What will be the impact of the policies of the Johnson government on Birmingham and the West Midlands?

At Birmingham Trades Council’s first meeting in 2020, on January 9, Michael Roberts will be talking about the policies of the Tory government. We need to work out what they will mean for our city and our region. As BATC’s first contribution in 2020 to this discussion we publish extracts from some recent reports which provide some background.

First, a reminder of where Birmingham workers work. Here is the Council’s latest data giving the number and percentage by sector of workers in Birmingham. (https://www.birmingham.gov.uk/downloads/file/2863/workplace_employment_2018)

Public Services 163,000 31.3%

Financial & Professional Services 130,500 25.1%

Retail & Leisure 126,000 24.2%

Transport & communications 39,000 7.5%

Manufacturing 38,000 7.3%

Construction 19,500 3.8%

Mining & Utilities 3,750 0.7%

Agriculture 400 0.1%

Total 520,000

So almost 1 in 3 work in public services, a quarter work in Financial & Professional Services and another quarter in Retail & Leisure, compared to 1 in 14 in Manufacturing.

We can break these figures down further. For example, 29,000 – the large majority of them women – work in Adult Social Care, that’s 5.6% of the Birmingham workforce and about I in 6 of the 163,000 public sector jobs in the city. That compares with 19,500 in construction – 3.8% – and is not that far short of the number of jobs in manufacturing, 38,000.

For each of these sectors and the groups within them – by gender, ethnicity, age etc – we need to develop an analysis in Birmingham of how Johnson’s policies – cuts in public spending, Brexit, the housing market, trade union restrictions, etc, – may impact on them in specific ways. And we need to include in that the unemployed, the homeless, and other excluded and at-risk groups.

One key question is of course the impact of Brexit. Below we publish extracts from three reports, again as context for the developing analysis by the labour and social movements in Birmingham.

AREAS OF CONCERN

The first extract is from The Impact of Brexit on Birmingham and the West Midland: Initial Analysis, published by Birmingham Council in November 2018 and based on the work of its Brexit Commission. It provides a list of issues which may be useful for our analysis in 2020. (Oddly, there doesn’t seem to have been a word from or about the Council’s Brexit Commission since April 2019. An explanation from the Council is long overdue.)

The Brexit Commission has identified the likely areas of concern, which are listed below.

Trade

    1. The impact of the conclusion to the Brexit process, notably customs arrangements, tariffs, regulation, freight and borders, on the regional economy, particularly advanced manufacturing given its high servitisation component.
    1. Infrastructure & Investment

The impact of Brexit on continued investment into transport infrastructure, broadband, housing and business investment, given the need to sustain international competitiveness.

    1. Just in Time Impacts

Implications may lead to the need to stockpile goods such as food and medicines, and issues of where these will be stored. Further implications for energy. The impact on current supply chains and the impact of longer lead times, for example in the manufacturing sector.

Jobs

    1. Key Employment Sectors

Key sectors which are particularly vulnerable to Brexit, including automotive plus those in the wider supply chain. Health and social care are also sectors of concern, with 1 in 10 social care nurses being EU nationals, as well as the broader impact of a general economic downturn/compression in growth. The ability to identify those sectors which are most at risk.

    1. Productivity and Skills

The recruitment and retention of skills, especially maintaining access to technical, proficient labour, such as currently provided by EU nationals and addressing skills shortages

Business

    1. Business Adaptability

The preparedness of business to deal with the Brexit outcome (especially SMEs which make up 99% of enterprises in the WMCA) notably the need to increase awareness of the new conditionalities of trading with Europe, potentially under WTO auspices.

Funding

    1. EU Funding

Birmingham alone has benefitted from over £1billion in EU funding and the loss of this resource will have an impact on key priorities for local government such as jobs and skills and inclusive growth. New UK Shared Prosperity Fund critical to filling this funding gap.

Public Sector

    1. Fiscal, Financial & Economic

The potential, up to 13%, compression on the regional economy from Brexit, possibly leading to an increase in pressure on LA services. The impact of volatile interest rates and markets and their impact on servicing debts.

    1. Security

Need to increase awareness of adherence to international treaty obligations and trading regime requirements to ensure compliance.

    1. Data Sharing

The impact of Brexit on current collaborative arrangements between EU and regional institutions on knowledge transfer and data sharing platforms. This may have implications for issues such as counter-terrorism, but also industries such as medicines and healthcare.

    1. Public Services

EU funding, trading standards, environment & health regulation, procurement, workforce issues and resilience

KEY SUPPLY CHAIN RISKS

The second extract is from the recently published WMCA State of the Region 2019 summary report:

City-REDI at the University of Birmingham have been working on economic analysis to understand the potential impact of Brexit on the West Midlands economy. They’ve estimated that up to 12.2% of West Midlands GDP is at risk in the event of a no-deal Brexit, and that current manufacturing is the most exposed sector in the region (32.2% of GDP at risk if the frictionless UKEU trade is disrupted).

As part of the Mayor’s Brexit Economic Contingency Group, City-REDI have also identified the key supply chain risks of Brexit.

    • delays in crossing the UK/EU border
    • an increase in costs for crossing the border
    • additional export/import controls
    • new compliance requirements on exporters

BREXIT AND MANUFACTURING

The third extract is from A Brexit trade deal is vital for manufacturing by David Bailey, 16 December 2019. (https://ukandeu.ac.uk/a-brexit-trade-deal-is-vital-for-manufacturing/?fbclid=IwAR2iyjZrIgbJByupFxxZjXzjQD_rXTDW3HYnmuS016jQNQczqxeEHr32oRw)

The risk of a no-deal Brexit at the end of 2020 rises dramatically if no extension has been requested as many think it unlikely that a trade deal – even a ‘bare bones’ Canada style Free Trade Agreement – can be struck in a year.

That means another year of uncertainty for big auto assemblers, with potentially major consequences.

That uncertainty means that it is unlikely that we see any immediate bounceback in investment in UK auto, which has fallen by over 80% over the last three years.

The risks are high. Peugeot has already stated pretty bluntly that a no-deal Brexit would mean no investment at Vauxhall at Ellesmere Port (the current Astra model is due to be replaced in 2021) with investment to be switched to southern Europe (the merger with Fiat also gives it plenty of switching options).

Yet the Conservatives promised in their manifesto not to extend the transition. Whether Johnson is willing and able to u-turn on this will be a major question, and is linked in turn to what form of Brexit he actually wants. And on that we simply don’t know, remarkably.

Mike Hawes, the Chief Executive of the Society of Motor Manufacturers and Traders (SMMT) recently said that the “UK automotive’s needs are clear: frictionless trade free of tariffs, with regulatory alignment and continued access to talent. Detailed trade negotiations have yet to begin. They will be complex and they will take time. But a close trading relationship is essential to unlock investment”.

Twice this year – in April and again in October – car assemblers have had to shut down plants to avoid disruption around the time of the UK’s scheduled departure dates from the EU.

Jaguar Land Rover’s Chief Executive Ralf Speth stressed that the firm had no choice but to stop production lines at its four UK plants (Solihull, Castle Bromwich, Wolverhampton and Halewood), stating that the firm needed 20 million parts a day; every part had to be available when needed and just in time.

The latter point illustrates the vulnerability of automotive manufacturing that relies on ‘Just in Time’ (JIT) processes to customs delays and supply chain disruption.

While a minimalistic trade deal could eliminate most tariffs, the UK would still be outside the EU customs union and there may be customs delays, which could throw a big spanner in the works of JIT systems commonly used across UK and EU manufacturing.

Meanwhile a no-deal Brexit would be especially damaging as tariffs of 10% would apply on exported cars.

Ian Henry at AutoAnalysis has crunched the figures in terms of how a no-deal Brexit would impact, noting that a move to trading on WTO terms would add around £3bn a year to UK auto’s costs through tariffs alone, with additional non-tariff barrier costs on top. That is unsustainable in the long run, he told me.

Henry notes that it is questionable whether the government can mitigate these tariffs without falling foul of ‘level playing field’ provisions that the EU will demand as part of a trade deal (on state aid see my recent blog here).

In our recent book Keeping the Wheel on the Road: UK Auto post Brexit, Henry forecast a short-term production hit from a no-deal Brexit of at least 175,000 cars a year (that’s not including the Honda closure), which is over 10% of UK car output.

Longer term, there is a significant risk that firms will consider shifting production activities outside of the UK such that the loss of output could be much higher.

As Henry notes: “a hard Brexit would also make the case for long term production in the UK for EU highly questionable for most vehicle plants. I would expect at least 1.5m vehicles would be lost from UK production over a five-year period from when the hard Brexit began.”

 

Leave a comment

Filed under Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s