Brexit has made supply shortages worse, government spending watchdog says

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Supply shortages which are holding back growth, raising prices and putting pressure on wages have been made worse by Brexit, the government spending watchdog has said.

Ministers have repeatedly blamed the pace of the global recovery from Covid for supply chain problems, including shortages of HGV drivers and poultry workers that have led to the petrol pump crisis and fears of Christmas food shortages.

But the independent Office for Budget Responsibility (OBR) on Wednesday said these supply bottlenecks have been “exacerbated” in the UK by “changes in the migration and trading regimes following Brexit”.

The assessment came in the OBR’s Economic and Fiscal Outlook published alongside the Budget, in which Chancellor Rishi Sunak announced several measures to “seize the opportunities of Brexit”.

To cheers from Conservative backbenchers, Mr Sunak revealed tax breaks for ships that fly the Union Jack under post-Brexit changes to attract the world’s largest merchant navy firms to the UK.

Those that fly the Red Ensign flag and those that help the UK reach net-zero will stand a better chance of being accepted to the tonnage tax regime, which means they can pay less, based on the amount they can carry rather than the profits they make.

The Treasury is portraying the move as a Brexit benefit because the UK previously had to obey EU rules which meant there was no recognition of the difference between a ship flying the Union Jack and flags from other European countries.

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Mr Sunak also said leaving the EU gave the UK the opportunity through “legislative flexibilities” to reform the alcohol duty system to ensure drinks are taxed in proportion to their alcohol content.

The Treasury also touted a controversial cut to air passenger duty on domestic flights as an “opportunity of Brexit”.

Mr Sunak told the Commons: “We want this country to be the most exciting and dynamic place in the world for business.

“And now that we’re left the EU, we have the freedom to do things differently and deliver a simpler, fairer tax system.”

It came as the OBR said the 13 per cent fall in the number of HGV drivers in the two years to June was was “exacerbated by both delays in the certification of new drivers over the past year and post-Brexit limits placed on the hiring and utilisation of qualified drivers from the EU”.

The watchdog also found that the change to trade rules under Boris Johnson’s Brexit deal in January meant trade with the EU suffered more than with the rest of the world during the pandemic.

By August, trade with the rest of the world had recovered to 7 per cent below 2019 levels, while trade with the EU was down 15 per cent at the same time.

Paul Johnson, director of the independent Institute for Fiscal Studies, said the OBR document showed firms were suffering as a result of Brexit.

He told BBC News: “You will also see in the OBR document evidence of quite a big reduction in trade with the European Union, so the continued impact of the additional trade barriers that we have with the European Union is taking its toll on business as well.”

Brexit has made supply shortages worse, government spending watchdog says
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Ian Mulheirn, executive director for UK policy at the Tony Blair Institute, said: “While the Chancellor trumpeted newfound ‘Brexit freedoms’ to reform alcohol duties, what he didn’t mention was that Brexit has cut annual tax revenues by around £30bn. 

“This means that without the Brexit shock most of the past year’s £40bn tax raid would have been unnecessary. 

“We could have had respectably funded public services and avoided record tax rates. 

“But the legacy of Brexit has forced the Chancellor to choose. 

“Sadly, that’s one legacy of the past 11 years that the government doesn’t yet seem willing to fix.”

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