Analysis: Brexit cold turkey – UK tries to kick 25-year habit of imported labor

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LONDON, Oct 5 (Reuters) – Britain’s 25-year-old model of importing cheap labor has been upended by Brexit and COVID-19, sowing the seeds for a winter of discontent in the way of the 1970s, with labor shortages, spiraling wage demands and rising prices.

The exit from the European Union, followed by the chaos of the biggest public health crisis in a century, plunged the world’s fifth-largest economy into a sudden attempt to shake off its dependence on cheap imported labour.

Prime Minister Boris Johnson’s Brexit experience – unique among major economies – has further strained supply chains already creaking globally for everything from pork and poultry to medicines and meat. milk.

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Wages, and therefore prices, will have to rise. Read more

The longer-term impact on growth, Johnson’s political fortunes and the UK’s on-and-off relationship with the European Union are unclear.

“It really is a big turning point for the UK and an opportunity for us to go in a different direction,” said Johnson, 57, when asked about labor shortages.

“What I won’t do is go back to the old failed model of low wages, low skills, supported by unchecked immigration.”

He said Britons voted for change in the 2016 Brexit referendum and again in 2019, when a landslide election victory made Johnson the most powerful Tory prime minister since Margaret Thatcher.

Stagnant wages, he said, were set to rise – for some the economic logic behind the Brexit vote. Johnson bluntly told company bosses in closed meetings to pay workers more.

“Taking back control” of immigration was a key Brexit campaign message, which the Johnson-led “Leave” campaign narrowly won. Later, he promised to protect the country from the “job-killing machine” of the European Union.

Johnson presents his Brexit bet as a “fit”, although opponents say he disguises a labor shortage as a golden opportunity for workers to raise their wages.

But restricting immigration amounts to a generational shift in UK economic policy, just after the pandemic triggered a 10% contraction in 2020, the worst in more than 300 years.

As the EU expanded east after the fall of the Berlin Wall in 1989, Britain and other major European economies welcomed millions of migrants from countries like Poland, which joined the bloc in 2004.

Nobody really knows how many people came: in mid-2021, the British government said it had received more than 6 million applications for settlement from EU nationals, more than double the number it believed to be in the country in 2016.

After Brexit, the government stopped prioritizing EU citizens over people from elsewhere.

Brexit prompted many Eastern European workers – including around 25,000 truckers – to leave the country just as around 40,000 truck license tests were halted due to the pandemic.

Britain is now short of around 100,000 truckers, leading to queues at petrol stations and concerns over the delivery of food to supermarkets, a shortage of butchers and staff in warehouse also causing concern.

“Wages will have to go up, so the prices of everything we deliver, everything you buy off the shelves, will also have to go up,” said Craig Holness, a British trucker with 27 years’ experience.

Salaries have already skyrocketed: a job as a Class 1 HGV driver was advertised for 75,000 pounds ($102,500) a year, the highest the recruiter had ever heard of.

The Bank of England said last month that CPI inflation was expected to rise to 4% by the end of this year, ‘largely due to developments in energy and goods prices’ , and that the case for raising interest rates from historic lows seemed to have strengthened.

He cited evidence that “recruitment difficulties had become more widespread and acute”, which Bank officials attributed “to a combination of factors, including a faster-than-expected recovery in demand and a reduction in the availability of EU workers”.

Johnson’s ministers have repeatedly dismissed the idea that Britain is heading for a “winter of discontent” like the one that helped Thatcher take power in 1979, with a spike in wage demands, labor inflation and electricity shortages – or even that Brexit is a factor.

“Our country has operated at a relatively low rate of wage growth for a long time – essentially stagnant wages and totally stagnant productivity – and that’s because we have chronically failed to invest in people, we’ve failed to invest in equipment and you’ve seen wages stagnate,” Johnson said on Sunday.

But he did not explain how sluggish wages and low productivity would be solved by a mix of lower immigration and higher wages that fuel inflation that is eating away at real wages.

It was also unclear how higher prices would affect a consumer-driven economy increasingly dependent on supply chains whose tentacles stretch across Europe and beyond.

For some observers, the UK has come full circle: it joined the European club in the 1970s as a sick man of Europe and its exit, many European politicians clearly hope, will bring it back to a stalemate. cautious.

Johnson’s legacy will depend on their proof to the contrary.

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Reporting by Guy Faulconbridge; Editing by Catherine Evans and Andrew Heavens

Our standards: The Thomson Reuters Trust Principles.

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