Brexit: Ian McConnell: Is ‘falling dangerously behind’ a Johnson Cabinet speciality?

Mounting challenges for companies were writ large in Scottish Chambers’ latest quarterly survey, published yesterday, and the causes were highlighted. Not surprisingly, the effect of Brexit in blocking access to European Union workers who could previously have helped address labour and skills shortages was cited as a key contributor to current difficulties for companies across the Scottish economy. Of course, these shortages also apply in a broader UK context.

Scottish Chambers said: “The construction, manufacturing and tourism sectors have all reported significantly increased recruitment difficulties due to a lack of skilled labour in the UK workforce and lack of access to previously available EU labour.”

And Mr Allan had this to say: “All sectors in the survey are reporting increased recruitment difficulties, in line with official statistics recently reporting record high vacancies for the Scottish and UK economy. If Scottish businesses cannot get the talent that they need, they risk falling dangerously behind the curve on recovery and growth.”

The Boris Johnson administration should reflect on this simple reality, contemplate the impact of its post-Brexit clampdown on immigration, and think about whether it wants to further choke off economic growth in Scotland and elsewhere in the UK.

It has shown itself by its actions, whatever its words have been, to have been anything but a business-friendly Government, crucially in terms of its hard Brexit but also with the likes of its national insurance hikes for employers and individuals.

In short, this Conservative Government has created a most unhelpful business environment.

Sadly, there is no sign that this is going to change, with pumped-up ideology over Brexit seemingly for the Johnson Cabinet trumping the grim realities of EU departure for businesses, households and society. It becomes clearer by the day that the EU exit was, for so many Brexiters, all about clamping down on immigration.

Remember Home Secretary Priti Patel’s enthusiastic celebration late last year, on Twitter, of the then-impending end of free movement of people between the UK and EU? As much of the rest of the world was celebrating news of success in Covid-19 vaccine development last November, Ms Patel tweeted: “After many years of campaigning, I am delighted the Immigration Bill which will end free movement on 31st December has today passed through Parliament. We are delivering on the will of the British people.”

This Tory clampdown on immigration was always going to damage businesses, bear down on overall economic growth, and hit living standards. The extremely detrimental effects were clear in the forecasts drawn up by the Theresa May government back in November 2018.

These showed Brexit would, with an average free trade deal with the EU, result in UK gross domestic product in 15 years’ time being 4.9 per cent lower than if the country had stayed in the bloc if there were no change to migration arrangements. Or 6.7% worse on the basis of zero net inflow of workers from European Economic Area countries.

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As Ms Patel highlighted with her tweet, there have been huge changes to migration arrangements, for the worse, and the Conservative Government went for a very narrow trade deal in delivering its hard Brexit. The refusal to even accept regulatory alignment has exacerbated chaos in post-Brexit trade.

Highlighting weakness of exports for firms north of the Border in its survey of third-quarter economic activity, Scottish Chambers flagged the effect of Brexit. There have been other drivers as well, including, predictably, the slow reopening of international travel in a Scottish and broader UK context. The easing of restrictions on travel between EU countries has happened significantly faster, and in a sensible way.

Scottish Chambers said of the export weakness: “For the second successive quarter, all export order and sales trends reported in the survey have continued to fall. The slow pace of reopening up international travel, continuing Covid-19 disruption and adjustment to post-Brexit trade are all contributing factors cited by businesses.”

Again, you would hope policymakers would note the effect of these factors and look to see what could be done to help businesses, at a time when economic recovery is far from secured and everything possible surely must be done to stimulate activity.

Sadly, the UK Government does not even seem interested in mitigating the woe caused by its own decisions on the Brexit and immigration front, as evidence of the inevitable damage mounts at an alarming rate.

The Johnson Government has been forced to issue temporary visas for heavy goods vehicle drivers and poultry workers.

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“Recruit a poultry worker or HGV food driver with a temporary visa” is the heading on the online guidance on this front issued by the Department for Environment, Food and Rural Affairs, Department for Transport, and Home Office. Such temporary visas will be very unappealing to many EU workers, you would imagine, given not only the attitude to immigration whipped up among some of the UK electorate by the whole Brexit drive but also the very short duration of the visas. Even as the UK Government is effectively seeking EU workers’ help, it is at the same time making it plain they will not be allowed to stay long in the roles for which they are so urgently needed. In an overall context, the visas, which are also very narrow in scope, are not going to do anything much at all to solve the problems caused by the end of free movement, which are being felt acutely by businesses large and small operating in a raft of sectors.

The SNP’s shadow international trade secretary, Drew Hendry, this week accused Boris Johnson of implementing “economic vandalism” with his Brexit deal after official figures showed a sharp fall in exports from Scotland to EU countries.

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According to data from HM Revenue & Customs, Scottish goods exports to the EU in the year to June were down by 14% on the prior 12 months. The prior-year comparative period includes the first lockdown – put in place as the coronavirus pandemic took hold in the spring of 2020 – during which restrictions were greatest.

A survey published this week by Royal Bank of Scotland flagged intense inflationary pressures for Scottish companies and their customers, fuelled partly by Brexit. The rate of increase of costs for Scottish companies was last month the fastest since July 2008, “and rapid”, the survey showed.

On the back of this, Scottish private sector firms raised their average charges for the 11th month in a row in September.

Panellists attributed the latest uptick to the “partial pass-through of greater costs to clients”, Royal Bank of Scotland noted, with the rate of output price inflation the highest since the survey began in November 1999.

These are, it should go without saying, not conditions conducive to a straightforward economic recovery.

Another survey, published last week, revealed UK construction companies have been hit by “disruptions on site from unavailable transport, a severe lack of materials and continued staff shortages”, and that growth in the sector slowed sharply further in September to its weakest pace in eight months.

Construction firms last month encountered the steepest rise in sub-contractor charges since this monthly survey – published by the Chartered Institute of Procurement & Supply and IHS Markit – began in April 1997.

CIPS and IHS Markit said: “Some firms noted that the unpredictable pricing environment had slowed clients’ decision-making on new orders and led to delays with contract awards.”

As Scottish Chambers’ survey and a raft of others have made plain, labour and skills shortages are hitting many sectors of the economy, with industry bodies and companies having flagged the part played by Brexit. The Road Haulage Association has estimated there is a shortage of about 100,000 HGV drivers in the UK. The driver shortage is of course hitting supply chains generally.

Amid the tumult of dismal news about what is going on in post-Brexit Britain, it has not been surprising to see consumer confidence fall back.

The latest analysis from YouGov and the Centre for Economics and Business Research, published this week, revealed consumer confidence last month fell back to levels last seen in the spring, amid the fuel crisis and labour shortages.

The pair’s consumer confidence index fell in September by 2.3 points to 110.5, a level last seen in April when coronavirus-related restrictions were only just starting to lift.

Darren Yaxley, director of reputation research at YouGov, said: “YouGov’s consumer confidence index [had] been consistently increasing since the record low of May 2020 to a high of 113.6 this summer. The gains made during this year’s summer have been undone.”

The outlook on household finances has worsened considerably, the analysis found. Many households reported a deterioration in finances in the past month. YouGov conducts more than 6,000 consumer confidence interviews each month.

The ideological Brexiters should think about the real-world effects of their folly on household finances and consumer confidence but we should not hold our breath on this front.

Likewise, we should, based on consistent recent experience, not get our hopes up that the Johnson administration is going to take any kind of serious, meaningful action to sort out its mess, and help businesses and households.

That said, it obviously has a duty to do so. Mr Allan rightly talks about the risk of Scottish companies “falling dangerously behind”.

Looking at the Johnson administration’s track record, “falling dangerously behind” seems unfortunately to be one of its own specialities, as it has shown by ploughing on headlong with a hard Brexit amid the pandemic.