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Why Brexit Britain is isolated, vulnerable and running on fumes

This was supposed to be the year the UK broke free of the European Union and forged ahead as a buccaneering free trader.
Image: Chris Ratcliffe/Bloomberg

Lines of cars snake from gasoline stations. Fights break out among angry motorists trying to get fuel. Grocery staples are out of stock on store shelves. A charity warns that doubling heating bills will force a million households to rely on extra blankets to stay warm.

This was supposed to be the year the UK broke free of the European Union and forged ahead as a buccaneering free trader, delivering the benefits of a new, confident “Global Britain” to workers and companies at home. Instead, that picture of Brexit utopia is looking more like a dystopia.

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.

A confluence of crises has forced the government to deploy soldiers to drive fuel trucks, energy suppliers to go out of business and panicked households to try and fill cupboards—all while Covid-19 is still rife.

The pound, meanwhile, has been trading like an emerging-market currency rather than from a steady Group of Seven country. The governor of the Bank of England, Andrew Bailey, even quipped whether a plague of locusts would be next to beset the UK. He now has the task of figuring out how to raise interest rates to subdue inflation without choking the economy.

The Confederation of British Industry, the biggest business lobby, is urging Johnson to set up an emergency taskforce to deal with the supply shortages and cost of living.

The country faces “a perfect inflationary storm” that could plunge the economy into 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 immediate challenges facing the UK stem from the loss of a vital pool of labor after its transition out of the EU ended on January 1. A dearth of truckers is raising fears not just about toys or turkeys for Christmas, but whether people will have enough fuel and food this winter.

The government said late on September 25 it plans to issue short-term visas for truck drivers and poultry workers, though businesses say it won’t come close to filling the gap. Johnson said on Sunday the UK also won’t go back to relying on immigration to solve the shortage. There are also deficits of people across industries 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.

The root of the UK’s outsized struggles are broader and come down to its dependence on trade, an asset before the pandemic that allowed for lean supply lines and championed by supporters of Brexit. That reliance now magnifies the damage from leaving the EU and Covid-19 disruption.

The Port of Felixstowe on Aug. 3. Photographer: Chris Ratcliffe/Bloomberg

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 US.

John Shirley, a UK freight forwarder, feels the supply shocks rattling the world—the shipping delays, the skyrocketing costs, the general fog of uncertainty blanketing the global economy. But he has faced another constant headache on top of the pandemic over the past nine months. “All this extra paperwork,” he says, “all this extra hassle.”

 

That was the predictable reality of Brexit. Hauling a truckload of refrigerators to the UK from Italy, for example, costs nearly 25% more than before the split from the EU. Starting in January, trucks arriving at UK 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 UK 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.

The framework of a disused storage tank at a former gasworks in Brighton. Photographer: Leon Neal/Getty Images

Storage in the UK 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 a last round of political wrangling still stands in the way. The best hope might be for the weather to be a few degrees warmer than average.

“The UK 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.’”

Brexit campaigners led by Johnson acknowledge that adjusting to a divorce after more than four decades of marriage with the EU was always going to take time. And nobody, of course, could have predicted a pandemic would be raging just at the point of departure.

The narrative in the first half of 2021 was how the UK’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 had become too reliant on cheap foreign labour, according to Brexit advocates. Indeed, with fewer people to choose from, wages have already risen. But without access to free movement of workers within the EU, the number of drivers in the UK has fallen by more than 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.

Labor shortages are hitting every part of the food supply chain. Photographer: Chris Ratcliffe/Bloomberg

“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.”

Norton is facing a multitude of problems, including rising steel prices, but the driver scarcity is the most worrying. Palmer used to receive 20 to 30 applications for a newly posted role. A recent job ad for a factory production operative received only one application, from North Africa, he said. “The hard times are to come,” said Palmer.

Labour 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 the staff to pack it, he said. “There are gaps on supermarket shelves and real pressures on the hospital 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 UK. 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.”

What Bloomberg Economics Says…

“The UK enters the final stretch of 2021 facing the challenging mix of slowing growth and rising inflation. How the labour market adjusts to the government’s withdrawal of its furlough scheme this month will be central to the timing of any interest rate rise.”

Dan Hanson, senior UK economist. On the Terminal, click here for more.

The next response will be key as ministers gather at the Conservative conference in Manchester, northern England. Johnson is keen to spend on big, eye-catching projects to help narrow the economic gap between UK regions, yet the immediate task is to fix the supply chain crisis.

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.

For Chancellor of the Exchequer Rishi Sunak, the pressure revolves around how he’ll put money behind Johnson’s agenda and to invest in training. Think tanks such as the Resolution Foundation warn of a spike in unemployment after state support for furloughed workers ended on September 30 while vacancies are at a record high. Bailey, the central bank chief, says “getting jobs filled” is the key concern.

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.”

© 2021 Bloomberg

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I read an article by an ex-long haul truck driver bemoaning that years ago, a truck driver could own his own vehicle and pretty much take the business that suited him/her. It was a pleasant group of happy travellers in a sense.

Today with just-in-time manufacturing, your route is logged by computers, controlled by a computer and if you do not arrive on time, you are fined or your record marked. The pay is mediocre and the EU drivers seem to be the only ones wanting the work.

So roll on Tesla’s autonomous trucks.

Its sad they are considering slaughtering healthy pigs for human consumption. Hope they taste better than the usual sick ones.

Should Brexit have been decided on by a popular citizen vote? I have my doubts.

The amount of disinformation that circulated at the time was horrendous. Headline-catching factoids like “Britain pays X millions to the EU per year” were the order of the day. Discussions on the complex social and economic relationship between modern Britain and the EU were drowned out but patriotism and nationalist one-liners.

The EU became conflated with so many evils over the years. How many Brits voted to leave the EU because they believed it would solve all their illegal immigration woes?

Finally, there was a very thought-provoking point made by one of the British opinion pieces that always stuck with me: Whether Britain leaves the EU or remains, it is intrinsically bound to the European markets and the politics of the continent by nature of its geography. Leaving the EU won’t change that but it will mean Britain no longer gets a vote in how the EU is run.

Another ‘T’remendous disaster assisted by Mr. ‘T’rump

This is what the UK voted for, only outsiders see a problem, no problem in the UK.

Keep on voting.

And just where in the UK are you? I’m in London and can’t fill a tank, paying a premium for Uber, having to change my shopping habits because I can’t get what I like, etc. BS artist

There are 2,67 million unemployed people in the UK. Can’t some of them be trained as truck drivers instead of letting more immigrants in? Moreover they are sitting at home claiming unemployment benefits in any case.

Driving a truck is too much like hard work, mate. Easier to sit at home and shout at the telly while the missus brews up the tea and fries the fish fingers.

They did not like the foreigners that actually got off their backsides very early in the morning everyday to do the work they did not like doing.

You cannot have it both ways.

Want to eat? go work

I believe part of the issue is that the training is both expensive and time-consuming and difficult enough that many don’t pass on their first try. There are different levels of certification as well.

So even if they rounded up people in their thousands tomorrow it wouldn’t resolve the current crisis for a while.

And the idiots that bought the whole Brexit scam then went on to vote the chief Brexiteer into the top job. They deserve every bit of all the inconvenience. Brexit was complete folly and any half-bright observer could have predicted all of this. People are quick to moan that ‘furriners’ are taking their jobs but when said jobs become available they sit down and fold their arms, not being willing to work the long hours for low pay. Funny that!

Another example of how adherence to a political ideology cause havoc in an economy. In the South African and United States economies, the same results can be seen due to the implementation of outdated ideologies. And who suffers the most? Definitely, not the promoters of these idiotic ideologies. But you deserve what you have voted for.

End of comments.

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