What the government has to do to get the economy moving again

The events of the past week have shown the fragility of the UK’s economic recovery. The issue of labour shortages is nothing new.

Three years ago, the British Chambers of Commerce (BCC) quarterly economic survey for the fourth quarter of 2018 found 81% of manufacturers were experiencing difficulties in finding the right staff. At the time, this was the joint-highest level since the survey began in 1989.

Undoubtedly, the UK’s exit from the EU and the Covid pandemic have both played their part in exacerbating pre-existing challenges. One event was expected, the other wholly unanticipated. But the challenges and changes brought by both can be addressed through a coherent and coordinated plan for recovery and growth.

As businesses weather the stormy economic conditions created by the pandemic, the BCC has set out a blueprint for economic recovery. Drawn from our collective experience of working with businesses large and small, throughout the UK, the Rebuild plan details the steps that local chambers think government should take to put the economy on a path to a brighter future. While some steps have been taken that will make a difference in the longer term – employer-led skills planning being a great example – businesses are still facing the most difficult environment for a generation.

And it’s not just labour shortages. The price of energy, raw materials and shipping have all risen sharply. It’s often taking longer to move goods across borders and businesses are facing higher taxes in the coming year. One of these issues alone would be tough, but together they create a perfect storm as we head into an unpredictable winter.

Firms want certainty. Our most recent BCC forecast predicts a 2.5% fall in investment this year – putting the economic recovery on shaky foundations. With inflation predicted to rise to 4%, double the Bank of England target, there is a great deal of unease among business as to what will happen next. Government needs to work with business to take immediate action – and identify the longer-term solutions – to get us back to growth. This starts with the labour shortages currently affecting every part of the economy.

For a start, the proposed short-term visas for HGV drivers and poultry workers are unlikely to make enough of a difference. In addition, a rapid review must be carried out of the shortage occupation list to include roles where there is evidence of national shortages. Government should also create a new emergency skill-level category on the list for HGV drivers and other jobs, where national shortages are now damaging the economy and holding back recovery.

Now that furlough has come to an end, we are expecting to see a rise in unemployment to a peak of 5.1% by early next year. While there will be opportunities for workers whose roles have been made redundant to retrain, the reality is that the imbalance between the jobs available and people’s abilities to do them will not right itself overnight.

Whether it’s lorry drivers, heating engineers, care workers, plasterers or chefs that are needed, getting the UK’s training system right is going to be vital to our long-term prosperity. Our skills system must be more flexible, it must deliver the training that businesses want in the areas they are based, and the government must help smaller firms to map out their plans for the future.

If we get this right, then the stability of the labour market will be much improved, but there are still many other pressing issues that need to be addressed. That’s why we are calling on senior ministers in the UK government, as well as EU officials, to urgently examine the problems of trade. We are experiencing issues with the EU – our nearest and biggest trading partner – that we aren’t seeing in our dealings with the rest of the world. More needs to be done to help businesses to overcome new barriers, including increased red tape and bureaucracy.

We are talking with the government on the need for much more pragmatism from both sides with how the post-Brexit trade and cooperation agreement works in practice to ensure fewer business activities, particularly services-related, require work permits. Beyond this, there needs to be a more detailed plan to manage Covid through the winter and beyond. Firms throughout the UK need to know that if the pandemic flares up and restrictions return that hamper their ability to do business, then support will be put in place.

And finally, with the budget on the horizon, businesses need to know there will be no further upfront costs piled upon them at a time when they are trying to get back to growth. If we can deal with these thorny issues now, then the impact of the next economic shock, be it Covid or something new, will be more easily withstood, and businesses in the UK can begin to plan and invest in the future with the certainty and confidence they crave.

Shevaun Haviland is the director general of the British Chambers of Commerce