Today, the Chancellor of the Exchequer, Rachel Reeves, made a statement to the British parliament. There was little comfort for the hard-pressed rail freight sector. Defence growth will not offset the tax hikes and generally depressed economy. The Spring Statement merely reiterated much that was expected.
Britain’s economy is already facing red signals all down the line. Rising costs, rising taxes and falling productivity mean there is a long line of obstacles in the way of the UK Government’s plans for growth. Today’s announcements by the Chancellor of the Exchequer will simply lead to a further depressed economy say opposition politicians. All these points were roundly refuted by the Chancellor.
Bleak outlook for rail freight
The long-term effects of the Spring Statement will wind down into the transport sector in the coming months. Some have already hit home. Foremost among them is a swingeing rise in national insurance contributions (NI), imposed in November last year and due to take effect from next month. NI contributions are a tax which helps pay for social welfare services in the UK. This tax is taken from payrolls and has made the cost of employment rise sharply – with a corresponding slump in recruitment. Warnings from employers have now begun to crystallise, with blue-collar sectors (such as supermarket chains) announcing layoffs.
For the transport sector, long-standing staffing issues have helped shield it from a similar wave of layoffs. “The Spring Statement fails to tackle the deep structural problems in our economy,” said Eddie Dempsey, the recently appointed General Secretary of the rail union RMT. “Unless there is a fundamental shift in the structure of our economy that redistributes wealth toward investment in our infrastructure, housing, and services, the cycle of falling living standards will continue for a generation.”
Rolling stock redundancy and locomotive layoffs
Less demand for offices and homes for those workers translates to a threat to the rail freight mainstay of construction materials. Also, tightening belts amid rising prices, rising taxes, and falling employment reduces purchasing power, leading to fewer containers needed to stock warehouse shelves.
That falling demand impacts intermodal traffic – the other side of the rail freight equation. Britain may well have a shortage of rail-served warehousing and logistics infrastructure in general, but suppressing economic growth is not the best way to go about solving that issue. Suddenly, it’s more than just numbers on the Chancellor’s financial graphs. It’s rolling stock on rolling redundancy and locomotive layoffs.
Low margin, low profit, low confidence
The shadow chancellor, Mel Stride, replied with equal vigour. He said that Reeves had brought about her own downfall by persistently talking down the UK economy. He said today’s statement had brought her to a cold, hard reconning. growth has been halved according to the independent Office of Budget Responsibility.” This is going to mean prices bearing down on households and businesses. Nor will unemployment fall in the short term, he said, with jobs being lost across the entire economy.
No matter which politician is in charge, rising costs and falling revenue still dominate the UK economy. That is a climate that is most damaging for low margin, low profit operations. Unfortunately, if there was a way to describe the rail freight industry in one phrase, that would be it. There have been hundreds of quiet (and not so quiet) closures in the road freight industry already. The same could happen to a rail freight carrier in the UK. Already, at least one operator (Freightliner) has admitted to its staff that a buyer would be welcomed.
Questions over infrastructure spending
There seems little prospect of domestic funding to make right the elusive growth sought by Rachel Reeves. The national debt is already running at 100% of GDP. That’s not historically exceptional, but servicing the debt is extracting revenue growth and the ability to invest. In these conditions, expect trade and transport infrastructure to take a back seat. Instead, welfare, health care, and defence were all the subject of re-announced funding pledges.
It seems that if any growth is to come in the UK transport and trade industries, it will come from the private sector or overseas investment. Peel Ports development at Liverpool and DP World’s London Gateway expansion offer examples of each scenario. However, private investors are unlikely to fund repairing Britain’s notoriously neglected roads, nor is any investor stepping in to say: “Hello, Network Rail, we’ll build that Ely Area Capacity Enhancement project for you.” Still, lack of funds hasn’t stopped the Government from (finally) signing off on a 4.1km, six-lane twin road tunnel under the Thames. Not necessarily the most sustainable transport concept on the agenda.