We have learned a lot about what Brexit means since the days of “Brexit means Brexit. A key consequence of Brexit has been to put pressure on supply chains and make the UK more vulnerable when it comes to dealing with shocks. Covid has also caused huge supply chain issues across the globe. The combination of these two huge shocks has resulted in much more acute disruption here in the UK, especially compared to our European neighbours.
I think the current petrol crisis is a good example to understand the approach of the government to managing the country under Brexit.
Why is there a fuel crisis?
The current fuel crisis is being driven by a lack of HGV drivers in the UK.
This has structural roots across Europe before any of the recent crises, but Brexit and the pandemic have made it worse as follows:
Structural issue
HGV driver is simply an unattractive job. Regulation is poor and poorly enforced so pay and working conditions are awful. Few people are entering the profession and the aging driver population is retiring and not being replaced.
Pandemic issue
An interruption to testing of HVG drivers means even fewer new drivers and accelerates the decline in drivers across the EU.
Brexit issues
1. EU drivers working in the UK leave due to visa issues.
2. Previously in times of a surge in demand, extra drivers come from the EU, but now they cannot due to visa issues.
Trigger:
The trigger has been a sudden, general awareness that fuel supply is close to breaking point after BP announced that they could not supply all of their petrol stations. This implies that, even operating at full capacity, we cannot supply the current demand. This sparks a rational desire to stockpile, which cannot be quickly met by increasing supply as the system is already failing to meet demand.
It is the combination of these factors which creates a major crisis.
How long will this fuel crisis last?
Some key numbers
High Demand for petrol
8,000 – Number of petrol stations in the UK
4,000 – Daily tanker deliveries to petrol stations
13,000 – Number of tankers of fuel needed to add ¼ of a tank of fuel to every car in the country to meet an estimate of stockpiling demand.
Any extra supply?
We were already on the margin of being unable to supply petrol stations before. After all, that is what caused the “panic” buying – although why is it “panic” when it is rational? This would mean that at the moment some people have more fuel than they normally have, and others have less than they normally have. Anecdotally this feels quite accurate. The way this system gets back in balance is very slow with a combination of long queues and higher prices reducing the amount of driving and making stockpiling more expensive so only the people that are highly motivated get the fuel.
Government action
I think the extra visas, coming next month, will have very little impact on the fuel crisis but may help to reduce the risks around Christmas supply disasters.
The government has also excitedly announced the recruitment of 150 army tanker drivers. If they each do 3 deliveries each a day, it would take them a month to supply the extra fuel needed. My guess is that it would be quicker than that, as perhaps my estimate of the average car having ¼ more fuel is too high, perhaps people driving less will help and perhaps if fuel starts to be delivered, the desire to stockpile will reduce.
Brexit
The fuel crisis is important in itself but it also tells us a lot about the UK’s vulnerability to supply chain problems and our approach to dealing with them.
Supporters of Brexit point to the non-Brexit causes above but ignore that we would not be having this crisis without the Brexit factor. After all, no-one in the single market has this problem, including N Ireland.
It is also worth noting that these types of Brexit issues are not unanticipated or unintended. In fact, this can be seen as one of the main points of Brexit- to stop EU labour working in the UK.
Isolationist
The approach is clearly for the UK to sort it out itself and not use EU drivers as before. This is clearly consistent with Brexit and can be seen as one of the main objectives. A small number of visas for a limited period is a clear intent not to go back to the previous way of managing supply issues.
Laissez Faire
A “left-wing Brexit” and the “laissez-faire” approach of the government seek to resolve the issue of more drivers in different ways.
A “left-wing Brexit” sees the removal of low-wage labour as an opportunity to increase the pay and conditions of HGV drivers. Increased regulation leads to better working conditions such as bathrooms and rest breaks. Unionisation of the drivers leads to higher wages. State intervention leads to apprenticeships and training programs.
A “laissez-faire” Brexit leaves it all to the market, the government has no role. The industry is allowed to remain fragmented with faith in “market forces” to solve all problems. They might argue that the market leads to the same outcome as the interventionist approach, as the reduced supply of EU workers leads to wages rising and conditions improving for UK drivers. Unfortunately, all evidence is that this is a libertarian fairy tale and that without regulation, market failures are commonplace. Or even without market failures, we might have outcomes we do not like. For example, the current shortage of fuel has a very simple economic answer. Higher prices. Petrol stations should simply increase the price of fuel until demand reduces. As any first-year economics undergrad is taught, rationing is not efficient. The extra profits can also be used to pay for more drivers and so the outcome is one where there is more supply and higher prices.
What happens next?
Since I cannot find an answer to the question of how much extra fuel is being delivered at the moment, I cannot give a sensible guess as to when this crisis ends.
What I am more confident of is that supply chain crises are an important part of the Brexit plan. Gove would call them “speedbumps”. We should expect to see more of them.
Applied Macro 