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Post Brexit Britain

Posted on Tuesday, November 9th by Pallet2ship logo

Following Brexit, the U.K. is trying to recover from the COVID-19 pandemic without enough workforce and facing a winter tougher than any since the 1970s.

Cars are queuing at fuel stations, people have started to panic-buy and many shops have run out of stock whilst a charity warns that doubling heating bills will force a million households to rely on extra blankets to stay warm.

Brexit should have been a new start for the UK, offering the benefits of a new, confident "Global Britain" to workers and companies in the country. However, the reality is not similar at all to what the government have promised in the first place.

As Prime Minister Boris Johnson's Conservative Party gathers at its annual conference this week, the promise of self-determination has given way to a foreboding sense of economic isolation.

The country is now going through "a perfect inflationary storm" that could lead to a recession next year, according to Gavekal Research. Retail executives predict food prices will rise at an annual pace of 5% by the end of the year.

"The recovery is in a very fragile state," said Karan Bilimoria, the CBI's president. "The nightmare scenario is a "˜winter of discontent'," he said, evoking the period in the late 1970s when strikes and shortages led to the downfall of the Labour government. "The basics not being available is what we've got to try and prevent."

The challenges the U.K. is struggling with are workforce shortages after its transition out of the EU ended on Jan. 1. The driver shortages could affect not only the Christmas deliveries but also the food and fuel supplies this winter. 

The government declared they are planning to offer temporary visas to the lorry drivers, however, businesses are warning it will not be enough to solve the crisis. At the same time, Boris Johnson declared the UK won't go back to relying on immigration to solve the shortage. There are also workforce shortages across many sectors from agriculture and meat to hospitality.

The National Pig Association estimates 150,000 pigs are stuck on farms because of a shortage of gas to stun them and not enough people to process them. Bloomberg Economics forecasts economic growth will slow to 1.3% in the fourth quarter from 1.6% in the previous three months. Although that still leaves the economy on course to expand 6.3% for the whole year, inflation is set to end the year above 3% and stay there until mid-2022.

Exports and imports as a share of gross domestic product peaked at 63% in 2019 before slumping to 55% last year, according to World Bank figures. By comparison, the ratio was 46% for Australia, 35% for Japan and 24% for the U.S.

John Shirley, a UK freight forwarder, declared that the supply issues are affecting the whole world"”the shipping delays, the increased costs, the uncertainty that covers the world's economy. But he has faced another constant headache on top of the pandemic over the past months. "All this extra paperwork," he says, "all this extra hassle."

That was the predictable consequence of Brexit. Hauling a truckload of refrigerators to the U.K. from Italy, for example, costs nearly 25% more than before the split from the EU. Starting in January, trucks arriving at U.K. borders will face new customs controls, and food products will be subject to onerous documentary rules beginning next July.

But what British households are also waking up to is that among the imports the U.K. relies on is natural gas for heating and electricity generation. Domestic gas prices have more than quadrupled this year, following a similar move for the benchmark European price in the Netherlands. A colder- and longer-than-average winter left Europe's stockpiles depleted while Russia has been exporting less to the continent.

Storage in the U.K. itself is already scarce, and in the first full winter of Brexit, that reliance on imports will be tested. The situation could ease if a contentious new pipeline, Nord Stream 2, is opened to connect Russia to Germany via the Baltic Sea. But the last round of political wrangling still stands in the way. 

The only hope would be for the weather to be a few degrees warmer than average. "The U.K. is not always fully aware how reliant it is on European storage," said Marco Alvera, head of Italian energy infrastructure company Snam SpA. "If it gets very cold"”and it is not a Brexit-related thing"”even within Europe you will see countries saying, "˜I have the gas inside my borders, I am going to pass an urgent safety measure that no one can export for the next two weeks.'" 

The narrative in the first half of 2021 was how the U.K.'s world-beating vaccination program allowed the government to unshackle the economy from Covid-19 restrictions in July. Since then, though, Britain's vulnerabilities have become clearer, especially when it comes to maintaining supply chains.

Businesses have relied on the cheap foreign workforce, according to Brexit advocates. Indeed, with fewer candidates to choose from, wages have already risen. But without access to free movement of workers within the EU, the number of drivers in the U.K. has fallen by more than a third during the pandemic, figures from the Office for National Statistics show.

Supermarkets such as Waitrose have increased pay for new haulers and are dangling bonuses to lure recruits. But the structural changes in the economy are proving more painful and lasting than expected.

"It doesn't matter which way you turn, something hits you in the face," said Neil Palmer, operations director at Norton Hydraulics, a manufacturer based in St. Albans, north of London. "It's like getting slapped with a wet fish every time you turn up to work."

Labor shortages are hitting every part of the food supply chain, from dairy to seafood and vegetable processing, according to James Withers, chief executive officer of Scottish Food & Drink. Businesses are struggling from a lack of transport for food as well as a shortage of staff to pack it, he said. "There are gaps on supermarket shelves and real pressures on the hospitality supply chain."

Across Europe, there are pockets of worker shortages and the whole continent will feel the pinch of record energy prices. But Britain is also paying the price for its much-coveted exceptionalism. 

A quarter of Europe's estimated 400,000 shortfall for truck drivers affects the U.K. That's because tougher visa rules have meant those who left during the pandemic have struggled to return after Brexit. There are also backlogs for driving tests for new recruits.

In response, the Department for Transport pulled a U-turn, making 5,000 visas available to EU heavy-goods vehicle drivers of food and fuel for three months. It had already relaxed laws on drivers' hours, taking the daily driving limit to 11 from nine.

The British Retail Consortium said this would only account for about a third of the drivers needed just for supermarkets alone to operate at full capacity ahead of Christmas. Ruby McGregor-Smith, president of the British Chambers of Commerce, likened the move to "throwing a thimble of water on a bonfire."

The leader of the opposition Labour Party, Keir Starmer, hit out at the prime minister at his party's conference in Brighton last week. "Level up? You can't even fill up." But Labour members also say that the crisis has to get a lot worse before Johnson is vulnerable.

In the food industry, a lack of workers has forced companies to curb output and the new post-Brexit trading rules have made it tougher to export British beef, pork, lamb, and poultry. What's more, surging energy prices spurred fertilizer plants to shut, curbing supplies of the vital carbon dioxide by-product that's used to stun animals at slaughterhouses.Such strains have pushed farmers like Kate Moore to the brink. Her family's farm in East Yorkshire typically sells about 1,700 pigs to slaughterhouses weekly, but since mid-summer, they've been told to curtail deliveries.

The National Pig Association is pleading with the government for more short-term visas for butchery workers as farms run out of space. Without a solution soon, Moore fears the farm will have to cull healthy animals. "I don't think I'd come back from that," she said. "We're getting to the crisis point."

Source: Bloomberg

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