Monday, June 27

Winter Is Coming: Labor Shortage and Supply Chain Chaos in Post-Brexit Britain

By: Iris An

2021 was supposed to be the year the U.K. breaks free from the European Union and forges ahead as a free trader, delivering the benefits of a new, confident “Global Britain” to workers and companies at home. Nevertheless, as the first winter after Brexit draws near, the country is in a precarious position, facing an onslaught of new economic crises with soaring gas prices, supply shortages, and a shortage of overseas workers such as HGV drivers. 

Although the pros and cons of Brexit have been discussed for a long time, the crisis as the winter approaches has made it necessary to review the potential outcomes. Is this shortage merely a temporary transition period, as the UK turns from a EU country to a more global trader? To what extent should we blame the covid— inevitable and therefore the ultimate excuse — or a big red flag warning us of the danger of economic isolation? 

Last Monday, I brought this post-Brexit winter shortage as a dinner topic to the Mctyeire International Hall, hoping to find an answer from discussions with my residential fellows. 

How bad is the current situation? 

The worker shortage is perhaps the foremost and most influential crisis occurring in the country. Since October, Britain has had an estimated shortage of 100,000 truck drivers, largely due to a post-Brexit exodus of EU nationals. 

As the lack of truck drivers interrupted deliveries, a supply chain disruption spread across the country, leaving store shelves empty, backlogs at ports and dry gas stations, which sparked a panic buying frenzy in September that lasted weeks. 

In addition to the consumers, business owners are also suffering from decreasingly available workers. According to Britain’s National Pig Association, a combination of post-Brexit immigration rules and the exodus of foreign workers amid pandemic travel restrictions had pushed the industry towards a crisis point. In early October, up to 120,000 pigs face being culled within weeks because of a lack of butchers and abattoir workers. Meanwhile, the Confederation of British Industry showed that 70% of its 190,000 businesses were planning pay raises in a bid to tackle labor shortage. Such attempts to keep their employees further created expenditure pressures for business owners. 

Amid the run-up to Christmas, deepening labor shortages are expected to damage the availability and price of goods. Retailers such as Next and Amazon, and supermarkets such as Tesco and Iceland are all warning their customers of potential delays ahead of Black Friday, Cyber Monday, and Christmas. The British Retail Consortium claimed that 40% CEOs of retail companies said they would have to raise prices by the end of the year due to supply chain problems, while 10% had already done so. 

Short-term transition or long-term structural crisis? 

Until now, the UK government has presented no significant changes regarding immigration or employment policies. It seems that the Brits had perceived the circumstance as a transition after Brexit that will eventually correct itself, but even a temporary situation may deteriorate radically if no intervening policies are implemented timely.

Junior transport minister Lady Charlotte Vere has signed a letter to a million HGV drivers begging them to get back on the road, and about 10,500 temporary visas have been issued to drivers and poultry workers. However, these temporary accommodations might not be effective when there are fundamental issues behind. In fact, workers cannot apply for a visa until October 15, and wait 3-4 weeks for the application to be processed, whilst the build-up for Christmas needs to start in early November. Furthermore, as the rest of the EU is booming in its post-pandemic recovery plan, a temporary job in the UK might be less attractive. 

Brexit supporters advocate the benefits of economic independence, that the U.K. labor market would make sure that everybody had jobs to go to. But in fact, 5 years after the Referendum, having lost access to the available labor pool of 27 member countries, Britain still faces a 5% domestic unemployment rate. The loss of foreign workers has harmed rather than benefited the domestic population. 

With domestic labor forces unable to meet the vacancy left by foreign workers, some of these shortages could become structural, and persist in the U.K. until there  fundamental change in the employment cycle. Referring back to the shortage of truck drivers, it would take years to get enough Brits trained and licensed to drive heavy goods vehicles.

Brexit-related crisis or aftermath of the pandemic? 

It can be difficult to separate the effect of Brexit on trade from the world-wide impact of covid-19, as the latter appears to be a more direct and clear factor. However, in the post-pandemic global trade upswing, Britain has been left behind. A trade volume index published by the CPB indicates that global imports and exports were 4% higher at the end of July than they were at the end of 2019 before the pandemic. Among the EU countries, more comparably, exports were flat while imports exceeded their pre-pandemic level by 2%. Contrastingly, British export volumes in July were 16% lower than the end of 2019, and import levels were barely equal.

Previously, half of all British exports depended on trade with the EU partners. For British businesses, the shift means soaring costs. One good example here would be Lioncroft Wholesale Ltd, a food wholesale business in England’s West Midlands. Before The U.K. formally began its new relationship with the European Union in 2021, a quarter of its annual revenue was generated from customers in Spain, Portugal and other markets in the EU. For the wholesale company before Brexit, sending products to the EU was as easy as moving goods within the U.K. Now, to compile all information required for products to clear customs, they have to bear thousands of dollars in costs to hire a customs agent and bear even more costs to actually ship the products. “Your profitability is knocked out the window straight away,” said Jason Wouhra, CEO of Lioncroft Wholesale. Heather Mills, the founder of Plant-based food company VBites, concluded more sarcastically, “it was easier to get aid across the border in the middle of a war than it is to get food into Europe.”

Leaving the EU has put the U.K. outside the EU’s vast internal market of 445 million consumers and a constantly increasing customs territory from the Atlantic all the way to Turkey. While one promising hope could be that forging connections with other nations will over time compensate for any EU trade volume shortfall, imports from the rest of the world were only 1% higher while those from the EU were 20% lower. Without the EU’s strong external support, the $3-trillion economy might find itself no longer having a $15-trillion EU behind its back.