How we Subsidise Globalism

UK Trade in the Short Straits

The debate about industrial strategy, ‘levelling up’ declining regions and the decay of well paid working class jobs is unusual in its lack of acrimony but also lack of concrete proposals. Most would like this to be done, but can’t see how it will work in practice with a fear that the trends of globalism are incredibly hard to resist. This piece is about a small practical example of how globalism and its unwelcome consequences are sometimes actually subsidised by UK state action, which could relatively easily be reversed making a modest contribution to rebuilding higher quality working class jobs.

One of the biggest headaches during preparations for Brexit was the enormous reliance of UK trade on the short straits route – basically the ferries from France to Dover and Eurotunnel. For Roll on Roll Off (lorry borne) trade, the short straits has over 62% of the market. Dominic Raab attracted some ridicule from Remainers for expressing surprise at the scale of the dependency. The fear of huge queues preoccupied Ministers, and significant money and infrastructure was devoted to ensuring the free flow of trade continued. My last job in the civil service was trying to get some control of infrastructure spend to deliver Brexit.

In the process the government doubled down on the approach to doing what was necessary to protect this route in the interest of smooth trade flows, whatever the financial cost, which the taxpayer ended up footing. Resilience of the supply chain was the only issue that really attracted press or Ministerial concern, with lurid fears (and perhaps hopes) of supply shortages as Brexit approached. What was missed was an interesting underlying story. The Short Straits is an example in microcosm of how the UK economy has suppressed wages, killing off another ‘aristocracy of labour’ job in return for cheap imported goods. And, characteristically, the UK taxpayer has ended up subsidising the process too.

Historically, trade is almost always carried to ports as close as possible to the final destination before being transferred to make the final journey. This was quicker, cheaper and more reliable. More recently, the environmental benefits of shorter road routes have been increasingly clear too. HGVs emit nearly twenty times as much greenhouse gas per tonne/kilometre, for example.

The past few decades in Britain have seen this trend go into reverse in the Short Straits, however. When the Channel Tunnel was built, the short straits port handled around 40% of ‘roll on roll off’ trade. Indeed the original business model for the tunnel assumed a huge transfer of business from ports like Dover. In practice, the shock of impending competition led to significant efficiency improvements on the ferry routes and a price war that ended up increasing trade volumes through this route, at the expense particularly of East Coast ports, especially those in the Thames Estuary.

This price shock was accompanied by two other favourable trends. The first was the EU single market, which enabled a much more friction free trade, and secondly by a flood of cheap labour onto the market as new EU members in Eastern Europe began playing a larger role in freight.

All of this benefited the short straits route. The basic model is accompanied roll on roll off. One driver takes you from A to B. While we were in the EU, the driver was typically very low waged, and was unlikely to be stopped for any paperwork. The existence of both ferries and the tunnel (and the ability to delay your final choice of route to pretty much the last minute) provided significant resilience against bad weather or technical problems while the sheer volume of routes meant confidence about arrival times was high.

The contrasting ‘unaccompanied’ route involves a driver taking the container to a port on the continent, leaving it to be loaded on the ferry and then picked up by another driver on the other side, with any paperwork sorted out through the port system.

So what’s not to like about the short straits route? There are legitimate concerns about resilience, particularly given the strike happy nature of the French side. In the run up to Brexit government was anxious about the leverage France might be able to exploit against UK trade (to be fair, they didn’t really do this in practice, though their Covid measures were another matter).

More importantly, perhaps, this represented yet another example of skilled/semi skilled jobs being effectively outsourced and impoverished in the process. It is hard to believe now that Princess Anne commented as a young woman that she would quite like to have been a long distance driver. NIMBY objections to lorry parks and driver facilities means the everyday experience of being a driver in the UK is a pretty squalid one. It is not surprising the median age is well into the 50s.

There are also obvious ‘externalities’. Congestion on the M25 and the M6 is worsened by long lorry journeys all the way from Kent, round London and into the Midland and NW which could be avoided by bringing goods to other East Coast ports, for example. The DfT’s own ‘modal shift’ model suggests a cost of £1.44 per mile by HGV on the most congested roads – meaning that a trip to Manchester via the short straits imposes ‘externality’ costs on the rest of us of around £100 by journey, which dwarves the charges we impose on foreign drivers through the HGV levy.

Brexit and Covid brought some of these issues to a head, revealing in the process the British administrative and political system’s reflexive deference to business rather than worker interests. The supply chain problems led to pressure on wages. Characteristically, the immediate response was not to allow wages to increase to improve supply, but a demand for ‘cabotage’ limits to be removed (the number of jobs an EU driver can do within the UK in between entering and leaving, and which has been severely limited for UK drivers in the opposite direction). And, of course, calls for a special HGV visa route. Interestingly, while cabotage was relaxed, and DfT put pressure on the Home Office, the visa offer was not granted, making employers in this sector uniquely unlucky during the “Boriswave“ of ultra liberal immigration policies. The market adjusted instead through somewhat higher wages.

Over the longer term, higher wages as a result of Eastern European economic growth is putting pressure on the accompanied route anyway. Its economic attractiveness depends to an extent on the driver’s wages being quite low (although sea journey times on the accompanied routes are much longer, there obviously aren’t driver wages to worry about during that part of the journey). There have been tentative signs of a shift back to unaccompanied trade.

Brexit itself posed very difficult challenges for accompanied ports, while IT systems in unaccompanied ports were able to cope with the additional paperwork with minor modifications. The entire focus of the government effort was to maintain trade flows, even if this involved a huge subsidy to rescue the accompanied trade business model.

Because space was limited at Dover and Eurotunnel, huge facilities costing hundreds of millions were built for the short straits (and the similar Holyhead route), in contrast to the limited support that was given for in port facilities elsewhere in the country. Whole new IT systems like the Kent Access Permit and the Goods Vehicle Movement Service were built and provided for free. Kent County Council and Kent Police were funded for significant traffic management work.

In addition, Brock, the traffic management scheme on the M20 is becoming almost a permanent feature. This imposes significant costs and inconvenience on Kent residents and businesses. It also imposes significant costs on Kent police and the Highways Agency. Recently the scheme has been made even more complex, with a permit system to seek to prevent ‘rat running’ by some hauliers to skip the queues. With forecast travel growth, the imminent start of the EU’s Entry and Exit System for passengers and the lack of plans for upgrading the roads from Dover, this problem is only going to get worse.

This whole exercise speaks to the inbuilt conservatism of the system, which is determined to protect the status quo. Also to the fear of judicial review – Dover challenged the government over its refusal to support the port under the Port Infrastructure Fund. Getlink has been notoriously litigious over the years. It is surprising in contrast that ports elsewhere have not chosen to challenge the government legally on subsidy grounds despite their frequent complaints.

A more rapid modal shift from unaccompanied imports through the short straits to unaccompanied trade at other ports would hold out the prospect of decently paid jobs for UK drivers in some of the most deprived areas of the country. It would be better for resilience if trade came in through a wider dispersed set of routes, while environmentally it would avoid the congestion, damage to roads and environmental impact of long HGV journeys right across the country.

This doesn’t (and can’t realistically) need to involve government instructing companies which route to choose. But all routes should bear their full costs. This should mean ensuring that Inland Border Facilities that are subsidised by the taxpayer in the short straits but paid for by ports elsewhere are charged to those using the short straits route. Similarly to the cost of traffic management and the IT system that have been built and maintained to keep accompanied trade flowing.

At this stage, all that is needed is simply bringing back a level playing field between the different routes. In the short term, business habits tend to be ‘sticky’. But there is evidence that quite dramatic shifts can happen when the circumstances change. The introduction of EU controls saw a major shift away from the short straits on the part of ‘land bridge’ traffic. This was traffic which used to transit the UK between Ireland and the continent. The prospect of controls if the vehicles came through the UK encouraged the introduction of new direct routes from Rosslare to the various Normandy ports and a major shift in traffic. In some cases, there had always been a reasonable economic case for the direct route to France, but hauliers were deterred by the reliability and risks of the route given the lower number of sailings. While this has been a revenue hit for ports in south Wales and the short straits, the trade does not look to be returning, and this is surely a net benefit for the UK given the costs associated with HGV traffic.

This is, perhaps, a relatively niche area. I’m not saying it would create tens of thousands of new high quality jobs. But it is a straightforward and easy to justify policy area. At least as importantly, there is an element of ‘muscle training’ for the administrative system. For decades, the micro economic tool of choice has been to bear down on costs, particularly labour costs, either domestically or through outsourcing. Training civil servants and Ministers’ mind to prioritise higher quality, higher paid UK jobs paid for by enhanced productivity, setting aside the lobbying by special interest groups and ruthlessly stripping out taxpayer subsidies for damaging trade practices is an important start towards better policies that are genuinely in the wider national interest.