The chill winds that signal a second Winter of Discontent is coming

·8-min read
Empty supermarket shelves - Peter Cziborra/Reuters
Empty supermarket shelves - Peter Cziborra/Reuters

Ministers fear a second Winter of Discontent – and with good reason.

A chill wind beckons, with fuel shortages and runaway inflation added to a list of woes that already included empty supermarket shelves, spiralling energy bills, a tax rise in the spring and an extraordinarily badly timed cut to Universal Credit for the poorest families.

Economists predicted a hike in interest rates, and with it the prospect of higher mortgage repayments.

On Thursday, senior ministers, speaking on condition of anonymity, warned of the "collision of a Winter of Discontent'".

Paul Scully, the minister in charge of small businesses, admitted the Government was "preparing for the worst" as firms face the triple whammy of soaring fuel bills, wage inflation and a rise in National Insurance payments.

The economy – and life in general – is about to get very ugly.

Looming petrol crisis

BP began closing petrol forecourts on Thursday after being hit by fuel shortages caused by a lack of lorry drivers. Esso said a "small number" of forecourts it operated for Tesco were also affected by driver shortages.

Downing Street responded by urging motorists to buy fuel "as normal", fearful of a panic buying spree that would threaten supply and raise the spectre of queues at petrol stations.

BP admitted it was struggling to transport unleaded petrol and diesel from refineries to its 1,200 forecourts. A handful were forced to shut temporarily, and about 100 are believed to be suffering from fuel shortages. The oil giant issued a warning to the Government that fuel stocks were "declining rapidly" and the next few weeks would be "really, really difficult".

It emerged on Thursday that the looming crisis had been flagged to ministers by Hannah Hofer, BP's head of retail, at a specially convened meeting a week ago, organised by the Cabinet Office.

BP admitted it was struggling to transport unleaded petrol and diesel from refineries to its 1,200 forecourts - Lee Smith/Reuters
BP admitted it was struggling to transport unleaded petrol and diesel from refineries to its 1,200 forecourts - Lee Smith/Reuters

In a statement, BP said: "We are experiencing fuel supply issues at some of our retail sites in the UK and unfortunately have therefore seen a handful of sites temporarily close due to a lack of both unleaded and diesel.

"These have been caused by delays in the supply chain, which has been impacted by industry-wide driver shortages across the UK, and we are working hard to address this issue. We continue to work with our haulier supplier to minimise disruption and to ensure efficient and effective deliveries to serve our customers."

BP has called on the Government to urgently relax restrictions on recruiting drivers from abroad.

ExxonMobil, Esso's parent company, said a small number of its 200 Tesco Alliance retail sites in the UK had also been impacted. "We are working closely with all parties in our distribution network to optimise supplies and minimise any inconvenience to customers," it said.

A spokesman for Boris Johnson said: "There is no shortage of fuel in the UK and people should continue to buy fuel as normal. We obviously recognise the challenges faced by the industry and we're taking steps to support them."

The spectre of inflation

On Thursday, the Bank of England issued a warning of a jump in inflation to more than four per cent in time for Christmas – and with it the prospect of a rise in interest rates.

The Bank said the cost of living was being ratcheted up by a combination of surging gas prices, shortages of key goods such as semiconductors and a lack of lorry drivers.

The inflation forecast is more than double the Bank's two per cent target, giving policymakers the headache of trying to rein in prices but not undermine the post-Covid and post-Brexit economic recovery. Economists anticipate that interest rates will rise from the current all-time low of 0.1 per cent to 0.25 per cent in February and potentially 0.5 per cent next August.

"In the recent unprecedented circumstances, the economy has been subject to some of the largest shocks it has faced in centuries and economic activity has been exceptionally volatile," Andrew Bailey, the Bank's Governor, wrote to Rishi Sunak, the Chancellor.

Much of the turmoil is global, on the back of a recovery from the pandemic that has seen economies, effectively mothballed, reopening and causing ructions in supply and demand.

Mr Bailey listed shipping problems as a key factor pushing up inflation, while a lack of semiconductors is hitting the supply of consumer goods including electronics and cars. He noted that second-hand car prices were up more than 18 per cent in August compared with the same month last year.

The Bank still expects "that current elevated global cost pressures will prove transitory", he said – but that increasingly depends on the extent to which wages rise, as spiralling pay can feed back into higher prices in a dangerous cycle.

Furlough comes to an end next week, so officials will track whether or not the 1.6 million workers who were still using the scheme in the middle of the summer go back into jobs or end up unemployed.

Empty supermarket shelves

Just when ministers thought they had solved the problem of a lack of CO2 threatening the food chain, along came the food and drink industry with a dire warning of its own.

Minette Batters, the president of the National Farmers' Union (NFU), wrote to Mr Johnson warning him that the food and farming sector remains on a "knife edge". This time, a continued shortage of workers, rather than gas to preserve the food, threatens to hit supplies to supermarket shelves in the run-up to Christmas. Panic buying was likely, the union warned.

Empty supermarket shelves - Paul Ellis/AFP via Getty Images
Empty supermarket shelves - Paul Ellis/AFP via Getty Images

The letter, signed on behalf of 12 food and drink trade bodies, urged the Government to introduce a Covid recovery visa that would open up new jobs to migrant workers and warned: "Without it, more shelves will go empty and consumers will panic buy to try to get through the winter.

"That is why we must have an urgent commitment from you to enable the industry to recruit from outside the UK over the next 12 months to get us through the winter and to help us save Christmas."

The NFU said a lack of workers meant food was being left to rot because it could either not be picked, processed or packed.

"Every day there are new examples of food waste across the industry, from chicken to pork, fruit and vegetables, dairy and many other products," Ms Batters said. "The food is there, but it needs people to get it to the consumers."

Tesco has warned the Government that it has a shortfall of 800 drivers and is fearful of panic buying in the run-up to Christmas if the nationwide HGV crisis is not addressed. The Road Haulage Association and Logistics UK estimate that there is a need of between 75,000 and 100,000 lorry drivers.

Energy bills heat up

Domestic households will first feel the heat of rising gas prices when energy bills start to hit doormats from Oct 1.

The increase in the price cap – designed to keep costs down – will see average dual fuel bills rise by £139 to £1,277, an increase of 12 per cent. It is likely to be increased again in April when the current soaring wholesale costs are taken into account. Cornwall Insight, an energy consultancy, estimates it could go up in April by 14 per cent, to £1,455.

Senior Tories put Mr Sunak under pressure to use his budget next month to scrap the five per cent VAT charge on household energy to soften the blow of surging bills.

Robert Halfon, the chairman of the Commons education committee, said the UK should take advantage of leaving the EU to slash VAT on energy bills. Abolishing VAT on bills completely would cost the Treasury in the region of £1.6 billion.

For about 1.5 million consumers whose energy supply companies have gone bust, there may be bigger bills ahead. The collapse of so many smaller energy supply companies will force consumers into the arms of the "big six" and the prospect of higher bills on less favourable tariffs.

Speaking in the Commons on Thursday, Kwasi Kwarteng, the Business Secretary, said the Government had "categorically" ruled out handing subsidies or grants to the larger energy companies.

Mr Kwarteng said it was "a consistent feature" of the energy market that suppliers failed, adding: "I can categorically say to this House we will not be giving any grants or subsidies to larger companies."

Wholesale gas and power prices have been soaring due to a global crunch on natural gas supplies, amid claims Russia is manipulating the market and destabilising the economic recovery from the pandemic.

Demand for gas is high as economies reopen, and supplies are tight. The wholesale price of gas in Britain is now above 180 pence per therm, compared to 30 pence per therm a year ago. The cost has climbed 70 per cent since August.

The wholesale cost threatens to have a catastrophic effect on industry. The Government has bailed out a fertiliser company that made carbon dioxide as an offshoot, crucial in the food industry.

British Steel has said the "colossal" rise in energy prices made it "impossible to profitably make steel at certain times of the day.

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