In case you missed it, the UK has extended transition again, until Summer 2022. This is in response to shortages across the food and drink industry that have hogged the headlines for the last few weeks:
No chicken in KFC
No lager in Wetherspoons
No milkshakes in McDonalds
No pasties in Greggs
GP surgeries don’t have blood tests
Farmers don’t have workers to bring in the harvest
IKEA don’t have any beds, nor does the NHS
These shortages have in turn pushed up prices with inflation hitting 3.2%; the highest level since 1997. These are the kind of headlines that have spooked Ministers into extending transition until summer next year, maybe indefinitely. For a PM who boasts that he “Got Brexit Done” this is a big climb down.
A few months ago I wrote a blog explaining why the end of transition in December hadn’t led to empty supermarket shelves. Right now that blog is getting a lot of hits, despite being out of date.
The reason why there weren’t empty shelves in January was that The Government quietly extended transition arrangements, but only for EU companies sending goods to the UK. Transition was due to end and the new rules come into effect between July and October this year, which is when shelves started to empty. The Government are hoping that extending transition again will stop the problems. This is unlikely to work a second time for a number of reasons.
The Norwegian Butter Problem
There are a number of causes of the shortages, some linked to Brexit, some linked to Covid. Whatever the cause suppliers across Europe are diverting supplies away from the UK, and to other countries within the single market or the EAA. The additional bureaucracy of Brexit means that it is always cheaper and easier to move goods and sell fresh produce within the Single Market; we will always lose out whenever there are supply issues. Whenever there is a shortage we will get hit the worst, and this isn’t going to change until we re-join the Single Market and Customs Union
Norway has had similar persistent problems for years, even though it is a member of the European Economic Area. A few years ago they ran out of butter for several weeks, to the amusement of the other Scandinavian countries. We will have the same stock outs, very likely worse, indefinitely.
Extending transition for EU companies selling food and drink will help ease the problems. But it won’t cure them.
Lack of Workers
The food and drink and hospitality industries are starting to re-open after a very long lockdown. Some of our customers have been closed for over a year, with staff sacked or furloughed.
Right across the industry from the smartest hotels and to the farmers fields I hear the same message – a staffing crisis. In desperation some food producers are asking for additional labour from the prison workforce, which indicates how hard it is to get agricultural workers.
The UK has just experienced the largest peacetime fall in population, with up to 1m people leaving the UK since the start of Covid.
Most of the fall is immigrants who came to the UK to work returning home. This has caused a net fall in the UK Labour force of over 0.5m. The fall would have been larger, but more non-immigrant Brits entered the workforce, probably a shift of people from cash work or self employment to paid employment.
Previously there would have been a flow back as EU workers returned to the UK post Covid, but new Brexit controls on immigration, plus the hostile environment, have made the UK a much less attractive destination for mobile workers.
Falling birth rates across Europe mean that countries are competing for scarce workers. There is an attitude in the UK that migrant workers are a burden, and we have to protect ourselves from them. The hostile environment, and strict restrictions on people coming to the UK for work are a product of that attitude.
We need to understand that we are in competition with other countries who also need labour from farm workers to Doctors. We need to make ourselves attractive to them. The world doesn’t owe us a living.
Why can’t British workers do these jobs?
We could replace these missing EU workers with our own indigenous workforce, but we have problems there too.
There is a slack in the UK labour market – not in terms of unemployment, but under employment – people who want full time jobs working less than full time hours in the gig economy. Some of those can and will move across -Uber drivers will become lorry drivers. But it is hard to see how the UK labour market can lose 1m workers and still find people for these jobs, particularly when we are recruiting another 20,000 civil servants to deal with Brexit bureaucracy.
The constraints to use our own labour come in two forms:
Firstly mostly these workers already have jobs, and it is increasingly difficult to get workers for difficult or low paid jobs. Employers can increase wages, but that has a limited effect on increasing the supply of worker. There is no prospect that UK labour markets can accomodate the wages needed to make labour supply equate to demand. To attract more workers to become lorry drivers or care workers, those industries need to persuade people who currently work in other industries to come to leave other jobs and careers and come and work for them.
Secondly lots of our workers are in the wrong place. Migrants are mobile by nature, and don’t mind moving around for work, or living in temporary accommodation to make money. The UK has a large potential workforce of manual labour, but on the whole hey are tied to a place. They are reluctant to move around seasonally for work, or to go and live in temporary accommodation in places like London to work in hotels.
Typically Brits were reluctant to take those jobs either because they didn’t want to move from their home area, or because if they were going to move and look for work they had more attractive and lucrative options. If you were going to leave a Durham pit village to look for work there were more attractive options across Europe working on building sites in Germany or bar work in Spain rather than picking tatties in East Anglia or changing the sheets in a London hotel.
Historic Labour Shortages
The rather huge problem with this is that some parts of the UK labour market have been short of staff for generations. We haven’t been able to bring in the harvest for 100 years – before WW2 Irish picking gangs came over to the UK every year to work, after WW2 the Attlee Government introduced the first scheme to bring across Eastern European labourers, even then we relied on child labour to pick hops and potatoes. Schools in the North East organised autumn half term so that poor children could work potato picking.
The current Government points based system doesn’t allow them to come to the UK any more, and food and drink businesses can’t get sponsors licenses anyway
The road haulage industry is in just as much trouble as food and drink, and just as with agriculture these problems go back decades. The full duty protests were ostensibly about tax on petrol, but they were driven by an industry where the big supermarkets had been driving down the cost of haulage year on year. The arrival of Amazon only made it worse.
We had a nationalised road haulage firm set up in the 1940s to address persistent problems in road freight, but this was privatised in the 1980s. The prices that supermarkets and Amazon pay for deliveries isn’t enough to pay drivers at attractive wage, or to invest in infrastructure . Waitrose have broken ranks with the other supermarkets and are offering drivers over £50k per year, a salary high enough that Waitrose drivers can afford to shop at Waitrose, but even at that price they are struggling to keep stock moving.
The most critical shortage of all isn’t in food and drink – it’s care, in particular residential care. Care homes have a chronic shortage of staff, and there isn’t additional funding coming any time soon to increase wages.
When all care home staff have to be vaccinated an unknown number will leave the care work force. No-one knows how many will go, but these reductions will hit in November just when the shortages of food and drink peak.
Is it too late to save Christmas?
Some of the more lurid headlines predict big shortages over Christmas. We did our first Christmas delivery 2 weeks ago, and have our last large bottling of gin 2 weeks from now. All of the bottles and labels we need are in the UK and ready to go. We need our stock ready to ship to stores in the next 4-6 weeks to meet Christmas deliveries.
What this means is that if you have supply chain problems right now it is almost too late to sort it out before Christmas. You need to fix them this week.
The Government is still refusing to add lorry dirvers and food process workers to shortage occupation lists which would allow employers to recruit from outside of the UK. Their preference is for markets to solve the problem – allow wages to rise, people will be attracted into the jobs, all will be well. It is hard to see how this is a viable policy when the changes announced to NI amount to a pay cut for workers across the board
The likelihood of disruption over Christmas is very high, no-one really knows how bad it is going to be, and it is too late to do much about it. Start shopping now.
What Happens Next?
We will pay more in supermarkets to fund higher wages, and we can stop expecting free delivery as a right. This will help solve some of the problems, but at the expense of injecting more inflation back into the UK economy.
It’s easy to blame this entirely on Brexit – but there is a much more precise cause – the promise that Boris Johnson made to leave the single market and the customs union in order to win the support of the Brexit hardliners on his backbenches.
Outside the EU these problem s won’t solve themselves, they need a government with a national strategy and the willingness to take difficult decision. Sadly there is a massive labour shortage for cabinet ministers with honesty and integrity. Solving these problems evaded brighter minds and stronger spines than our current leadership. Right now the Government still don’t want to hear bad news about Brexit only happy headlines, and their instinct is to manage the media to make bad headlines go away rather than do the difficult stuff and fix the problems.
We joined the EEC in the 1970s because we had endemic economic problems that we couldn’t solve ourselves; inflation, labour costs, balance of trade, declining manufacturing.
EU membership, in particular the single market and free movement solved some of these problems for us. We got Polish plumbers, Romanian food processors, German road hauliers. We had a decade of non inflationary growth.
There has been a persistent belief that EU staff working in the UK were taking jobs and opportunities from British workers. Given that EU immigration co-incided with a long period of consistent low employment it is hard to give much credence to this. Generally EU workers came to the UK because:
- they had skills that were in short supply in the UK and could earn more than they could at home – Spanish Doctors and Polish plumbers for example
- they wanted to get experience or qualifications while working in the UK that would help them earn more at home
- They were working in industries which required high levels of mobliity.
Without them businesses will go under; higher staff costs, reduced trade, tailing off government support. The NHS will struggle with staff shortages. Increased NI costs, and higher wages, will increase the incentive for businesses to reduce workers, and invest in automation. Farming will become more intensive and hospitality will increase the use of apps to order food to reduce reliance on human beings.
I get that it is funny to laugh at Wetherspoons for running out of popular lagers. But this should worry us. -Wetherspoons have a huge logistics set up, and the brands they stock are supposed to be the last to run out.
The real shortage is the lack of integrity, honesty and attention to detail from the Government. They are a low quality bunch, who came to power with lots of great slogans but no real plans.
Whether you voted leave or remain you deserve better.