More Trouble For Boris Johnson’s Plans To Reshape The Economy As Car Industry Calls For Help
Boris Johnson has made it clear he wants to use the current supply chain crisis to reshape the British economy, but businesses are warning he risks breaking it this winter as staff shortages continue to cause major issues across a host of industries.
Latest figures show wages are going up for new starters as the government seeks to end a reliance on “cheap” foreign labour. But a number of sectors have reported serious problems due to the impact of the pandemic and Brexit, seen most visibly in the fuel shortages over the past fortnight.
The car industry has told PoliticsHome it expects disruption to production to carry on through 2022, and has called for government help. The Society of Motor Manufacturers and Traders said getting more new vehicles on the market is “critical to deliver net-zero, drive exports and safeguard British jobs”, and is calling for targeted rates relief, furlough or credit schemes.
Mike Hawes, its chief executive, said: “The global semiconductor shortage is the biggest challenge facing the UK automotive industry currently, with both production and the market for new vehicles badly affected.
“Manufacturers and suppliers are also grappling with increases to raw materials, logistics and energy costs while managing ongoing supply chain disruption.
“Companies are doing all they can to keep factory lines rolling and the market supplied but there is the likelihood this issue will affect the industry through 2022.”
In his conference speech this week the PM conspicuously failed to mention supply chain problems – which have seen petrol forecourts in some parts of the country remain dry, a fortnight after ministers claimed things would return to normal in a few days.
Johnson praised business, the markets and capitalism from the stage in Manchester, but has resisted calls to expand visa programmes to help with issues such as a lack of abattoir butchers, potentially leading to a mass cull of pigs.
He warned it is not his job to “fix every problem in business”, adding the government cannot “patch and mend” every issue in the supply chain.
But consumers lack the PM’s faith that the supply chain will fix itself in time for Christmas. The public, spooked by empty supermarket shelves, has already begun stocking up, with Iceland reporting sales of frozen turkeys up 409% year-on-year, while M&S said sales of frozen Christmas food has soared by 500%.
There is no sign of a resolution to the HGV shortage any time soon, as only a handful of the visas the government offered up to foreign drivers have been taken up. Meanwhile more industries are warning of problems down the road.
On Friday one of the UK’s largest canteen suppliers ISS wrote to schools advising them to stock up on dinner to make sure children are properly fed through the winter, warning of issues with the “sourcing, packing and distribution” of food supplies and adding “the problem will get worse and is likely to continue until at least February.”
British dairy farmers say they have poured tens of thousands of litres of milk away because no drivers have turned up to collect it, with the Food and Drink Federation saying “businesses operating throughout the UK’s farm-to-fork food and drink supply chain are struggling due to a lack of available workers”.
Ian Wright, the group’s chief executive, told PoliticsHome: “In the absence of required short term measures from the government to boost the supply of labour, much will depend on the resilience of individual company supply chains and on the behaviour of shoppers in stores.
“That means the outcome of what is and isn’t available at Christmas will be highly unpredictable.”
He said in communities located further away from distribution hubs it “could mean hundreds of products aren’t available when people go in to do their Christmas shop.”
The latest data shows 94% of hospitality businesses are experiencing widespread supply chain issues, which is creating a "perfect storm” when combined with staff shortages and rising costs according to an industry group.
Tony Sophoclides from UK Hospitality told PoliticsHome: “Supply issues are compounding the pre-existing staff shortage challenges, which virtually all hospitality businesses are facing - there is a 10% vacancy rate in the sector, which equates to approximately 188,000 unfilled roles.
He added: “It’s difficult to know quite how Christmas will look this year. With no short-term fix being offered up, it’s highly likely that staff shortages will remain and, although the supply chain and delivery shortages look acute enough to warrant urgent measures, the sentiment conveyed further up the food chain does not inspire optimism.”
The continued news about supply chain issues has prompted Johnson to hire the former Tesco CEO Sir David Lewis as the government’s new advisor on the matter, with a remit to fix current problems and pre-empt where new ones may arise.
The PM’s conference speech suggested worker shortages show everything is going to plan – present difficulties were a result of a “giant waking up” of the economy post-pandemic; all part of the aim to rebalance the labour market now Britain is out of the EU and has control over migration.
“That’s the direction in which the country is going: towards a high-wage, high-skilled, high-productivity and, yes, thereby a low-tax economy,” he said.
But behind the rhetoric, economic storm clouds are gathering; not least in the shape of a growing gas crisis, with 1.7 million customers already having seen their energy firm collapse, with more expected to fold as wholesale prices reach their highest ever figures.
The National Grid says the risk of blackouts is the highest in five years and there may be “significant price spikes”, backed up by Ofgem who warned bills will have to go up this winter.
Studies have shown the UK’s productivity has consistently been lower than other countries with similar high levels of immigration such as Germany and America.
“Migration is such a small part of this,” said Alan Manning, a professor at the London School of Economics who previously chaired the government’s migration advisory committee. “I don’t think this boosterism is going to transform anything,” he told the Financial Times.
Fixing the UK’s productivity problem has been top of every PM’s agenda for years, and economists are unsure if tougher migration rules will help wage growth.
Johnson is “right to say resetting the UK’s economic strategy is the task we face,” wrote Torsten Bell, chief executive of the Resolution Foundation.
“Yes, we need to tackle sectors where few labour market rules and next-to-no enforcement has combined with readily available migrants to support low productivity business models, such as government-funded social care,” he added.
“But lower or higher migration will not address the root causes of wage stagnation: awful productivity growth.”
So far, wage growth is increasing, according to the latest KPMG report on jobs, which revealed both permanent starters’ and temp salaries rose at the sharpest rates in 24 years of data collection.
But this was coupled with a near-record fall in candidate availability for September, which Claire Warnes, head of education, skills and productivity at the firm, said was behind the pay increases.
“While higher salaries are good for job seekers, wage growth alone is unlikely to help sustain economic recovery because of limited levers to bring people with the right skills to where the jobs are and increase productivity,” she said.
Businesses were unhappy with the PM’s speech, saying it will take more than optimism to fix the problems they are facing. “Ambition on wages without action on investment and productivity is ultimately just a pathway for higher prices,” Tony Danker, the CBI director-general said.
There are also fears if the PM goes ahead with a jump in the minimum wage this autumn, expected to be around 5.7% to £9.42 an hour, it will lead to a rise in inflation, leading low-paid workers to be no better off.
Mike Cherry from the Federation of Small Businesses said: "Small firms are still trying to recover from the pandemic, and the last thing they want to do is to force customers to pay more or make cuts to staffing numbers, so any increase in the Living Wage must be affordable without jeopardising jobs.
"With inflation rising, energy bills soaring and the end of furlough, small firms need to be supported not stifled at this critical juncture.”
This week Johnson said: “People have been worrying about inflation for a very long time, I’m looking at robust economic growth - and by the way, those fears have been unfounded.”
But the Bank of England predicts inflation to hit 4% soon and stay there for months, only falling back towards its 2% target in the second half of next year, with the PM’s words expected to be replayed back to him endlessly if it does.
The next few weeks will be crucial for the British economy. The Budget is coming this month, along with a long-awaited three-year comprehensive spending review, and a white paper revealing the government’s levelling up plan. On top of that, the UK is hosting the COP26 summit, and is expected to publish the net zero plan and heat and buildings strategy that will go alongside it.
Johnson already has an awful lot on his plate before he tries to wrestle with fundamental changes to the economy before Christmas, and make sure there’s turkey on the table at the end of it.
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