What disruption is the UK experiencing?
Since the summer of 2021, widespread disruption to supply chains has hit the headlines – both in the UK and globally. Supply problems have led to delayed deliveries, higher prices, gaps on supermarket shelves 195 Dalton J, Shoppers report fresh supply issues with empty supermarket shelves around UK, The Independent, 14 January 2022, www.independent.co.uk/news/uk/home-news/supermarket-empty-shelves-stock-sainsburys-b1988854.html and empty petrol stations. 196 Why are British petrol stations running dry, The Economist, 27 September 2021, www.economist.com/the-economist-explains/2021/09/27/why-are-british-petrol-stations-running-dry Greggs, 197 Kollewe J, Greggs warns of rising costs and shortages as it reports bigger sales, The Guardian, 5 October 2021, www.theguardian.com/business/2021/oct/05/greggs-costs-shortages-sales-prices Ikea 198 Espiner T, Ikea struggles with supply problems due to driver shortage, BBC News, 5 September 2021, www.bbc.co.uk/news/business-58443653 and BP 199 Smith O, BP close some sites due to lorry driver shortage, BBC News, 23 September 2021, www.bbc.co.uk/news/business-58645712 are just some of the companies that have reported issues.
The evolution of the supply chain crisis has been complex, with some issues emerging over many years. Many media stories focused on sporadic shortages of specific goods, such as carbon dioxide or petrol. Some disruption has been temporary or local – with fuel shortages the most obvious example. But other problems are more widespread, with a general reduction in choice and reliability of supply visible in some sectors, like food and drink.
Data from the Office for National Statistics (ONS) shows just how wide-ranging and publicly visible these shortages have been. Between 20 and 31 October 2021, an average of one in six (or 17%) of adults in Great Britain experienced shortages of essential food items; during the peak of the fuel crisis, 6–17 Oct, 37% struggled to get fuel. 200 Office for National Statistics, Coronavirus and the social impacts on Great Britain: Personal experience of shortage of goods, 19 November 2021, www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/conditionsanddiseases/datasets/coronavirusandthesocialimpactsongreatbritainpersonalex… While shortages in fuel were short-lived and had subsided by the start of 2022 – only 3% struggled to get fuel between 6 and 16 January 2022 – 16% of adults still experienced shortages of essential food over the same period. 201 Office for National Statistics, Coronavirus and the social impacts on Great Britain: Personal experience of shortage of goods, 21 January 2022, www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/conditionsanddiseases/datasets/coronavirusandthesocialimpactsongreatbritainpersonalex…
Businesses have also reported problems, although these seem to have improved over time. At its peak towards the end of summer 2021, a survey from the Confederation of British Industry found that business stock levels were at their lowest levels since 1983, 202 CBI, Retail sales and orders growth soar but supply issues mount, 24 August 2021, www.cbi.org.uk/media-centre/articles/retail-sales-and-orders-growth-soar-but-supply-issues-mount-cbi while an ONS survey found that 23% of UK firms could not get the goods and services they needed from the EU and 15% could not get them from within the UK. 203 Percentage of firms that did not respond ‘not applicable’. Office for National Statistics, Business insights and impact on the UK economy, 4 November 2021, www.ons.gov.uk/economy/economicoutputandproductivity/output/datasets/businessinsightsandimpactontheukeconomy Some of these problems had been going on much longer than they have been in the news – with high rates of reported problems since February 2021. Evidence suggest disruption was lessening at the start of 2022; in January 2022, 14% could not get goods they needed from the EU and 7% could not get goods they needed from the UK. 204 Percentage of firms that did not respond ‘not applicable’. Office for National Statistics, Business insights and impact on the UK economy, 27 January 2022, www.ons.gov.uk/economy/economicoutputandproductivity/output/datasets/businessinsightsandimpactontheukeconomy
What is causing supply chain problems?
The causes of supply chain disruptions in the UK are complex. Labour shortages, Brexit trade barriers, global supply problems and panic buying have all contributed.
How have staff shortages contributed to disruption?
A lack of staff can slow down or prevent companies producing and delivering goods and services. This can then have disruptive knock-on effects further down the supply chain.
Many sectors across the UK are experiencing staff shortages – with haulage, food and drink, hospitality and construction particularly badly hit. Between November 2021 and January 2022, the number of job vacancies reached a record high of 1,298,400. 255 Office for National Statistics, Vacancies and jobs in the UK: February 2022, 15 February 2022, www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/jobsandvacanciesintheuk/february2022 Of large businesses that responded to a recent ONS survey on business conditions, 37% reported that they had struggled to hire enough staff. 256 Percentage of firms that did not respond ‘not applicable’. Office for National Statistics, Business insights and impact on the UK economy, 4 November 2021, www.ons.gov.uk/economy/economicoutputandproductivity/output/datasets/businessinsightsandimpactontheukeconomy
In September 2021, the chief executive of the Food and Drink Federation told an Institute for Government event that there were about half a million staff shortages across the whole UK food supply chain, representing 12.5% of the total workforce required. In October, the National Pig Association confirmed that shortages of butchers and abattoir workers led to hundreds of pigs being culled, an issue that has persisted into 2022. 257 Case P, Thousands of pigs slaughtered in welfare cull, NPA confirms, Farmers Weekly, 13 October 2021, www.fwi.co.uk/livestock/thousands-of-pigs-slaughtered-in-welfare-cull-npa-confirms 258 BBC Radio 4, Farming Today, Emergency pig summit; Livestock market protests, 11 February 2022, www.bbc.co.uk/programmes/m001473p
In the haulage sector, which is essential for the transport of both components and finished goods, industry bodies estimate there is a shortage of 90,000 259 Logistics UK, Driver shortage crisis: UK business groups demand action, 22 August 2021, https://logistics.org.uk/media/press-releases/2021/august/driver-shortage-crisis-uk-business-groups-demand-a to 100,000 260 Road Haulage Association, Critical supply chains failing due to the significant shortage of HGV drivers, Letter to the Prime Minister, 23 June 2021. drivers. More generally, companies such as Amazon have also reported problems retaining and hiring enough staff in warehouses and to deliver goods. 261 BBC News, Amazon to pay billions to prevent Christmas shortages, 29 October 2021, www.bbc.co.uk/news/business-59085835 The Cold Chain Federation has warned the labour shortages are causing backlogs at warehouses. 262 Environment, Food and Rural Affairs Select Committee, Labour shortages in the food and farming sector, Oral evidence session, 9 November 2021, www.parliamentlive.tv/Event/Index/a10512dc-9615-4af0-ae76-a2a8662128c0
These problems are not confined to the UK. The effects of reopening after long periods of Covid-related restrictions contributed to labour shortages in many countries – particularly in the haulage, food and drink and hospitality sectors – including in the EU 263 Axioglou C and Wozniak P, The impact of shortages on manufacturing in the EU: Evidence from the Business and Consumer Surveys, Vox EU CEPR, 18 January 2022, https://voxeu.org/article/impact-shortages-manufacturing-eu and the US. 264 Cavale S and Walljasper C, U.S. grocery shortages deepen as pandemic dries supplies, Reuters, 14 January 2022, www.reuters.com/business/us-grocery-shortages-deepen-pandemic-dries-supplies-2022-01-14 However, data indicates that the UK has faced worse labour shortages than most European countries, which suggests that UK-specific factors such as post-Brexit changes to immigration rules may exacerbated problems. 265 Bank of England, Monetary Policy Report, February 2022, www.bankofengland.co.uk/-/media/boe/files/monetary-policy-report/2022/february/monetary-policy-report-february-2022.pdf
The pandemic has exacerbated staff shortages for four reasons.
First, many EU nationals working in the UK before the end of the Brexit transition period moved back to their country of origin soon after the pandemic began and have not returned (even though most would have been eligible for the EU Settled Status Scheme). The environment secretary, George Eustice, told MPs in November that an estimated 1.4–1.5 million EU nationals left the UK because of Covid, 266 Environment, Food and Rural Affairs Committee, George Eustice, Secretary of State for Environment, Food and Rural Affairs, 16 November 2021. www.parliamentlive.tv/Event/Index/e4b0365f-1d36-4f17-8c3c-9368de782999 while ONS figures show that the number of EU nationals employed in the UK fell by 5% from the end of 2019 to the end of June 2021. 267 Office for National Statistics, HGV drivers by nationality, 26 August 2021, www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/adhocs/13633hgvdriversbynationality New restrictions, costs and bureaucracy associated with international travel during the pandemic are likely to have been a cause of this, although (as discussed below) Brexit may also have influenced some EU nationals’ decisions. 268 Environment, Food and Rural Affairs Select Committee, Labour shortages in the food and farming sector, Oral evidence session, 9 November 2021, www.parliamentlive.tv/Event/Index/a10512dc-9615-4af0-ae76-a2a8662128c0
Second, the pandemic disrupted vocational training in various sectors, reducing the inflow of newly qualified staff. The Driver and Vehicle Licensing Agency (DVLA) suspended many tests for new lorry drivers, reportedly reducing the number of tests by 30,000. 269 Road Haulage Association, Critical supply chains failing due to the significant shortage of HGV drivers, Letter to the Prime Minister, 23 June 2021. Given it can take up to nine months to train new drivers, 270 Harrison E and Faulkner D, Hire UK workers to drive lorries, minister tells firms, BBC News, 28 August 2021, www.bbc.co.uk/news/uk-58364308 the Road Haulage Association expects that the backlog will take 18 months to address. 271 Reynolds J, It will take at least 18 months to train 100,000 HGV drivers, Road Haulage Association, 4 August 2021, www.rha.uk.net/news/news-blogs-and-press-releases/news-updates/detail/-it-will-take-at-least-18-months-to-train-100-000-hgv-drivers- The meat processing industry has also been hit, with the pandemic spurring a sharp fall in the number of people starting butchery apprenticeships. 272 Thomas H, Labour shortages must not be seen as simple case of business vs Brexit, Financial Times, 4 October 2021, www.ft.com/content/7c8bf648-dd0a-4558-9544-f77bde4798b2
Third, many firms across the economy have faced disruption as large numbers of staff have been required to self-isolate under Covid rules. In July 2021, just under 700,000 people in England and Wales had been instructed to self-isolate, referred to as the ‘pingdemic’. The spread of the Omicron variant over winter 2021 also created problems, with the CBI reporting average staff absence rates of 10% to 15%. 273 UK businesses report doubling of staff absences as Omicron cases surge, Financial Times, 13 January 2022, www.ft.com/content/72d6311a-ecfa-4b0c-ae0f-09c795ae582f In response, the government cut the self-isolation period from 10 days to seven, and then to five, contingent on a negative rapid test.
Fourth, Covid and the time in lockdown prompted many to leave their jobs voluntarily. In December 2021, 45% of business managers said more staff voluntarily left work in 2021 than 2019, compared to 39% saying there was no change. 274 U.K. Firms Brace for a Great British Resignation in 2022, Bloomberg, 20 December 2021, www.bloomberg.com/news/articles/2021-12-20/u-k-firms-fear-great-british-resignation-after-staff-departures Some of those resigning are primarily looking for new jobs, often in the same industry. 275 How the Great Resignation is turning into the Great Reshuffle, BBC, 14 December 2021, www.bbc.com/worklife/article/20211214-great-resignation-into-great-reshuffle However, many are leaving the jobs market altogether. Since the onset of the pandemic, 394,000 more people are economically inactive (out of work and not seeking work), representing 1% of the working-age population. 276 ONS, Employment in the UK: February 2022, 15 February 2022, www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/employmentintheuk/latest
Changing working patterns are also playing a role. One in five managers reported more staff moving from full-time to part-time, while just 3% said this had fallen.
Brexit has also affected the availability of workers.
Some EU nationals living the UK have reported that they have felt unwelcome since the referendum, which may have contributed to some leaving the country. 277 UK in a Changing Europe, EU nationals feeling unwelcome in the UK, 28 November 2019, https://ukandeu.ac.uk/eu-nationals-feeling-unwelcome-in-the-uk/
Brexit has also made it harder for UK firms to recruit from the EU. At the end of the Brexit transition period, free movement of people was replaced by a new points-based immigration system. EU nationals are now treated in the same way as non-EU nationals, meaning they typically need to meet conditions such as salary thresholds and English language skills to obtain a work visa. Sectors such as agriculture, food manufacturing and haulage, which have historically employed large numbers of EU nationals, have found it difficult to replace them.
Before the pandemic EU nationals made up 10% of the UK’s HGV driver workforce but their number fell dramatically between March 2020 and March 2021 – by 37%, compared to a fall of only 5% for their UK equivalents. 278 Goodier M, How Brexit and Covid-19 caused the number of HGV drivers in the UK to plummet, New Statesman, 30 September 2021, www.newstatesman.com/chart-of-the-day/2021/09/how-brexit-and-covid-19-caused-the-number-of-hgv-drivers-in-the-uk-to-plummet Industry leaders have emphasised that post-Brexit immigration changes have, alongside other factors including Covid, contributed to the reduction in the number of EU national drivers 279 Business, Energy and Industrial Strategy Committee, The impact of supply chain delays on businesses and consumers, Oral evidence session, 19 October 2021, https://parliamentlive.tv/event/index/ae3264c1-39c5-46ac-97f4-a1a170cef413 – something that might be backed up by the fact that while driver shortages have also been reported in other European countries, the problem is notably worse in the UK. 280 UK in a Changing Europe, Covid or Brexit?, 14 October 2021, https://ukandeu.ac.uk/research-papers/covid-or-brexit
Structural issues with the economy
While Covid and Brexit have both contributed to supply chain issues, they have also exposed long-standing structural problems in labour supply in some sectors.
According to the Road Haulage Association, there was a shortage of 60,000 HGV drivers even before the pandemic. Demographic factors are compounding the issue: the average age of an HGV driver is 55, with just 1% under 25. Many drivers are beginning to reach retirement age, with insufficient numbers entering the sector to replace those leaving. 281 Road Haulage Association, Critical supply chains failing due to the significant shortage of HGV drivers, Letter to the Prime Minister, 23 June 2021.
Historically low wages in some sectors may also be part of the problem. 282 Sandbu M, UK needs more than lip service to raise wages and productivity, Financial Times, 10 October 2021, www.ft.com/content/59ea33c3-8bcd-43a0-bc62-28763d9c440c The Financial Times has reported that in 2010 the average lorry driver in the UK earned 51% more per hour than the average supermarket cashier, but this premium had fallen to 27% by 2020. 283 O’Connor S, UK truck driver shortage signals a broken labour market, Financial Times, 24 August 2021, www.ft.com/content/5f832d86-827e-4596-999d-e0618364dbe3 Recent changes to IR35 tax rules have also closed a loophole that allowed some – typically agency – drivers to pay less tax by working ‘off payroll’, which partly offset the impact of lower wages.
Working conditions can also be poor, with drivers expected to complete long shifts, work unsociable hours and spend long periods away from home. 284 Townsend M, UK lorry drivers plan to strike over low pay and poor working conditions, The Observer, 24 July 2021, www.theguardian.com/uk-news/2021/jul/24/lorry-drivers-plan-to-strike-over-low-pay-and-poor-working-conditions Poor-quality and expensive roadside facilities and too few overnight parking spaces also make the job unappealing. 285 Saunders T, HGV shortage: No parking spaces, fines for breaks and how life on the road is turning drivers away from the UK, 18 October 2021, https://inews.co.uk/news/hgv-shortage-supply-chain-crisis-uk-europe-1245287
Given these issues, many HGV drivers have chosen to become distribution drivers for online retailers, a trend which is expected to continue. Similar problems have been reported for some time in the meat processing industry, where comparatively unappealing working conditions and wage competition from jobs in the distribution sector, such as in retailer warehouses, is causing workers to leave the industry. 286 British Meat Processors Association, Meat industry labour shortages signals it’s time to get serious, 22 January 2019, https://britishmeatindustry.org/industry-news/meat-industry-labour-shortages-signal-its-time-to-get-serious and Ford Rojas J-P, Labour shortages blamed for surplus 70000 pigs on farms, Sky News, Friday 27 August 2021, https://news.sky.com/story/labour-shortages-blamed-for-surplus-70-000-pigs-on-farms-12391631
How have post-Brexit trading rules contributed to disruption?
The kind of Brexit the government pursued means the UK is no longer in the EU single market or customs union. This means that, in addition to the problems associated with hiring EU staff in the UK, goods traded between Great Britain and the EU (and between Great Britain and Northern Ireland) now face extensive customs and regulatory checks, adding additional cost and complexity to cross-border trade. Although pre-Brexit stockpiling of some goods and ongoing Covid disruption has made it difficult to fully assess the effects of new trading rules in isolation.
Trade data published by the ONS and surveys from business groups show that trade with the EU has fallen since the end of the Brexit transition period, with the food and drink sector particularly badly affected. 287 Office for National Statistics, The impacts of EU exit and the coronavirus on UK trade in goods, 25 May 2021, www.ons.gov.uk/businessindustryandtrade/internationaltrade/articles/theimpactsofeuexitandthecoronavirusonuktradeingoods/2021-05-25 Small firms have been disproportionately hit, with some choosing not to trade with the EU at all. 288 House of Lords European Affairs Committee, Trade in goods, Oral evidence, 19 October 2021, https://committees.parliament.uk/oralevidence/2861/pdf
The additional costs, complexity and risk of delay associated with new checks may make the UK a less attractive destination for EU drivers and haulage firms to serve, especially given many drivers are paid based on the distance travelled and do not want to take the risk of being caught in border delays. 289 Cook J, Study finds Brexit causing 1 in 3 UK hauliers to ‘avoid’ food and drinks industry, 18 August 2021, www.businessleader.co.uk/study-finds-brexit-causing-1-in-3-uk-hauliers-to-avoid-food-drinks-industry
It has been suggested that Northern Ireland’s open access to the EU single market under the Northern Ireland protocol helped to prevent disruption to fuel supplies in the region, compared to the problems experienced in Great Britain. 290 Halliday G, Petrol shortages: Northern Ireland missed out on fuel crisis – but now could see prices rocket, Belfast Telegraph, 29 September 2021, www.belfasttelegraph.co.uk/news/northern-ireland/petrol-shortages-northern-ireland-missed-out-on-fuel-crisis-but-could-now-see-prices-rocket-40900878… However, differences in Northern Ireland’s HGV labour market and consumer behaviour are also likely to have played a role.
Even before the end of the Brexit transition period, uncertainly over the outcome of Brexit negotiations had made it difficult for some firms to make decisions about their supply chains.
How have global supply chain problems contributed to disruption?
Many UK firms rely on importing raw materials and intermediate products from abroad and on exporting their components and finished products abroad. These international supply chains have been put under huge pressure by the Covid pandemic. The Fed Global Supply Chain Barometer – which has tracked global supply chain pressures since 1997 – found that recent pressures have been notably more severe than any point since the index began. 291 Liberty Street Economics, A new barometer of global supply chain pressures, 4 January 2022, https://libertystreeteconomics.newyorkfed.org/2022/01/a-new-barometer-of-global-supply-chain-pressures
A shift in consumer appetite from services to goods during the pandemic partly drove pressure on supply chains. Several other factors have also played a role.
Global gas prices have soared, driven by factors such as high post-lockdown energy demand (especially in Asia) and a curb on supply from Russia to Europe. Limited gas storage facilities may have left the UK more exposed to escalating prices than many other European countries. 292 Bindman P, How the UK’s low gas storage capacity leaves it vulnerable, New Statesman, 27 September 2021, www.newstatesman.com/chart-of-the-day/2021/09/how-the-uks-low-gas-storage-capacity-leaves-it-vulnerable This led to UK wholesale gas prices to spike on 22 December 2021 at nine times the price in February 2021, before returning to around four times the February price by the end of the year. 293 House of Commons Library, The energy price crunch, 14 January 2022, https://researchbriefings.files.parliament.uk/documents/CBP-9340/CBP-9340.pdf Many energy firms ‘hedge’ their gas purchases (effectively buying in advance at a fixed price), and so were not fully exposed to wildly increasing wholesale prices. Even so, hedged prices in the last quarter of 2021 were around 2.3 times higher than February 2021. 294 The price paid by energy firms in contracts for future delivery, used by firms to protect themselves from short-term fluctuations in the market price. Higher costs for energy firms are likely to be passed onto businesses in higher prices, with energy intensive industries such as chemicals manufacturing being particularly vulnerable.
Unlike domestic consumers, who are protected by the consumer price cap for energy, business customers have not been shielded from increasing prices. Around one in four UK firms reported that in the last two months of 2021 their production or suppliers had been affected by rising gas prices 295 Percentage of firms that did not respond ‘not applicable’. Office for National Statistics, Business insights and impact on the UK economy, 4 November 2021, www.ons.gov.uk/economy/economicoutputandproductivity/output/datasets/businessinsightsandimpactontheukeconomy – rising to 45% in the accommodation and food service industry. Some businesses have considered ending production as gas prices render their operations financially unviable. 296 Rowsell J, Biggest tomato supplier shits greenhouses due to gas price, CIPS, 12 October 2021, www.cips.org/supply-management/news/2021/october/biggest-tomato-supplier-shuts-greenhouses-due-to-gas-price Associated shortages of carbon dioxide, used in sectors from food and drink production to nuclear and health care, have also caused shortages and price rises, for example in packaged food.
The closure of factories and key Asian ports during the pandemic has led to a global shortage of electronic components, including printed circuit boards, semiconductors and microchips. This has affected the supply of new cars, electronic devices and home appliances, leaving manufacturers struggling to meet rising global demand and resulting in substantial backlogs. According to the Society of Motor Manufacturers and Traders (SMMT), September 2021 saw the lowest number of new cars registered in the UK for that month since 1998. 297 Battery electric vehicles power on despite supply issues bedevilling new car market, 5 October 2021, www.smmt.co.uk/2021/10/battery-electric-vehicles-power-on-despite-supply-issues-bedevilling-new-car-market As a result, prices for second-hand cars have risen sharply. 298 Race M, Second-hand car prices surge amid new car shortage, BBC News, 22 October 2021, www.bbc.co.uk/news/business-58993851
Global shipping costs have increased dramatically, reaching a record high in September 2021, 299 Drewry, World Container Index, accessed 21 October 2021, www.drewry.co.uk/supply-chain-advisors/supply-chain-expertise/world-container-index-assessed-by-drewry when the average cost of shipping a standard large container was four times higher than in September 2020. 300 The Economist, A perfect storm for container shipping, 18 September 2021, www.economist.com/finance-and-economics/a-perfect-storm-for-container-shipping/21804500 High prices have stemmed from a global shortage of capacity caused by shipping firms mothballing 11% of the global shipping fleet during the pandemic in expectation of a lull in demand. However, demand remained high and has since increased – resulting in significant backlogs.
A glut of containers and slow turnaround times caused by the temporary closure of ports and a shortage of port workers due to Covid has exacerbated problems, resulting in some vessels waiting outside ports or being diverted away from their destination. 301 Goodman J and Luxen M, Shipping disruption: Why are so many queuing to get to the US?, BBC News, 16 October 2021, www.bbc.co.uk/news/58926842
Higher shipping costs have pushed up the price of some commodities – like timber – with knock-on effects on construction costs. 302 Plummer R, Shortage problem: What’s the UK running low on and why?, BBC News, 15 October 2021, www.bbc.co.uk/news/business-58721085 However, while shipping costs are a concern for many firms, they generally make up only a small proportion of overall production costs, and so are unlikely to drive dramatic increases in prices generally. 303 The Economist, A perfect storm for container shipping, 18 September 2021, www.economist.com/finance-and-economics/a-perfect-storm-for-container-shipping/21804500
How has panic buying contributed to disruption?
Panic buying also contributed to fuel supply problems. Initially, a shortage of drivers disrupted deliveries to a minority of petrol stations. However, as reports of shortages hit the headlines, many consumers rushed to fill their tanks, leading to a rapid increase in demand at a time when supply was already constrained. This made shortages worse – with fuel levels at forecourts in the worst hit areas of the country averaging just 20% during the peak of the crisis, compared to 43% normally.
Watts M, Petrol crisis: London has the joint lowest levels of fuel in the country, leaked analysis shows, Evening Standard, 1 October 2021, www.standard.co.uk/news/london/petrol-crisis-london-low-fuel-levels-b958192.html
What are the wider economic effects of these problems?
Supply chain problems are affecting almost every part of the UK economy.
This has been seen most notably in shortages of some products. 314 Eley J, Sainsbury’s warns of reduced product choice as supply constraints hit Argos, Financial Times, 4 November 2021, www.ft.com/content/d1f3c806-1e23-4431-8cfd-90d4004bfff8 Often these are sporadic, temporary, or affect only certain locations, especially in the food and drink sector. In some cases, this is because firms have chosen to prioritise popular or high-margin product lines at the expense of others. Others have also temporarily reduced the range of brands or package sizes on offer, resulting in less choice for consumers. 315 Gosden E, Companies cut product lines amid supply crisis, The Times, 4 October 2021, www.thetimes.co.uk/article/companies-cut-product-lines-amid-supply-crisis-293wgsnxt
Even where there are no shortages, consumer prices are increasing as a result of the rising cost of energy, commodities and other inputs. As the chart below shows, 43.6% of all businesses responding to a recent ONS survey reported that increases in input prices were higher than normal in January 2022. At its peak in October 2021, the figure was 49.1% for all businesses and significantly higher for firms in the manufacturing (72.1%) and accommodation and food services (65.7%) sectors. 316 Percentage of firms that did not respond ‘not applicable’. Office for National Statistics, Business insights and impact on the UK economy, 4 November 2021, www.ons.gov.uk/economy/economicoutputandproductivity/output/datasets/businessinsightsandimpactontheukeconomy
The resulting inflation has led to growing concerns about a ‘cost of living crisis’. 317 Giles C and Pickard J, Cost of living crisis looms for Britain’s poorer households, Financial Times, 1 September 2021, www.ft.com/content/11ef63ba-63db-46f2-a399-1c7323d54509 In October, inflation was running at 3.8%, above the Bank of England’s target rate of 2%, and its Monetary Policy Committee forecasts that it could rise to 5% by spring 2022 before abating. 318 Bank of England, Monetary Policy Report – November 2021, 4 November 2021, www.bankofengland.co.uk/monetary-policy-report/2021/november-2021, Office for National Statistics, Consumer price inflation, UK: October 2021, 17 November 2021, www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2021 The governor of the Bank, Andrew Bailey, has also acknowledged that supply chain problems are expected to slow the economic recovery from Covid. 319 Bailey A, The hard yards – speech by Andrew Bailey, 27 September 2021, www.bankofengland.co.uk/speech/2021/september/andrew-bailey-guest-speaker-at-the-society-of-professional-economists-annual-dinner-2021
The increase in energy prices will directly squeeze household finances, even though domestic consumers have been protected from the full effects of the rise in wholesale prices through the government’s energy price cap. The current cap of £1,277/year for an average household (a £139/year increase on the previous cap) took effect on 1 October and will remain in place until 31 March 2022, when it will be revised. Even before then, many households who previously paid below the cap will see increases in bills. The increase in energy prices will disproportionately hit lower-income households, who spend three times as much of their household budgets on energy than the wealthiest homes. 320 Resolution Foundation, Bills, bills, bills, 17 October 2021, www.resolutionfoundation.org/publications/bills-bills-bills
Supply chain problems are also having broader impacts on the structure of and prospects for the economy. The Institute of Directors’ Economic Confidence Index showed a fall in confidence among business leaders during September and October 2021, with rising wage costs a key concern. 321 Institute of Directors, Directors’ confidence in the economy lower but steadying, 1 November 2021, www.iod.com/news-campaigns/news/articles/IoD-Directors-confidence-in-the-economy-lower-but-steadying This uncertainty is likely to lead to lower investment, at least in the short term. Some businesses are also re-evaluating the ‘just in time’ nature of their supply chains and considering how to build more resilience into their operations. Peter Sand, chief shipping analyst at BIMCO, one of the largest international shipping associations, said that firms may respond to recent disruption by moving from ‘just-in-time’ to ‘just-in-case’ production to mitigate potential shortages. 322 BIMCO, Shopping market analysis, September 2021, http://portfolio.cpl.co.uk/BIMCO/202009/peter-sand
How has the government responded to supply chain disruption?
The government’s public explanation of the causes of supply chain disruption has varied.
Ministers have often framed disruption as a global issue – largely related to the pressure on global supply chains following a surge in demand for goods as the pandemic recovery gathered pace. 346 Strauss D and Pickard J, UK wage inflation – sign of adjustment or symptom of woes, Financial Times, 5 October 2021, www.ft.com/content/940e0ba1-485e-4a70-ba29-a966087b6f3b Speaking at the Global Investment Summit in October, Boris Johnson said that “the current stresses and strains in the supply chain are a function of a global economy surging again with demand and vaccine induced confidence.” 347 Allegretti A, grant Shapps hits out at ‘manufactured’ crisis as drivers panic buy fuel, The Guardian, 26 September 2021, www.theguardian.com/business/2021/sep/26/grant-shapps-hits-out-at-manufactured-crisis-as-drivers-panic-buy
However, the government has become more willing to acknowledge that Brexit has played a role, particularly as a factor contributing to labour shortages. Speaking during the 2021 Conservative Party conference, Johnson framed this as a “period of adjustment” as firms adapted to the post-Brexit immigration system, also reasserting that businesses cannot “reach for the lever called ‘uncontrolled immigration’” to recruit EU staff at low wages. He has claimed that decreased competition for certain jobs means that “wages are finally going up for the low paid . . . and about time too”. 348 Wright O, Michael Gove put in charge of ‘fixing’ Britain’s food supply chains, The Times, 15 September 2021, www.thetimes.co.uk/article/michael-gove-put-in-charge-of-fixing-britains-food-supply-chains-2x6pnclzw The IfG has argued that the government should acknowledge the trade-offs involved in this approach.
Weaknesses in government communications arguably made panic buying of fuel worse, although ministers such as transport secretary Grant Shapps have tried to distance the government from the crisis, calling it a “manufactured” problem. 349 Topham G, Supply chain crisis: PM brings in ex-Tesco boss to ease shortages, The Guardian, 8 October 2021, www.theguardian.com/business/2021/oct/08/supply-chain-crisis-uk-government-brings-in-ex-tesco-boss-to-help-sort-issues
The government has set up new internal structures to monitor and respond to the crisis.
A National Economic Recovery Taskforce (Logistics) was announced on 14 September to co-ordinate government departments responsible for the food chain and address the shortage of HGV drivers in the run-up to Christmas. 350 Environment, Food and Rural Affairs Committee, George Eustice, Secretary of State for Environment, Food and Rural Affairs, Tuesday 16 November 2021. www.parliamentlive.tv/Event/Index/e4b0365f-1d36-4f17-8c3c-9368de782999 It is expected to draw on the government’s earlier preparations for a no-deal Brexit.
Separately, former chief executive of Tesco – Dave Lewis – has been recruited until the end of the year to advise on the government’s response to supply chain issues and act as co-chair of a new Supply Chains Advisory Group comprised of non-government experts and business leaders. 351 GOV.UK, UK government action to reduce the HGV driver shortage, accessed 11 November 2021, www.gov.uk/government/topical-events/hgv-driver-shortage-uk-government-response/about
Existing groups, such as Defra’s Food Resilience Industry Forum, which draws together 200 executives involved in the food supply chain, have also been used to co-ordinate the government’s response.
The government has introduced a range of policy measures to address supply chain problems. Twenty of the government’s most high-profile interventions are listed in the table; the majority of these are aimed at addressing the shortage of HGV drivers.
Many involve waiving or relaxing regulatory requirements to help firms respond to shortages – such as providing additional visas to address labour shortages in some sectors. Others include committing financial support to address specific supply problems and measures to increase the capacity of government agencies. Many of the actions are temporary. Existing government policies – such as the energy price cap for domestic consumers – have also helped alleviate the impact of some supply problems. Some policies also have an important messaging function, for instance, the director-general of food, farming and bio-security at Defra told MPs that issuing temporary visas for HGV drivers had helped to reduce headlines about possible food shortages that could invoke panic buying. 352 Cabinet Office, BEIS, MoD and Home Office, Military finish up training to start fuel deliveries as government extends support to industry, press release, 2 October 2021, www.gov.uk/government/news/military-finish-up-training-to-start-fuel-deliveries-as-government-extends-support-to-industry
|Regulation||Immigration||Financial support||Government Agency Capacity||Communications||Business engagement||Taxes|
What problem is the government addressing?
What has the government done?
How will the policy work?
How long will it last?
|HGV driver shortages||
Made changes to the HGV tests to free up testing capacity
Car drivers no longer need another test to tow a trailer or caravan. HGV tests have been shortened by removing some elements. Only one test, not two, is now needed to drive both rigid and articulated lorries.
The government expects these actions will make up to 50,000 additional HGV driving tests available per year.
Announced and implemented: 10 Sep 2021
|Provided funding for HGV licences||Funding will be provided for medical and HGV licences through the adult education budget.||
Announced: 25 Sep 2021
Backdated to 1 Aug 2021, lasting for the 2021/22 academic year
|Provided temporary visas for European HGV license holders||
4,700 visas for food delivery HGV drivers have been made available under the Seasonal Worker Scheme. The scheme applies to EU, EEA and Swiss HGV licence holders only.
Separately, 300 visas were made available for fuel HGV drivers holding EU, EEA or Swiss licenses.
Announced: 25 Sep 2021
Visas for food drivers last from October 2021 to 28 Feb 2022; applications must be made by 1 Dec 2021
Visas for fuel drivers last until 31 March 2022. Applications have now closed.
|Sent letters to inactive HGV licence holders encouraging them to return||Nearly one million letters have been sent to HGV licence holders, encouraging them back into the industry.||
Announced: 25 Sep 2021
Letters sent in late September
|Used military examiners to increase HGV testing capacity 353 Cabinet Office, BEIS, MoD and Home Office, Military finish up training to start fuel deliveries as government extends support to industry, press release, 2 October 2021, www.gov.uk/government/news/military-finish-up-training-to-start-fuel-deliveries-as-government-extends-support-to-industry||Ministry of Defence examiners are temporarily conducting civilian tests to provide thousands more HGV tests.||
Announced: 25 Sep 2021
Lasting from 25 Sep 2021 for 12 weeks
|Expanded HGV driver training||3,000 new HGV drivers will be trained in short, intensive ‘bootcamps’, and 1,000 through local courses.||
Announced: 25 Sep 2021
No end-date announced
|Temporarily extended dangerous goods driving licences||Dangerous goods driving licences (ADR licences) due to expire between 27 September 2021 and 31 December 2021 have been extended until 31 January 2022, preventing fuel drivers requiring refresher training.||
Announced: 27 Sep 2021
Lasting from 27 Sep 2021, until 31 Jan 2022
|Extended HGV driving hours in England, Scotland and Wales||Rules on maximum HGV driving hours have been temporarily relaxed.||
Announced: 12 July 2021
Initially extended between 12 July and 8 Aug 2021; extended to 31 Oct 21; extended again until 9 Jan 2022
|Relaxed cabotage rules||Restrictions on how many times EU HGV drivers can pick up and drop off goods within the UK will be temporarily removed (the previous limit was twice in seven days).||
Announced: 14 Oct 2021
To be introduced 'towards the end of this year for up to six months'
|Announced investment in roadside facilities||£32.5m of government spending has been committed to improve roadside facilities for HGV drivers.||
Announced: 27 Oct 2021
No end-date announced
|Extended tax relief for the haulage industry||The government has suspended the HGV road user levy and frozen rates of vehicle excise duty for a further 12 months (although it’s not clear this was directly in response to the HGV crisis).||
Announced: 27 Oct 2021
Suspension applies Aug 2022 to July 2023; rates frozen for 2022/23 financial year
|Fuel shortages||Temporarily suspended aspects of competition law for fuel firms 354 Defra, DfT and Home Office, Recruit a poultry worker, pork butcher or HGV food driver with a temporary visa, Guidance, 7 October 2021, accessed 11 November 2021, www.gov.uk/guidance/recruit-a-poultry-worker-or-hgv-food-driver-with-a-temporary-visa||The ‘Downstream Oil Protocol’ was activated, temporarily exempting fuel firms from competition laws to allow information sharing.||
Announced: 26 Sep 2021
No end date announced
|Made military personnel available to deliver fuel 355 Defra, DfT and Home Office, Recruit a poultry worker, pork butcher or HGV food driver with a temporary visa, Guidance, 7 October 2021, accessed 11 November 2021, www.gov.uk/guidance/recruit-a-poultry-worker-or-hgv-food-driver-with-a-temporary-visa||Almost 200 military tanker personnel (including 100 drivers), were deployed from 4 October 2021.||
Announced: 27 Sep 2021
No end-date announced
|Food shortages||Provided temporary visas for poultry workers 356 Defra, Package of measures announced to support pig sector, 15 October 2021, https://deframedia.blog.gov.uk/2021/10/15/package-of-measures-announced-to-support-pig-sector/||5,500 additional visas for poultry workers have been offered under the Seasonal Worker Scheme.||
Announced: 26 Sep 2021
Lasting from October 2021 until 31 Dec 2021. Applications must be made by 15 Nov 2021
|Provided temporary visas for pork butchers 357 Defra and DHSC, Food industry Covid testing rolled out to support sector, Press release, 23 July 2021, www.gov.uk/government/news/food-industry-covid-testing-rolled-out-to-support-sector||800 additional visas for pork butchers have been offered under the Seasonal Worker Scheme.||
Announced: 14 Oct 2021
Visas will last for six months from date of issue. Applications must be made by 31 Dec 2021
|Provided funding to store slaughtered pigs 358 Ofgem, Default tariff cap level: 1 October 2021 to 31 March 2022, 6 August 2021, www.ofgem.gov.uk/publications/default-tariff-cap-level-1-october-2021-31-march-2022||Funding will be provided to help meat processors in England to store slaughtered pigs for three to six months||
Announced: 14 Oct 2021
No end-date announced
|Exempted some food workers from Covid self-isolation rules 359 Cabinet Office, Government sets out pragmatic new timetable for introducing border controls, Press release, Cabinet Office, 14 September 2021, www.gov.uk/government/news/government-sets-out-pragmatic-new-timetable-for-introducing-border-controls||Some workers subject to Covid testing regimes in England – including those in supermarket distribution centres and food manufacturing sites – were exempted from having to self-isolate after being ‘pinged’ by the NHS Covid app or NHS Test and Trace.||
Announced: 23 July 2021
Introduced on 26 July 2021. Self-isolation rules relaxed for double-vaccinated individuals from 16 Aug 2021
|Energy prices||Maintained the energy price cap for domestic consumers 360 BEIS and Defra, Government secures agreement to ensure CO2 supplies, Press release, 21 September 2021, www.gov.uk/government/news/government-secures-agreement-to-ensure-co2-supplies||The energy price cap of £1,277 for the average bill, set on 6 Aug 2021, will continued as planned until an increase by 54% from 1 April 2022.||
Announced: 10 Oct 2021
Lasting until review in April 2022
|Provided energy bill and council tax rebate to support people through cost of living pressures 361 HM Treasury, Millions to receive £350 boost to help with rising energy costs, 3 February 2022, www.gov.uk/government/news/millions-to-receive-350-boost-to-help-with-rising-energy-costs||
Ahead of the energy price cap increase in April, the government announced a £200 ’rebate’ on all domestic energy bills from October, which will be automatically recovered from energy bills in £40 instalments over five years from 2023.
It also announced a £150 rebate for all households in council tax bands A-D that does not need to be repaid.
Announced 3 February 2022
Discount to bills occurring in 2023 but repayment of energy rebate lasting until 2028
|General supply problems||Delayed the introduction of full controls on imports of goods from EU into GB 362 BEIS, Further support to ensure supplies of Carbon Dioxide (CO2), Press release, 1 October 2021, www.gov.uk/government/news/further-support-to-ensure-supplies-of-carbon-dioxide-co2||Most import requirements for agri-food goods entering GB from the EU have been postponed until 1 July 2022 (having been due to be introduced from 1 January 2022).||
Announced: 14 Sep 2021
Most intensive checks delayed by six months
|Delayed further controls imports from the island of Ireland into GB 363 Lord Frost, Written statement on border controls, 15 December 2021, https://questions-statements.parliament.uk/written-statements/detail/2021-12-15/hlws473||The government announced a stand-still of border arrangements for imports from the island of Ireland for as long as discussions on the Northern Ireland protocol are ongoing, delaying new customs requirements due to be introduced in January 2022 on goods imported from the Republic of Ireland. This was to avoid added uncertainty for the movement of goods from the island of Ireland.||
Announced: 15 Dec 2021
Lasting until Northern Ireland protocol negotiations are finalised
|Provided financial support for fertiliser production 364 BEIS and Defra, Government secures agreement to ensure CO2 supplies, Press release, 21 September 2021, www.gov.uk/government/news/government-secures-agreement-to-ensure-co2-supplies||Temporary support provided to CF Fertilisers, the UK’s main CO2 producer, to help meet energy costs.||
Announced: 21 Sep 2021
Lasting three weeks
|Temporarily suspended aspects of competition law for CO2 firms 365 Driver A, The NPA has welcomed the Government’s support package for the pig industry, but has warned that the situation on many farm remains at critical point, Pig World, 15 October 2021, www.pig-world.co.uk/news/this-really-is-just-the-beginning-npa-welcomes-support-package-but-warns-that-situation-remains-critical.html||CO2 firms granted short exemption from competition law requirements to allow information sharing.||Announced: 1 Oct 2021|
Business reaction to the government’s policy measures has been mixed. While industry groups have generally welcomed additional visas, 366 Pickard J, Payne S and Foster P, UK visa schemes to ase lorry driver shortages dubbed ‘not enough’, Financial Times, 26 September 2021, www.ft.com/content/683b4e41-9470-46ce-9c32-fe75214c4bf2 some have argued they do not go far enough. The British Chamber of Commerce argued that the visas for lorry drivers amounted to “throwing a thimble of water on a bonfire”. 367 British Chamber of Commerce, ‘A Thimble Of Water To Put Out A Bonfire’ - BCC On Temporary Visas For Drivers And Food Workers, 26 September 2021 Temporary visa schemes are more bureaucratic for EU nationals and the UK firms that employ them than free movement rules, requiring them to engage with the Home Office, often for the first time. They are also only open to small numbers of people, and it is unclear how attractive temporary visas will be to EU nationals.
Other government interventions – such as extending HGV driving hours – have also been criticised. The Road Haulage Association has described the move as a “sticking plaster” that may be counterproductive by making the job less attractive. 368 Reynolds J, Drivers’ hours extension sticking paster won’t fix driver shortage, Road Haulage Association, 7 July 2021, www.rha.uk.net/news/news-blogs-and-press-releases/press-releases/detail/drivers-hours-extension-sticking-plaster-won-t-fix-driver-shortage
Will supply chain problems continue?
It is hard to predict to what extent supply chain problems will continue or how long they might last. It is likely that disruption will vary between sectors and fluctuate over time. Some of the causes of disruption will take time to resolve. Car manufacturers have warned that microchip shortages may last for years and the Road Haulage Association (RHA) has predicted that HGV driver shortages will last for around a year. Ian Wright, chief executive of the Food and Drink Federation, told an IfG event in September 2021 that some changes may be here forever, with a “permanent” reduction in choice and that consumers should no longer expect all products to be available at all times.
A range of factors are likely to play a role in whether – and how long – supply chain problems continue.
Factors affecting the causes of supply chain problems
Introduction of further post-Brexit border controls and regulatory regimes
Full customs controls for imports to GB from the EU (excluding the Republic of Ireland) were introduced in January 2022. Their impact on supply chains is not yet clear. The government’s position has been sanguine, with a clear message that government systems were working well, and traders were adapting to new rules. However, in January and early February 2022, there were queues on the approach to the port of Dover – which the government largely attributed to ships being out of operation and higher than usual volumes of freight.
More intensive checks on agri-food imports to GB from the EU are due to be phased in between July and November 2022. These could result in delivery delays as traders adapt to new rules and will introduce lasting new costs and bureaucracy for firms importing goods from the EU, which may result in some firms choosing to readjust their supply chains. As the Public Accounts Committee has warned, rising passenger volumes as travel returns to normal after the pandemic, plus new EU rules on biometric passports, could also put greater pressure on new border arrangements, risking delays.
The introduction of new UK (or GB) only regulatory regimes – such as the UKCA product standards marking – may also require manufacturers to comply with different rules for the UK (or GB) market, adding further cost and administrative pressures.
Wage rises in some sectors. There is anecdotal evidence both that wages rose in the food and drink and haulage sectors during the peak of shortages, and that this did encourage new recruits. This may continue to attract more interest in roles currently experiencing staff shortages. However, haulage industry experts have argued that wage increases may in fact result in existing drivers being poached by competitors, rather than encouraging new entrants. Also, while many industries did see particularly high wage growth in summer 2021, this growth began subsiding in the autumn as inflation also began to rise, eroding the real-world impact on earnings. If real wages contract, this could exacerbate shortages again.
The end of furlough and redundancies
It was expected that the end of the furlough scheme on 30 September may result in an increase in redundancies, leading to more people looking for work and fill job vacancies. Yet, in October 2021, the Bank of England estimated that only 3% of those on furlough at the end of the scheme were made permanently redundant, little effect on easing labour shortages.
People increasingly leaving the job market
Increasing number of people in the UK are becoming economically inactive. There is disagreement over the causes, with commentators pointing to increased early resignations, lockdown normalising being out of work, as well as increased opposition to poor working conditions. To what extent this will continue to impact the labour supply will depend on the balance between these causes.
The impact of government measures
The chancellor, Rishi Sunak, emphasised that government “can’t wave a magic wand” to address the problems given the existence of global causes beyond any one government’s reach. Still, some measures may help mitigate the problems, but the effect is not yet clear. Steps such as issuing additional visas and temporarily easing regulatory requirements may have an impact in the short term, but efforts to build capacity or increase training and testing for HGV drivers will take many months or years to take full effect.
Ongoing global disruption
Disruption to global markets – including energy, semi-conductors and shipping – is likely to continue for the foreseeable future, continuing to put pressure on supply as the world emerges from the pandemic. New issues – such as geopolitical instability in Ukraine – also risk upsetting global energy markets. Meanwhile, if countries downstream of UK supply chains continue to have high rates of Covid and low rates of vaccination, disruption to global supply chains is likely to continue.
Factors affecting demand and the pressure on supply chains
Shift in demand from goods to services
Although hampered by the spread of the Omicron variant of Covid, the recovery from the pandemic should see a shift in demand back from goods to services. This may ease the pressure on transport, storage, and components that has been driving shortages.
Increased demand for energy over winter
Energy demand is always higher during the winter. Ongoing high prices will continue to put pressure on business costs and contribute to rising inflation.
Factors exposing households to the impact of supply problems
Energy price cap review
While other factors outlined above will likely raise households awareness of the supply chain issues, the shift of the energy price cap for consumers on 1 April 2022 is likely to be one of the clearest signs of impact. Ofgem announced that the cap would rise by 54% from this date, representing an increase in costs for 22 million customers of around £700 each year. Such cost increases put more pressure on household budgets and contribute to higher inflation.
The extent to which businesses pass on rising costs
Given increasing input costs, UK businesses face a choice between passing price rises on to consumers (potentially resulting in a fall in demand) or absorbing some or all of the rises themselves (which may allow them to retain market share but will hit their profit margins). The capacity of firms to absorb price rises may vary between sectors. Firms that received significant government support during the pandemic may feel better placed to absorb more of the costs.