Furlough and Brexit: Ian McConnell: Sad labour crisis is no reason for Rishi Sunak to do wrong thing

Steve Murrells, chief executive of the Co-operative Group, told The Times this week that food shortages “are at a worse level than at any time I have seen”, blaming “Brexit and issues caused by Covid”.

Such cautionary tales seem not to resonate with the Brexit faithful, or with the Johnson Cabinet, which would do well to listen up.

The findings of a survey this week from the Chartered Institute of Procurement & Supply and IHS Markit meanwhile highlight the overall extent to which shortages are hampering the UK economy’s bounce-back from the enormous effects of the coronavirus pandemic.

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While some of the problems around shortages, such as the scarcity of semiconductor chips, are global issues, many of the troubles are very UK-specific, with the country having been burdened with these woes as a result of the Conservative Government’s hard Brexit decision. From the haulage sector to the poultry industry, business leaders have laid blame for the labour and goods shortages firmly at the door of Brexit. The coronavirus crisis is obviously not helping, in terms of the need for many people to self-isolate, but it is crucial to realise that there would have been huge labour and logistics problems if the pandemic had not occurred.

UK companies flagged staff shortages and supply-chain issues as key constraints on activity in the CIPS/IHS Markit survey, which showed expansion this month is the slowest in the current run of growth that began in March.

And the extent of the slowdown in growth is concerning. The latest seasonally adjusted, flash composite output index for the UK services and manufacturing sectors from CIPS and IHS Markit, for August, was down sharply at 55.3. Although it remains well above the 50 no-change mark, it is far adrift of the final reading of 59.2 for July.

CIPS and IHS Markit declared: “Weaker recoveries were seen in both the manufacturing and service sectors ...Analysis of comments provided by survey respondents suggested that incidences of reduced output due to shortages of staff or materials were 14 times higher than usual and the largest since the survey began in January 1998.”

They noted that “efforts to rebuild capacity and strong optimism towards the business outlook contributed to the fastest rise in employment numbers since the index began in January 1998”.

Normally, after a plunge in economic output, there would be no downsides at all to news of a surge in demand for skills and labour.

Of course, the appetite of companies to employ is obviously to be welcomed in these grim times.

However, it beggars belief that the UK has managed to find itself in a position, in large part because of Brexit according to senior figures across a raft of sectors, where a revival in demand and a desire to employ people bring on a severe headache for many companies amid a labour and skills shortages crisis.

That said, even before the Johnson administration decided to end free movement of people between the UK and European Union in the most foolish of decisions from economic and societal standpoints, the woes that it and predecessor Tory administrations had visited upon Britain were apparent. In the wake of the 2016 Brexit vote, net immigration to the UK from the EU plummeted. The pandemic exacerbated the problem, with many workers from EU member states returning to their home countries, but Brexit and the subsequent clampdown on immigration are at the heart of the labour shortages.

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Scottish Engineering’s latest survey, published today, highlights skills shortages, and problems around materials availability and pricing and “logistics capacity to get components and raw materials in, and especially billable finished goods out”.

Chief executive Paul Sheerin said of the findings: “Skills availability issues return surprisingly quickly, and a lack of easily available skills from EU countries [is] cited as a contributor to that deficit.”

We live in times where some people seem to think that anyone can fill whatever post happens to be vacant in the labour market, whether for a heavy goods vehicle driver, a time-served tradesperson or engineer, or a nurse or doctor. The Brexiters’ anti-immigration narrative tends to rather play down the importance of skills, experience and qualifications in specific areas in terms of job suitability.

It should go without saying that people cannot just flit between any jobs, but it seems worth emphasising given the dismal, ill-thought-out narrative from those who seem to believe it is simple to replace instantly the people from EU countries who have left the UK with domestic workers.

And the very important matter of specific skills, experience and qualifications for a vast array of jobs brings us to another crucial point, and one which we can only hope Rishi Sunak recognises.

The Chancellor, as we know, is determined to end the coronavirus job retention scheme next month, come what may.

We have, of course, been here before. Mr Sunak thought last summer and autumn, apparently, that the furlough support scheme could be ended on October 31, 2020, even as the second wave of coronavirus was developing. He was eventually overtaken by reality and had to U-turn, in excruciating stages, thankfully extending the scheme out to next month.

What is crucial now is that Mr Sunak recognises that what might be viewed by some as buoyancy or tightness in the labour market, given all the reports of staff shortages, is no reason at all for thinking the furlough scheme should be ended, and certainly not in its entirety.

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Some sectors remain very far from any kind of normal trading. They will get there, hopefully, once restrictions and rules which are dampening activity can eventually be eased, but we are not there yet.

It is crucial to retain supply-side capacity in these sectors. Airlines, airports and ground-handling operations, and holiday companies are all easy-to-understand examples of businesses which should be able to return to normal just fine but cannot do so yet.

Quite apart from the obvious point that many people cannot just transfer from these sectors to any other jobs, given they have different sets of skills, surely Mr Sunak would not want to see capacity destroyed in an international travel industry which in normal times makes a very important contribution to the UK economy. Destruction of supply-side capacity would, of course, also be grim news for consumers, in terms of limiting competition and choice, and therefore ramping up prices.

Captain Martin Chalk, acting general secretary of the British Airline Pilots Association (BALPA), summed up well the scale of what is at stake here and the dangers of getting it wrong as the Trades Union Congress called earlier this month for a permanent “daughter of furlough” scheme.

He said: “The UK aviation sector is the only industry to remain effectively in a lockdown. It employs about one million workers directly and ONS (Office for National Statistics) statistics show that 57% of remaining employees in air transport companies remain on furlough.

“The scale of jobs at risk of redundancy when the furlough scheme ends is self-evident, yet the footprint of aviation must not be missed – one in four constituencies has over 1,000 people employed directly by aviation companies. If the Chancellor chooses not to extend furlough, the effects will be felt by workers, communities and businesses right across the country.”

Mr Sunak would do well to heed this warning.

Some might point to the cost of the furlough scheme. But this has diminished massively already.

And, crucially, what would be the cost of ploughing ahead with ending the furlough scheme, without any similarly adequate successor programme, triggering large-scale unemployment in key sectors and certain parts of the UK and destroying supply-side capacity?