JOHN OXLEY, LONDON
Brexit and Covid combined to form a perfect storm of labor, energy, and supply shortages, as well as inflation in the UK. It’s unclear whether the ensuing economic crises are permanent, or the result of growing pains. Either way, Brits are in for another long winter.
For the second successive year, the British Government is battling to save Christmas. Last year, in autumn, Covid case rates and deaths were soaring, culminating in the government’s last-minute decision to impose a second lockdown before families reunited across the country.
Thanks to high vaccination rates, the threat of the virus has receded. But its economic aftereffects, combined with those of Brexit, have caused a host of crises in the UK linked to worker and commodity shortages. These threaten expensive misery for British consumers and the blighting of 2021’s festivities.
The most dramatic effect so far has been the collapse of a series of energy companies. Natural gas is used to generate some 40 percent of the UK’s electricity. The wholesale price of natural gas has roughly quadrupled in the past year—in part a worldwide phenomenon owed to surging post-pandemic demand and shortages on the global market. But the effects have been exacerbated in the UK, partly because it has little gas storage capacity, and partly through bad luck: A large fire at Britain’s main electricity subsea cable cut off grid-balancing supplies of electricity from France, generated largely by nuclear power. The higher costs are passed on to consumers—prices are rising just as the government withdraws pandemic income-support measures—but they have also afflicted industry.
Smaller energy providers have been unable to cope. Nine went bust in September alone. Downstream, companies that rely on natural gas are suffering. Rising costs caused CF Industries, a major fertilizer producer, to shutter its two factories, which together supplied some 40 percent of the UK market for food-grade carbon dioxide. Food companies use CO2 for a variety of manufacturing processes, so they too are suffering the knock-on effects. Industry experts warn of headaches for the manufacturers of beer, soft drinks, and other foods—and turkey shortages for Christmas.
A major labor shortage compounds these afflictions. When Britain was in the EU, free movement provided a liquid source of cheap labor. Ending the free movement of people was a key theme of the Brexit debate and a government target during negotiations with the EU. The government promised to stem the tide of cheap workers from the Continent, replacing free movement with a points-based immigration system to entice educated workers to Britain to do highly-skilled jobs. They delivered what they promised—closing the door to a raft of EU workers who plugged gaps in such critical sectors as haulage and farming, both of which are now desperately short of workers.
The pandemic only exacerbated the situation. Many immigrants went home to wait it out. Other workers, native and foreign-born, left industries that were badly affected by lockdowns in favor of more reliable or lucrative jobs. Now a huge number of unskilled, low-wage job, especially in sectors with onerous and unpleasant working conditions, are going vacant.
The UK haulage industry says it’s short 90,000 drivers, partly because of Covid. The industry contracted during the pandemic and lockdown. Older drivers retired, and pandemic restrictions made it impossible to test new ones. According to the UK’s road regulation agency, 54,000 drivers are waiting to take tests. These problems aren’t unique to the UK, but unlike the rest of the EU, we can no longer import drivers from the Continent to fill the gaps.
Fuel tanker drivers are (for obvious reasons) among the most highly regulated drivers on the road, making them hard to replace. That’s also why they can’t be asked to drive longer hours. Media reports about fuel shortages have spurred panic buying and hours-long lines at petrol stations, which abated only when stocks ran dry.
It’s not just drivers. All of the UK’s low-wage industries have been affected by the lack of labor. For the first time since record-keeping began, there were more than a million job vacancies in August. Retail and hospitality, both filled with immigrants before Brexit, have been hit particularly hard. In the short term, wages in these sectors have risen to bridge the gap. But economic observers are worried this will lead to runaway inflation.
A cascade of problems has devolved from the labor shortage. Grocery stores have empty shelves. Retailers warn food shortages are apt to persist through the winter—some warn they may be permanent. Abattoirs, short of staff, face the prospect of culling piglets. Farmers have offered wages of £30 an hour to pick vegetables lest their produce rot in the fields. Other supply chains have similarly been undermined by the lack of drivers, warehouse workers, and staff—and these problems are sure to have knock-on effects throughout the country.
The government finds itself in a tricky position. Rising prices and shortages aren’t unique to the UK, but the scale of the problem is, and undoubtedly the problem has been exacerbated by leaving the EU. Support for the Conservative majority comes from those who demanded Brexit, and the government is eager to take credit for delivering it. So it’s keen to deflect any suggestion that the UK’s problems result from Brexit or the government’s handling of it. Yet attempts to resolve the crisis by offering more visas to temporary and low-skilled workers would undermine the government’s tough stance on immigration—the very gripe that fueled Brexit in the first place.
For ordinary Brits, rising living costs are starting to bite. Inflation is up, and it’s likely to rise further if fuel prices remain high during the winter. Government measures are affecting those on low incomes, too. A £20 per week raise to the UK’s main poverty benefit, Universal Credit, was introduced during the pandemic. It is now being withdrawn. The government plans to increase National Insurance—an income tax nominally paid towards social security—from 12 percent to 13.5 percent in April of 2022. All of these rising costs are aggravated by the UK’s high cost of housing and sluggish growth since the 2008 financial crisis.
Thus a perfect storm of Covid and Brexit. Whether these are growing pains or permanent, structural problems is so far unclear. But for the British government that cancelled Christmas last year, a new winter of discontent is a real and grim prospect.
John Oxley is a writer who lives in London.