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The UK’s supply chain crisis will continue into 2023 and beyond, driving up inflation and delaying Prime Minister Boris Johnson’s domestic policy agenda to “level up” the economy, a broad coalition of business groups warned on Tuesday.
The leaders from a range of sectors told MPs that small businesses would bear the brunt of labour shortages and price rises that have hit swaths of the economy this year, including haulage, hospitality, food and drink, construction and autos.
“Six months ago our businesses all thought this was transitory, now every business I know expects this to last into 2023 and 2024. Every single one,” Ian Wright, chief executive of the Food and Drink Federation told the House of Commons business, energy and industrial strategy committee.
With materials costs rising 30 to 40 per cent as the global economy struggles to reopen after Covid-19 shutdowns and international freight rates up 10-fold from pre-pandemic levels, manufacturing groups said inflation was “baked in” to the UK economy.
Wright said inflation in the food and hospitality sector was running at a “terrifying” 14 to 18 per cent.
Stephen Phipson, chief executive of Make UK, the manufacturers’ organisation, said that while demand was returning strongly, companies were struggling to fulfil orders and were facing “really serious issues” in terms of price increases and component availability.
“What we have seen in the last quarter is companies starting to pass those costs on . . . which does imply that inflation is now more or less baked in. This is not a transitory inflationary demand,” he added.
He warned it was a “matter of months, probably six months, before we start seeing failures in business”, particularly among small and medium-sized enterprises that served big manufacturers.
Asked what impact this would have on the government’s levelling up agenda, which is central to the Conservative party’s re-election pitch ahead of a poll expected in 2023 or spring 2024, Phipson replied that “it just means the whole programme will take longer than we wanted it to”.
The business organisation chiefs were unanimous in complaining about the government’s failure to take a strategic approach to tackling labour shortages that they said were now a “structural” feature of the economy and would not pass quickly.
Under pressure from business, the government has in recent weeks announced a three-month visa scheme to cover lorry drivers and meat workers, but the groups said the “save Christmas” approach completely failed to address the scale of the shortages.
The committee heard that about 1.4m EU workers are estimated to have returned home during the pandemic, leaving the UK economy short-staffed just at the moment that free movement of labour with the EU ended as a result of Brexit. Another 500,000 UK-born workers have either retired or remained in education.
Figures from the Office for National Statistics released on Tuesday showed there were 52,000 vacancies in transport and storage during July to September, the highest on record.
Despite the shortages, the government has resisted pressure to expand the so-called Shortage Occupation List that lowers the immigration bar for scarce jobs.
Neil Carberry, chief executive of the Recruitment & Employment Confederation, said the government’s policy appeared “stuck in a Brexit time-warp”, urging the government to work with business to address bottlenecks in the economy.
Duncan Buchanan, policy director of the Road Haulage Association, said the government’s offer of 5,000 lorry driver visas that expires at the end of February next year would not address the driver shortages, explaining that the offer of work for the Christmas period was far too short to be attractive to an EU citizen.
The groups also expressed dismay at Johnson’s combative approach to business at the Conservative party conference, when he accused industry of “mainlining” on cheap labour from Europe during the period of EU membership.
Additional reporting by Valentina Romei
This article was first published at https://www.ft.com/content/c7f19120-9442-497b-a328-36b22781006e