firms said they invest around £23.5 billion a year on training with much of this going on remedial work to make up for deficiencies in state education.

Main findings
- Fifty eight per cent of respondents use formal assessment to determine pay. Twenty four per cent of respondents say a link with performance contributes to competitiveness and 32 per cent believe it will in future.

- Some 96 per cent of employers operate at least one flexible working policy and 60 per cent offer three. The most common forms of flexible working are part-time work, job sharing and flexitime.

- 33 per cent of firms report problems recruiting ethnic minorities. Possible explanations include misconceptions about their skills not being of value.

- Companies prefer to consult employees directly rather than through representatives. Team meetings are the most popular method followed by e-mail and attitude surveys. Thirty five per cent of firms have a formal consultation mechanism such as a staff council.

John Cridland, CBI Deputy Director-General, said: "We must work together to prepare people for the inescapable realities of the modern labour market. I hope this will dominate the agenda at the TUC, rather than the promotion of job protection at the expense of job creation."

On pensions, the survey says 24 per cent of firms closed their final salary scheme to new entrants in the past five years and 12 per cent are considering doing so. But 64 per cent said they are currently not planning to close their schemes to new entrants, despite increased financial risks.