In Scotland, we face particular skills challenges, with our biggest city, Glasgow, having the worst economic activity rate in the UK. Merely bringing the Scottish employment rate up to the British average would mean an extra 45,000 people in work and deliver a 2 per cent boost to GDP.

A recent report by the Federation of Small Businesses and Future Skills Scotland highlighted the impact of these high rates of economic inactivity on the small business sector. Based on interviews with 3,700 small businesses, the report confirms anecdotal evidence on the difficulty of recruiting staff, with employers classifying more than two-thirds of all vacancies as “hard to fill”.

Worryingly, this is not usually due to skills shortages per se, but a shortage of applicants. Genuine skills shortages - where applicants lack the skills necessary to do the job - are surprisingly rare, affecting around only one in 25 workplaces. More common than shortages are skills gaps, where an employee is judged not fully proficient at his or her job.

This affects one in six workplaces.

Despite the very real problems caused by the highly publicised shortfall of skilled tradesmen and women, most skills shortages and gaps involve deficits in soft skills such as customer handling, oral communication and problem-solving. It is the lack of these more human skills - which employers now regard as core - and literacy and numeracy problems that are causing businesses most concern.

Recruitment difficulties and skills deficiencies are having a significant impact on many small firms. Employers report that customer service, the development of new products and quality standards are all suffering. Even in areas such as Glasgow employers struggle to attract and retain the staff they need to expand and grow.

So how do we overcome these skill deficits and ensure that everyone in Scotland is equipped to take advantage of the opportunities to work and learn?

The Federation of Small Businesses has been arguing for changes to compulsory education for some time, but the further education sector obviously has a key role. The Scottish Executive’s own research shows that too many children are falling behind early on in secondary school, so more support needs to be provided at that stage.

It is almost certain that the cohort of children struggling in S1 and S2 are the group who are at the root of employers’ grumblings about skills deficits, as most of the recruitment problems and skills shortages reported by employers are in the lower skilled sectors. Somehow we need to keep these children engaged with the education system, and allowing them access to vocational education through local colleges in S3 and S4 may be one way of achieving this.

We also need to affect some kind of culture change, to end the perception that vocational subjects are inferior to academic ones, and that FE is simply the destination for those who “fail” to get into university. That is why the drive to boost skills levels should not be about shoving ever greater numbers into an already bloated university sector. Surely the skills employers need can just as readily be learnt at college as at university.

By engaging with those currently out of the labour market, and building skills and self-esteem, the FE sector can play a key role in increasing the percentage of the population in work.

Equally, this applies to the growing number of asylum-seekers who pass through Scotland or settle here permanently. Equipping these people with the language skills and professional or technical accreditation they need for work is an essential part of ensuring we make the most of our human capital. Many small businesses are now looking to recruit asylum-seekers to fill skills shortages and our members are not slow to tell us about their positive attitude to work.

However, while most employers are generally positive about the work of the FE sector, there is no doubt that Scotland’s colleges and small businesses could be working together to greater effect. While the modern apprenticeship scheme has been welcomed throughout Scotland, a common complaint is that many apprenticeships and Scottish Vocational Qualifications do not really prepare college graduates for the realities of the world of work and high-pressure environments like restaurant kitchens.

Colleges have to keep courses up to date with the latest working industry standards, practices and equipment.

Research also shows that there are a number of barriers to training in small and medium-size enterprises (SMEs). The most obvious of these is cost, so it is vital that all training has a tangible and positive impact on business productivity if we are to encourage more training in the SME sector.

One of the biggest issues is convincing employers of the benefits of training - as this seems to be at the core of understanding the lack of training carried out by many businesses. Too often employers have invested money in training only to find the member of staff attracted by an offer of employment from a larger business. And there is the ongoing question of the value of some courses and qualifications to employers.

The expense of upskilling is compounded by the problems caused in very small businesses by the absence of an employee for the duration of the course, so any module must be as brief as possible but as comprehensive as is necessary. It is clear that employers also favour delivery of training in the workplace as much as possible and developments in ICT can only accelerate this trend.

Hopefully, the business learning account being piloted at the moment will help overcome the financial constraints on small businesses, encourage greater take up of training and engage more employers with local training establishments and colleges.

Until now the debate on knowledge transfer in Scotland has been dominated by high-tech university spin-outs. However, the focus here should be about improving all aspects of all kinds of goods and services and the way these are delivered. There is no doubt that the FE sector is often better placed than universities to work with smaller enterprises and add value to their operation.

For example, the Executive’s “green jobs” strategy will undoubtedly create opportunities for small businesses, but many will require specific skill sets and technologies that the FE sector is perfectly placed to deliver.

Having set out a vision for Scotland’s potential for green jobs, it is imperative that we plan properly to deliver on that vision by ensuring that the appropriate training is available at relevant locations across Scotland.

In the end, it all comes down to communication. The only way to maximise the value added to SMEs by the FE sector is by ensuring effective dialogue between local businesses and colleges and other relevant bodies, such as local enterprise companies, Learndirect Scotland and the sector skills councils.

John Downie is head of press and parliamentary affairs for the Federation of Small Businesses in Scotland. This is an amended version of an article which appears in the current edition of the FE journal Broadcast.