Articles and commentaries from Neil McCoy-Ward
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The US Debt Ceiling Crisis Explained!
The US Senate has voted to temporarily raise the nation's debt limit, avoiding a historic default that experts say would have devastated the economy. Senators agreed to increase the limit by $480bn (£352bn), which will cover the US until early December.
Update to article: 8 October 2021:
The US Senate has voted to temporarily raise the nation's debt limit, avoiding a historic default that experts say would have devastated the economy. Senators agreed to increase the limit by $480bn (£352bn), which will cover the US until early December.
The bill was approved in a 50-48 vote, following weeks of partisan fighting.
The breakthrough came less than two weeks before the US was set to be unable to borrow money or pay off loans for the first time ever.
The bill now must be approved by the House of Representatives and will then be sent to President Joe Biden to be signed into law.
The vote in the upper house of Congress came after Republican Senate leader Mitch McConnell offered his support for a short-term extension. Senate Republicans have previously said that raising the debt limit is the "sole responsibility" of Democrats because they hold power in the White House and both chambers of Congress.
Original article: 7 October 2021:
US lawmakers are once again locked in a dangerous game of brinkmanship over lifting the debt ceiling. Treasury Secretary Janet Yellen warned Congress last week that the country will reach its ceiling by 18 October, which (at the time of writing this article) is only 10 days away.
Republicans are daring Democrats to resolve the conflict alone, but Democrats say they are being reckless. The showdown has prompted fears of a default on the national debt. A default is unlikely and has never happened in US history but would have catastrophic implications for the US and the global economy.
What is the debt ceiling?
The US government spends more money than it collects in taxes, so it borrows to make up for the shortfall.
Borrowing is done via the US Treasury, through the issuing of bonds. US government bonds are seen as among the world's safest and most reliable investments.
In 1939, Congress established an aggregate limit or "ceiling" on how much debt the government can accumulate.
The ceiling has been lifted on more than 100 occasions to allow the government to borrow more.
As the country has become more bitterly partisan, lawmakers have used the debt ceiling vote as leverage against other issues.
In a 2013 standoff, the last time the US was in serious danger of going over a "debt cliff", Republicans put up a blockade over the spending plans of Barack Obama.
Lawmakers typically back down at the eleventh hour.
Who owns US debt?
US Citizens, probably. The Social Security Trust Fund buys a lot, along with pension funds and institutional investors. Creditors also include foreign nations, like China and Japan, although they do not own anywhere near a majority of the US debt.
What happens if the debt ceiling is not raised?
Treasury Secretary Janet Yellen has been warning Congress for months about the consequences of not raising the limit. The US technically reached its limit in August, when a two-year reprieve Congress passed in 2019 expired. The Treasury Department has been moving things around to cover costs since then.
For the first time ever, sometime in the second half of October, the US would default on its debts - which currently stand at around $28tn (£21tn).
Such an event would cause delays to every single government programme and affect federal funding for individual states.
Default may also trigger a spike in interest rates and ruin America's creditworthiness, making the US a more expensive place to live and damaging the economy. It would also bring turmoil to the stock market.
Not raising - or temporarily suspending - the debt ceiling also threatens the health of the global economy.
Investors around the world may sell off US assets and become less trusting of the US dollar.
The International Monetary Fund (IMF) has called for an end to Washington's "counterproductive brinkmanship" over the debt ceiling. It also suggested the cap should be replaced with an alternative financial mechanism.
Why is there a standoff over the debt ceiling?
There are 50 Democrats in the Senate, but unless they end the filibuster, it will take the agreement of 10 Republicans to get a vote on the debt ceiling.
How has this worked in the past?
In the past 50 years, according to the Treasury Department, Congress has acted 78 times to raise the debt limit. That includes 49 times under Republican presidents and 29 times under Democratic presidents.
The last time lawmakers voted to raise the debt limit, it was a bipartisan affair. They raised the limit for a time period -- two years -- instead of a dollar amount, as in many previous votes.
What are Democrats saying?
On Monday, President Joe Biden condemned what he called "hypocritical, dangerous and disgraceful" Republican opposition. Mr Biden said it amounts to "playing Russian Roulette with the economy".
Democrats have pointed out that raising the debt ceiling is about paying off existing obligations rather than paying for new ones, and that Mr Biden's policies have only contributed to 3% of existing debts.
They also note that, during Mr Biden's predecessor Donald Trump's term, they joined with Republicans to raise the debt ceiling three times.
What are Republicans saying?
Senate Republicans have said raising the debt limit is the "sole responsibility" of Democrats because they hold power in the White House and both chambers of Congress.
Minority Leader Mitch McConnell tweeted last month that his party "will not facilitate another reckless, partisan taxing and spending spree".
Two attempts to vote on the debt limit have already failed in the Senate and the deadline set out by Ms Yellen is fast approaching.
How might this get resolved?
Amid this week's negotiations, Senator McConnell has proposed two possible options.
He has said Republicans may be willing to come along with Democrats on raising the debt ceiling temporarily through December.
Alternatively, he offered an expedited reconciliation process, in which Republicans would agree to limit floor debate and amendments in order to shepherd the legislation through the Senate quicker.
Democratic leaders had previously indicated that using the tool of reconciliation would not be palatable to them, as it would create dual tracks of legislation - to raise the debt limit and to separately pass the Democrats' social spending bill.
But they have delayed a third attempt to bring up the debt ceiling measure through regular order in the Senate so that the party can contemplate Mr McConnell's offer.
Should you be worried?
Failure to raise the debt ceiling in time could halt payments that millions of Americans rely on, including pay checks to federal workers, Medicare benefits, military salaries, tax refunds, Social Security checks and payments to federal contractors.
It could cause job losses, a shutdown of tens of billions in Covid-19 economic recovery aid still set to be delivered, a near-freeze in credit markets and gross domestic product taking a tangible hit that could last for multiple quarters.
A Goldman Sachs report has estimated the US Treasury may need to halt more than 40% of expected payments and financial aid to US households.
The Pentagon released a statement on Wednesday expressing concern that service members too may not be paid in full or on time.
The American people may see the value of their retirement accounts shrink, interest rates go up and their mortgage and car payments increase.
President Biden recently said: "Defaulting on the debt would lead to a self-inflicted wound that takes our economy over a cliff and risks jobs and retirement savings, Social Security benefits, salaries for service members, benefits for veterans, and so much more."
Who is delivering your parcels? Amazon secretly delivering non-Amazon orders
Amazon is reportedly working on shipping cargo for third-party companies to beat UPS and FedEx at their own game.
Amazon is reportedly working on shipping cargo for third-party companies to beat UPS and FedEx at their own game.
This means that the online retailer giant will start moving items that aren’t bought in its online store simply because its logistics prowess has improved. There are even unconfirmed reports that the company is already shipping goods for the U.S. Postal service, according to CNBC.
Amazon started shipping goods bought from its online store back in 2014, and since then, it’s grown its shipping business to include 400,000 drivers, 40,000 transport trucks, 30,000 vans, 70 planes and more. It even recently opened up a new Air Hub in Kentucky that cost around $1.5 billion USD (roughly $1.8 billion CAD) to ship products more efficiently.
Last year, Amazon created its own custom electric delivery van with Rivian to help lower its emissions while making it more productive to deliver packages. Investments like these have helped Amazon gain ground on FedEx and UPS. The tech giant already ships over 72 percent of its own packages, and we can assume it plans to get that number to 100 percent in a few years.
Analysts expect Amazon to launch this new ‘logistics as a service’ platform in the U.S. over the next year and a half.
The scary part for FedEx and other shipping companies is that since Amazon is already running so many shipping routes and has other revenue streams to supplement its logistics business, it can massively undercut the competition’s prices.
Amazon now ships more parcels than FedEx
For years, three companies — FedEx, UPS and the U.S. Postal Service — have controlled nearly the entire last-mile delivery market in the U.S. But Amazon, through its shipping arm Amazon Logistics, is no longer a marginal threat to these companies — it has, in fact, begun shipping more parcels than FedEx, and is nearly at the shipping levels of UPS.
According to data from Pitney Bowes, a technology company focused on shipping and postage, Amazon is now one of the top deliverers of parcel shipments — meaning boxes and packages delivered to people’s homes. In 2020, Amazon Logistics delivered 4.2 billion parcel shipments, up from 1.9 billion in 2019. It now makes up, by volume, 21% of the parcel shipments in the U.S., behind the USPS (38%) and UPS (24%) but ahead of FedEx for the first time (16%).
That shift has happened with incredible speed. Amazon only opened its shipping and warehousing network to third-party sellers in the past decade. Since then, it has turned a relatively marginal operation into a parcel shipping behemoth.
In 2014, Amazon delivered just 20 million packages, versus the 4.2 billion last year. Those figures make concrete what many in the industry have known for a while: Amazon has become one of the biggest delivery forces in the U.S.
Amazon’s astounding growth in the fulfilment sector points to bigger ambitions. In recent months, Amazon has broadened out its Multi-Channel Fulfilment program, which allows brands that sell on non-Amazon platforms to warehouse and ship with Amazon — its first attempt to become a standalone carrier in the vein of UPS and FedEx.
Amazon’s ambitions are likely to involve selling its logistics business as a service to a larger assortment of brands and retailers.
Amazon is spending big to beat the competition
Amazon is investing heavily in adding more warehouses and growing its fleet of airplanes, trucks and vans. The company has revealed that its capital expenditures grew a whopping 80% over the trailing 12 months.
The investments are part of Amazon’s goal to manage its own deliveries and speed up the process, thereby relying less on third parties such as UPS and the U.S. Postal Service.
While the coronavirus pandemic pushed many businesses to slow spending, Amazon ploughed profits back into physical expansion, growing its transportation and logistics presence across the country. The company added more warehouses and grew its fleet of airplanes and linehaul trucks and continues to grow its contracted delivery network to oversee more than 100,000 drivers.
All told, the company increased capacity of its in-house logistics operations, known as AMZL, by 50% year over year and is expected to keep spending big in these areas throughout the remainder of 2021 and potentially into 2022.
Logistics expansion is critical for Amazon as it seeks to speed up deliveries and, in the future, make the business of delivering packages more cost effective.
Amazon still relies on third-party providers such as UPS, FedEx and the U.S. Postal Service to handle a portion of deliveries. But the company has steadily grown its fleet of planes, trucks and vans to inch closer to its shipping partners.
By operating its own fulfilment and logistics network, Amazon can continue to optimize the process of preparing and delivering packages to shoppers’ doorsteps. In doing so, Amazon has already shifted from a two-day delivery model to one- and even same-day delivery.
Ultimately, these investments in fulfilment and logistics also strengthen Amazon’s “flywheel effect.”
As shoppers continue to flock to Amazon, it pushes more businesses to have a presence on the site and, if they’re not already, buy ads and pay to tap into Amazon’s warehouse footprint. Amazon makes money from selling third-party seller services, by taking a cut of each sale and collecting fees from sellers who use its warehouses. Revenue in that segment surged 64% during the quarter.
Amazon used the pandemic to build a logistics operation that rivals UPS
When the economy sputtered with the spread of the coronavirus pandemic, unemployment surged as employers laid off workers by the thousands.
Amazon took a different tack, hiring 400,000 workers to stow, sort, pick, pack and deliver goods from its warehouses across the country, and pushing its total employee count over 1.1 million people.
It didn’t stop there. The e-commerce giant leased 12 Boeing 767-300 cargo aircraft, bringing its air fleet above 80 jets. It added 220 package facilities since the start of the year, ranging from urban delivery stations to giant warehouses, according to an industry consultant.
Amazon used the crisis, when prices on everything from commercial real estate to cargo jets plummeted, to amass an empire already beginning to rival the U.S. operations of United Parcel Service and FedEx, long the most dominant logistics companies, which helped the e-commerce giant get its start. The company is building a logistics system to one day deliver packages for customers to compete directly against UPS and FedEx, something it’s already doing in the United Kingdom.
“They are building the world’s biggest package-delivery company,” said David Glick, a former Amazon logistics executive who serves as chief technology officer at Flexe, which helps retailers warehouse and deliver goods.
While Amazon’s move into shipping its own packages and freight has been building for years, the implications will provide it a stark advantage this holiday season, when Amazon’s rivals will probably wrestle with getting packages delivered by a network already clogged with pandemic shopping.
That will probably hand Amazon a massive advantage in a holiday season in which U.S. e-commerce purchases will climb 35.8 percent to $190.5 billion, according to a forecast by the research firm eMarketer.
When the pandemic started, there were few e-commerce companies that seemed less prepared than Amazon. It went beyond just logistics. Warehouse staff around the globe sounded alarms that company policies put their health in jeopardy. Rogue third-party sellers gouged buyers on such hard-to-find items as hand sanitizer and listed products making dubious claims about virus protection.
Meanwhile, shipping delays led customers to gripe about third-party sellers at the highest levels ever. The clogged network, and the new hurdles caused by the pandemic, led Amazon to throw money at the challenge. It sped up spending it had planned for next year on acquiring new warehouse space, to supplement a logistics network straining under the weight of pandemic-fuelled shopping.
For the time being, Amazon and UPS and the Postal Service are dependent on each other. (In 2019, FedEx announced it decided not to renew key domestic contracts with Amazon.) But analysts say the company’s hiring spree and the rapid expansion of its fulfilment capacity hint at its long game: to enter a new market large enough to make a difference to Amazon’s finances.
Already, Amazon’s logistics business will handle 5.1 billion packages in the United States this year, just shy of the 5.3 billion packages UPS will ship domestically.
UPS spokesperson Kara Ross called the carrier’s relationship with Amazon “mutually beneficial,” noting that other large customers handle pieces of their transportation business.
“We are confident in our ability to compete and will continue to focus on opportunities that generate good financial returns,” Ross said in an emailed statement.
The U.S. Postal Service declined to specifically address the Amazon threat but said generally that the agency competes by “providing reliable service at a competitive price.”
Christmas 2021 cancelled?
Your Christmas has never been more under threat! If you don’t take note and act now Christmas 2021 could be cancelled.
No matter what your reasons for celebrating it, the Christmas festive period is one of the most celebrated holidays of the year in the Western World. It’s a time for families and friends to come together, for grown-ups to spoil the kids, and serves as a period of both celebration and reflection.
Last year, celebrations were more muted and isolated than usual as most countries were in the grip of a second wave of the Coronavirus pandemic and households were locked down or experiencing severe restrictions limiting interaction between households, families and friends.
In 2020, most people were fortunate enough to create the illusion of a typical Christmas as all of the usual products associated with the holiday season were still available – Christmas trees, decorations, the traditional Christmas culinary fayre, and a wide range of toys and gifts. The only thing missing last year was the people to share it with – but at least you could always video call your family and friends to create the impression of a family occasion.
So, now we’re one year down the line, its September and shops and stores are starting their annual push for the festive season, and no doubt some people will complain that Christmas promotions are already hitting the high street and that “Christmas seems to come earlier every year!”
It almost sounds like we’re back to ‘business as usual’. We may still be in the grip of a global pandemic but this year we will be able to celebrate Christmas with family and friends as lockdowns appear to be a thing of the past and travel restrictions continue to ease, right?
Well, don’t get your hopes up – your Christmas has never been more under threat! If you don’t take note and act now Christmas 2021 could be cancelled.
The threat to your Christmas in 2021 is real and it’s a complete reversal of factors from last year. In 2020, you could have all the Christmas trimmings but no one to celebrate with, and this year you will have lots of people to celebrate with but none of the traditional trappings of Christmas due to extreme global shortages and disruptions to the supply chain and distribution networks.
Global supply chain still in crisis:
From the onset of the coronavirus pandemic supply chain systems around the world were thrown into disarray as many vessels were halted and shipping containers stayed put. The number of “blank sailings” – cancelled journeys – shot up, leading some ports to become congested with containers.
Chinese container yards and factories were “teeming” with containers that needed to be transported to EU, and UK, ports and those in the US. Shipping containers have piled up in the wrong places, either waiting to be unpacked or sitting empty. Production of containers themselves has also slumped.
As firms restart after the worst of the Covid-19 pandemic, demand for shipping containers is rising, pushing up costs. Problems transporting goods from China have left firms of all sizes facing massively inflated freight costs, while the more recent spread of the delta variant is impacting the movement of goods around the world causing months-long shipment delays.
Retailers like Walmart and Amazon have been scrambling to get space on shipping containers. Some firms have reported having upwards of 200 containers-worth of stock sitting in China, but they can’t get the containers to transport them and are only managing to ship half the volume of stock achieved in previous years.
While a series of pressures have combined to cause the potential Christmas crisis, the extraordinarily high costs and limited availability of the shipping containers needed to bring stock from manufacturing bases in Asia are the main issues.
Industry figures said the costs of securing a container had risen by between 10 and 15 times over the last year. Shipping a 40-foot container from China to the UK historically cost about $1,500 (£1,000), but today costs ten times that.
While rising prices have led some importers to delay their orders, even those willing to pay are often not able to secure a container. Some importers have paid an excess of $30,000 just to get a container on to the ship. But even if importers agree to pay a premium, there’s no guarantee their goods will end up on a ship because there just aren’t enough containers out there.
In many cases, retailers are adjusting by bringing in goods via air rather than shipping, but air freight has always been far more expensive than sea freight.
Many major retail chains have been trying to hoard stock to head off supply problems, but there is a limit to the warehouse space they have available and don’t have warehouses big enough to hold a full demand of stock making stock shortages inevitable.
Worker shortages:
In the UK, the ongoing issue of worker shortages has been caused by a mixture of coronavirus delays and post-Brexit rules. Retailers are grappling with a shortfall of around 100,000 HGV drivers, causing supermarket shelves to be stripped bare, while restaurant chains like McDonald's and KFC have been forced to take some items off the menu.
Recently, the boss of Iceland warned ongoing delivery issues due to worker shortages could effectively "cancel" Christmas, as supermarkets struggle to replenish shelves.
Industry estimates put the shortage of workers needed to drive lorries, handle goods in warehouses and pick fruit and vegetables at hundreds of thousands. Company bosses and trade groups are now warning that if ministers refuse to allow more EU workers into the UK, they risk a deeper crisis this winter.
The number of Romanian and Bulgarian workers in the UK, who would typically fill lower-paid logistics and food production roles, has plunged by almost 90,000, or 24% since the end of 2019. Meanwhile employees from eight eastern European countries, including Poland and the Czech Republic, have fallen by more than 100,000, or 12%.
The US is also facing an unprecedented labour shortage. On Thursday of this week Walmart decided to give more than half a million of its employees raises of at least $1 in the latest move to try and shore up its employee base heading into the ever-important holiday season.
Big box retailers like Walmart routinely bring on tens of thousands of temporary workers for the holidays, but this year will see increased pressure to retain labour in the midst of a historic, country-wide labour shortage that has been spurred by 18 months of "free" government stimulus.
Last year heading into the holidays, Target provided a coronavirus health plan and paid workers $15 an hour. This year, retailers will try to one-up each other even further to draw the attention of a decreased labour pool. Walmart's U.S. average hourly wage now stands at $16.40 per hour.
Both Amazon and Walmart are about to make massive pushes to add more than 55,000 and 20,000 employees, respectively. Amazon is looking for corporate and technology employees while Walmart's hiring is focusing on supply chain.
Toy, gift, and clothing shortages:
UK toy shops have already issued an alarming plea to parents, if you know what your child wants for Christmas – and you want to avoid the most frenetic scramble for presents in years – buy it now and hide it in a cupboard.
Seasoned figures in the UK toy industry have stated that consumers will face higher prices and greater scarcity on the shelves this Christmas because of a “perfect storm” of economic pressures that have disrupted their plans. Despite their best efforts, they warned it was already too late to resolve the bottlenecks in time for this year.
“I don’t want to be alarmist,” said Gary Grant, founder of The Entertainer chain of toy shops, “but I can say that there’ll be more hunting around for things at Christmas than there has been for a good number of years. My advice would be, as soon as parents know either what they want to buy their children or what their children are already asking for, if you see it, buy it. Buy it and hide it to avoid disappointment.”
“There will be stock, but it’s not one of those years where you can just leave it until the last minute and think it will still be there. Get it when you see it.”
“There will never be a toy shop without toys at Christmas, but that isn’t the point,” said Grant. “Children don’t want any toy. They want the toy that they want. Therefore, it will be much more challenging this Christmas to ensure the full availability of all toys.
Normally new Christmas toys come out in June or July, allowing retailers to get a read on how popular they are and can then order more in October and November. This isn’t possible this year as deliveries are already late.
And the US is in a similar situation. More than 1 million Rainbow High dolls are primed for the holidays, but first they need to make it out of China.
“I’m afraid there is simply not enough time to get products on the shelf this year,” said Isaac Larian, chief executive of MGA Entertainment, the toy giant behind Rainbow High and such popular lines as L.O.L. Surprise and Little Tikes. “The holidays are going to be very tough and, frankly, a lot of families are not going to be able to get the toys they want.”
MGA Entertainment has already raised toy prices, though Larian says it hasn’t been enough to cover ballooning expenses.
Two of the nation’s largest retailers, Walmart and Home Depot, are chartering their own ships to retrieve their products, while Amazon is beefing up its fleet of cargo planes. Urban Outfitters is switching from ocean freight to air in hopes of bypassing clogged ports in the run-up to the holidays.
Other brands are recalibrating to avoid the frenzy: Book publishers, dogged by paper shortages and shipping delays, are pushing autumn releases into early next year.
Store shelves already are sparse: At Walmart and Williams-Sonoma, executives say more items are out of stock than usual. Apparel chain Anthropologie is running low on dresses and jeans. Many retailers are whittling down their toy and clothing inventories, offering fewer styles, colours and sizes.
Mattel, the toy giant behind Barbie and Hot Wheels, is raising prices in coming months, and retailers as varied as Abercrombie & Fitch and Best Buy are tamping down on promotions. Analysts say others may start adding covid delivery surcharges, especially for bulky items like furniture and exercise equipment that cost more to transport. And as more retailers rely on airfreight — which costs about 10 times as much as ocean transport — they’re likely to pass on at least some of those expenses to consumers.
Which gift items will be in short supply this year?
The must-have toys topping children’s Christmas wish lists have not yet emerged so retailers and manufacturers are still unsure which items will sell out. They will be keeping a close eye on the best-selling toys and games in the coming weeks and by October it should be apparent where shortages might be seen. However, some of the toys and other products estimated to be in short supply include:
L.O.L. Surprise! Dolls
Paw Patrol vehicles
Little Tikes toys
Peppa Pig, Harry Potter, Star Wars and other popular licensed toy brands
Fidget popper stress relievers
General consumer gift items
Games consoles
Computers, laptops, and tablets
Household electronics
Garden furniture
Christmas tree shortages:
The UK could also face a Christmas tree shortage this year, that experts warn will bump up the demand for artificial trees.
According to Christmas Tree World, a lack of HGV drivers coupled with Brexit and the worldwide pandemic may see retailers struggle to 'fulfil the demand for real trees' over the festive period.
While it's too early to predict, Ben Wightman, an analyst at Christmas Tree World, said the shortage could bump up sales for artificial styles.
One festive retailer, Balsam Hill, has already seen sales of artificial Christmas trees up by 73 per cent in August compared to last year. Visitors to their website has risen by 145 per cent, with searches for Christmas trees booming. Mac Harman, founder CEO of Balsam Hill, said: 'It's clear that the UK is looking ahead to festive celebrations even earlier than usual. With trees and decorations being snapped up even earlier than in 2020, Christmas 2021 looks set to be one of the most anticipated and special we've ever had.'
In the US, the Christmas tree shortage is also causing problems for local vendors, and that could affect this year’s selection and prices. Several factors have gone into the Christmas tree shortage, including some nurseries not planting as many trees due to an expected decline in demand.
Vendors in the Midwest are now looking for new sources to get their trees, some have gone all the way to Canada to source trees. But even with vendors getting trees from new places, buyers can expect to see less inventory than years past.
With the shortage and the cost of transporting the Christmas trees from other locations, buyers should expect prices to be up to 30% higher.
Turkey shortages – no clucking joke:
There are fears Brits may have to go without turkey this Christmas if supply chain issues continue. A warning was issued by Mark Gorton, managing director of Traditional Norfolk Poultry, who said the poultry industry is at crisis point.
The poultry industry in the UK employs more than 40,000 people but there are nearly 7,000 vacancies. The shortage means some poultry producers have reduced the size of their product ranges and cut weekly output by up to 10%. The supply of turkey is down by a similar amount but could decline by as much as 20% at Christmas as firms fear they will not be able to draft in the usual number of seasonal workers.
In the US, as demand for Turkeys increases in the run up to Thanksgiving, the US poultry industry is also voicing concerns over supply with many retailers predicting that they will only be able to source around 50% of the usual supply over the holidays.
These warnings are just the latest in a string of meat shortages that have rocked the US, amid the rising cost of raw supplies and a severe labour crunch.
Other Christmas food shortages:
On both sides of the pond producers and retailers of other typical Christmas staples are issuing supply warnings, preparing consumers for empty shelves over the festive season. Recent supply warnings have included the following festive food items:
Cranberries
Pigs in blankets
Ham, gammon and other pork products
Seasonal vegetables
The cost of Christmas 2021:
The average American spends around $1,000 on Christmas, whilst the average Brit spends approximately £1,100.
Whilst manufacturers, distributors, and retailers are trying their hardest to absorb many of the increased costs due to the current crisis, inevitably, consumers will ultimately face more price increases.
A recent survey found that 62% of retailers and wholesalers expect their prices to rise in the run up to Christmas, and 59% of manufacturers expect to increase prices due to the current global crisis.
It’s estimated that, for the products that actually will be available, consumers could face price increases ranging from 10% right up to 100% - depending on the product.
For anyone on a strict limited budget, this will inevitably mean going without many of the usual Christmas items. And for those who can afford it, Christmas could potentially cost double the usual amount.
As research suggests that in any ‘normal’ retail cycle, 21% of consumers go into debt to pay for Christmas, experts are advising constraint this year.
So, what can you do to try and have a normal Christmas?
Don't wait until the last minute.
It could take longer for items to reach you, and you might need to hunt around for them even more than you're used to.
You should also pay attention to what retailers are saying about what's in stock and where items are available. Retailers will often include in online listings how much of something is in stock, or if the item is only available in a physical store, which can help you plan ahead to make sure you can get your hands on the gifts your family and friends want.
Remember: It might be harder to score certain items this year than it has been in the past. Starting now certainly won't hurt.
Is there a water crisis coming?
Water connects every aspect of life. Access to safe water and sanitation contributes to improved health and helps prevent the spread of infectious disease, reducing mortality rates. As we continue to face the COVID pandemic, now more than ever access to safe water is critical to the health of families around the world.
Water connects every aspect of life. Access to safe water and sanitation contributes to improved health and helps prevent the spread of infectious disease, reducing mortality rates. As we continue to face the COVID pandemic, now more than ever access to safe water is critical to the health of families around the world.
The United Nations' FAO states that by 2025, 1.9 billion people will live in countries or regions with absolute water scarcity, and two-thirds of the world population could be under stress conditions.
Safe water and sanitation can quickly turn problems into opportunities – empowering people with time for school and work, and contributing to improved health for women, children, and families.
The water crisis is an emerging crisis on a global scale, affecting more people than the ongoing pandemic:
785 million people, or 1 in 9, lack access to safe water
1.1 billion people lack access of any kind of water
2 billion people, or 1 in 3, lack water sanitation access
2.4 billion people suffer from the contamination of water and poor sanitation
2.7 billion people experience water scarcity for at least one month in a year
Every 2 minutes a child dies from a water-related disease
Contamination of water can lead to deadly diarrheal diseases such as cholera and typhoid fever, and other waterborne diseases causing 80% of illnesses around the world.
So, what are the contributing factors to our global water crisis?
Water supply shortage:
Water is the underlying tenuous balance of safe water supply, but controllable factors such as the management and distribution of the water supply itself contribute to further scarcity.
A United Nations report focuses on issues of governance as the core of the water crisis, saying "There is enough water for everyone" and "Water insufficiency is often due to mismanagement, corruption, lack of appropriate institutions, bureaucratic inertia and a shortage of investment in both human capacity and physical infrastructure."
It has also been claimed, primarily by economists, that the water situation has occurred because of a lack of property rights, government regulations and subsidies in the water sector, causing prices to be too low and consumption too high, making a point for water privatisation.
Water pollution:
Water pollution typically occurs as a result of human activities in a manner that negatively affects its legitimate use.
Lakes, rivers, oceans, aquifers, reservoirs and groundwater become polluted when contaminants are introduced into these waters. The causes of water pollution include a wide range of chemicals and pathogens as well as physical parameters. Contaminants may include organic and inorganic substances. Heat can also be a pollutant, and this is called thermal pollution. A common cause of thermal pollution is the use of water as a coolant by power plants and industrial manufacturers.
Water pollution can also lead to water-borne diseases for people using polluted water for drinking, bathing, washing or irrigation.
Technological solutions can include improving sanitation, sewage treatment, industrial wastewater treatment, agricultural wastewater treatment, erosion control, sediment control and control of urban runoff (including stormwater management). Effective control of urban runoff includes reducing speed and quantity of flow.
Climate change:
Climate change could have significant impacts on water resources around the world because of the close connections between the climate and hydrological cycle.
Rising temperatures will increase evaporation and lead to increases in precipitation. Both droughts and floods may become more frequent in different regions at different times, and dramatic changes in snowfall and snow melt are expected in mountainous areas. Higher temperatures will also affect water quality in ways that are not well understood.
Climate change could also mean an increase in demand for farm irrigation, garden sprinklers, and perhaps even swimming pools.
There is now ample evidence that increased hydrologic variability and change in climate has and will continue have a profound impact on the water sector through the hydrologic cycle, water availability, water demand, and water allocation at the global, regional, basin, and local levels.
The World Bank adds that climate change could profoundly alter future patterns of both water availability and use, thereby increasing levels of water stress and insecurity, both at the global scale and in sectors that depend on water.
However, whilst climate change will continue to be a key factor in water supply, the effects of changes in population on water scarcity were found to be about four times more important than changes in water availability because of long-term climate change.
Overuse and depletion:
Groundwater is the largest source of usable, fresh water in the world. In many parts of the world, especially where surface water supplies are not available, domestic, agricultural, and industrial water needs can only be met by using the water beneath the ground.
The U.S. Geological Survey compares the water stored in the ground to money kept in a bank account. If the money is withdrawn at a faster rate than new money is deposited, there will eventually be account-supply problems. Pumping water out of the ground at a faster rate than it is replenished over the long-term causes similar problems.
The water crisis in the US
There is already an underlying household water crisis affecting millions of people in the United States, people living in poor neighbourhoods often lack access to running water and plumbing.
Ongoing research has shown that for the past two decades, water and sanitation problems have disproportionately affected low-income and non-white households in the country.
The researchers examined how many people lacked complete plumbing — meaning access to hot and cold water, a sink with a faucet, and a bath or shower — and how many lacked clean water, indicated by violations of or noncompliance with water regulations.
Between 2014 and 2018, almost 500,000 households did not have complete plumbing. In 2020, 1,165 community water systems were not of adequate quality, and more than 21,000 facilities that discharged directly into US waters posed a severe level of environmental threat.
These water hardships seem to cluster in certain regions, such as Puerto Rico, Appalachia and the Intermountain West. The crisis is disproportionately associated with older, poorer, less-educated people, and populations with higher numbers of people with Indigenous or other non-white backgrounds, the authors say.
Farmers in California destroying own crops because there’s not enough water to keep them alive
The American west is drying out as the region faces an unprecedented drought. Few places are as devastated as the Klamath Basin. Straddling the border between California and Oregon, the watershed spans 12,000 square miles.
Today’s water crisis in this region stems from decisions made over a century ago. In 1906, the Bureau of Reclamation drained wetlands to create farmland, disrupting the careful balance of water needed to sustain others in the basin.
In recent years, lake levels have dipped below federally mandated levels and further endangered the ecosystem, and in May, the Bureau of Reclamation shut off the primary canal that diverts irrigation water leaving farmers without a water supply for the first time since irrigation began in 1907.
Farmers are now having to destroy their own crops as there’s not enough water to sustain them. Eventually, a lack of water and fallowed crops will be a problem that impacts what produce you'll find at your grocery store.
Water crisis in the UK:
UK could also face water shortages by 2050 if action is not taken to conserve supplies Whilst water management in the UK is being overhauled in response to climate change, by 2050 parts of the country living under severe water stress.
The Environment Agency is urging consumers to be more water aware and use water wisely. It said water leakage needs to be dramatically reduced and it isn't ruling out the possibility that water bills could rise. "It's very clear that the country as a whole needs to pay for the environment that we want and we may all have to step up, including customers, for clean and plentiful water.”
Climate change means more extremes of weather, but the Environment Agency said we don't have enough infrastructure in place to store water from heavier wetter winters for the drier summers we are now experiencing.
Chew Valley Lake is one of the UK's largest reservoirs supplying water to nearly a million people in Bristol and Somerset. But in a drought scenario and without action, there could be shortages in the region within 15 years.
'Great British Rain Paradox': Public unaware of UK's water scarcity
The findings of a recent survey warn that 72% of the British public believe the UK has enough water to meet daily demands. However, the public remains largely unaware of the risks that population growth and climate change will have on water supplies.
Currently, daily household water usage on a per person basis is 143 litres. In comparison, per person water usage in the 1960s was around 85 litres. The Environment Agency has warned that around 3,435 million extra litres of water could be required each day, if not action is taken to improve water usage between 2025 and 2050.
However the report also reveals that water consumption ranks below other environmental considerations for members of the public wishing to live more sustainably.
According to the survey, 10% of the public consider water consumption a key environmental consideration. This ranks below plastic pollution (39%), energy consumption (22%), generation of food waste (16%), and carbon footprints (11%).
Sir James Bevan, Chief Executive of England’s Environment Agency, said: “People might wonder how a country with such a reputation for rain like the UK could reach a tipping point where demand for water outstrips supply in just 25 years. But this may become a reality if we don’t take action to save water now.
The impact of the coronavirus pandemic, however, has raised the appreciation of water use in the UK.
The report found that 83% now appreciate access to clean water to wash their hands. Having been placed in lockdown, 82% now appreciate the natural world more, while 76% are more aware of the impact that they have on the natural environment. With 69% of respondents claiming to be more concerned about the environment and sustainability, the report calls on the public to reduce water usage on a daily basis.
The Southeast of England is facing the greatest pressure on public water supplies. Unsustainable water abstraction processes and infrastructure, compounded by climate change and population growth, will result in parts of southern England running out of water within 20 years.
The National Audit Office (NAO) to the UK Government, in its latest water supply and demand management report, warned that the amount of water available for abstraction nationally each day will fall more than one billion litres by 2045.
This figure consists of 600 million litres per day lost to drier weather, and the current overconsumption of around 480 million litres per day. The NAO claims this is equivalent to 7% of the country’s total annual water supply.
Corporate contributors to the water crisis:
How Water Gets Polluted by Fast Fashion
A report from Water Witness International (WWI) suggests popular fast fashion brands may be causing pollution that has turned some African rivers blue or as alkaline as bleach.
The report focuses on polluted rivers in Lesotho, southern Africa, and Tanzania to highlight the risks posed as global brands increasingly source garments from African contractors, drawn in by low labour costs and tax breaks. In Lesotho in south-eastern Africa, studies have found that a river dyed blue by jeans manufacturing and samples of the Msimbazi River in Tanzania has a pH as high as 12.
Nick Hepworth, the main author of the report, said: “I collected some samples, which burned my hands, and the concentration of the river water was as strong as bleach.” Hexavalent chromium is used in older and cheaper black dyes and is a toxic metal. Hepworth said that they found the chemical in some rivers at five times the level considered safe. This poses a major problem for communities near factories that rely on these water sources.
Global brands could compel better practices, but their presence in Africa has done little to reduce pollution, water hoarding by contracting factories, or even ensure adequate water and sanitation for factory workers.
Untreated industrial waste from textile mills is directly discharged into rivers and thousands of people use it as domestic water. There is no choice but to use polluted river water to wash clothes, water the garden or water the cattle.
Some of the world’s largest fashion brands are linked to dangerous levels of toxins in African rivers. The report found that about 50 high-street brands of clothing came from African countries, including ASOS, Zara, and Primark, but they did not directly link pollution to any company’s supply chain.
Other environmental reports and investigative documentaries have revealed that the problem is not restricted to Africa. Fast fashion manufacturers across India, Pakistan, and Bangladesh – all of whom supply western fashion brands – have all been linked to similar levels of pollution across their respective water supplies.
How Pepsi and Coke make millions bottling tap water, as residents face shutoffs
It’s a good time to be in the water business: as the coronavirus outbreak spread in the US, bottled water sales increased 57% over the same period last year. During the panic-buying peak of the pandemic, apart from products like toilet paper and hand sanitiser, Americans were panic-buying bottled water – even though there was no actual shortage of safe drinking water and that hoarding bottled water simply isn’t necessary for most people.
What’s more, most bottled water sold in the US comes from the same municipal sources that supply tap water – a fact probably unknown to most consumers. The business model is hugely profitable. The cost to buy municipal water is exceedingly low – and once bottled, the mark-up can be about 133 times greater.
Coca-Cola makes Dasani – the company’s well-known bottled water that generated more than $1billion in US sales last year - at the company’s Detroit plant by purchasing, treating, and bottling municipal water before selling it at a significant mark-up to consumers. Pepsi bottles its Aquafina water brand in Detroit the same way.
Despite the obvious moral issues of selling tap water at criminally inflated prices, it also seems that these corporate giants receive far more lenient treatment than consumers when it comes to paying their water bills.
In Detroit, whose policy before the coronavirus crisis called for shutting off water to residents if they fall $150 behind in their water bills, 2,800 homes were estimated to be without running water at the start of the pandemic.
But the drink giants in Detroit also racked up tens of thousands of dollars of past due water bills that went unpaid for months and not once was their access to water shut off.
Turning off residents’ water supply can create unsanitary conditions and lead to the transmission of Hepatitis A, Influenza, and over course exacerbate the current COVID pandemic. People don’t just need water to cook and bathe, but to practice basic virus-fighting hygiene.
Paying twice for bottled water: People whose water gets shut off because they can’t afford their bill may have no choice but to buy bottled water that comes from the same source that feeds their tap. They may be obtaining bottled water from companies that have been behind on their water bills but didn’t face a shutoff, and whose business depends on access to publicly funded water systems.
And it’s not just in Detroit: Coca-Cola and Pepsi get water from other major cities, including Phoenix and Denver, with a history of shutting off water to residents.
So, which countries have the most fresh water?...
1. Brazil
Brazil has the highest volume of renewable freshwater resources, totalling approximately 8,233 cubic kilometres. The freshwater in Brazil accounts for approximately 12% of the world’s freshwater resources. The Amazon Region in Brazil contains over 70% of the total fresh water in Brazil. Despite having numerous freshwater resources, one of the most populous regions in Brazil, Sao Paulo, faces severe drought. Access to freshwater by poor neighbourhoods in urban areas remains a challenge in Brazil.
2. Russia
The renewable freshwater bodies in Russia include rivers, lakes, and man-made reservoirs. Lake Baikal, the largest and deepest freshwater lake in the world, is in Russia. Baikal holds up to approximately 1/5 of fresh water in the world. The lake was formed on a rift. However, the lake’s volume has been gradually reducing due to climate change. Baikal harbours a large population of seals. In total, Russia has 4,508 cubic kilometres of freshwater resources.
3. United States
The volume of renewable freshwater resources in the US is approximately 3,069 cubic kilometres. Most of the freshwater resources in the country are surface water. Approximately 77% of the fresh water is surface water and 23% is underground. Majority of freshwater bodies in the United States are lakes. Other fresh water sources are rivers, ponds, and reservoirs. There are thousands of lakes in the US, including the world-famous Great Lakes.
4. Canada
The volume of renewable fresh water in Canada is approximately 2,902 cubic kilometres. Most of Canada’s fresh water is found in its diverse river system and lakes. Besides, the fresh water is mostly underground, in small ponds or in glaciers. The underground water is mostly non-renewable. The fresh water in Canadian lakes provides drinking water for over 8 million people and supports a quarter of agriculture in the country.
5. China
China has the 5th highest volume of renewable freshwater resources in the world. It has approximately 2,840 cubic kilometres of fresh water. Poyang Lake which is situated in Jiangxi Province is the largest freshwater lake in China. Xin, Xiu, and Gan Rivers all empty their waters into the lake. The volume of the lake keeps fluctuating depending on seasons.
Are young homeowners nearing extinction?
There are fewer young homeowners now than there were a decade ago so, will the after-effects of a COVID recovering economy contribute to the continuing decline in homeownership among young people?
It’s no great secret that, despite the economic woes that have been exacerbated by the ongoing COVID pandemic, property prices remain high.
Property experts and economists constantly analyse market conditions attempting to identify the trends, patterns, and fluctuations that affect the real estate market and the wider economy - and the underlying trend of these predictions is that the upward trajectory of property prices remains unsustainable, despite the fiscal interventions of government.
However, the past year has seen an explosive demand among buyers seeking to upgrade, downgrade, or buy their first home; despite the devastating effects that the global pandemic has had on economies and the obvious hardships experienced by workers.
Despite what we’ve all been through over the past 12 months, property prices in the UK have risen by an astonishing 10%, and the US has experienced a 13% increase in the same period.
In more normal economic times, those seeking to get a first foot onto the property ladder would be constantly scanning the market, reading up on the latest market analysis, and listening to the experts - trying to gauge when the right time to buy is whilst diligently saving as much money as they can to achieve their property ownership goals.
But these are not normal times, and it appears that those first-time buyers, who are able to, are desperate to get on that ladder now, seeking to take advantage of high loan-to-value mortgages and low interest rates - ignoring the possible threat of a future crash.
So, what is driving this fever pitch in the market? And what is the outlook for young people looking to get on the property ladder during COVID and beyond?
Why pay for someone else’s property?
If we look at some very basic math, we can see why so many people in the UK want to own their own property. The average monthly mortgage repayment is currently £723, whilst the average rental payment is more than £1,000 per month.
In the US, whilst the margins are narrower with an average mortgage repayment of $1,275 per month against an average rent payment of $1,219 there is still sound reasoning in favour of home ownership.
Generally speaking, home ownership remains a positive long-term investment. Go back 60 years and you will find that the average house price in the UK was £2,530 (approximately £55,784 in today’s money). These days, you would pay that for just a few months’ rent! And that property your parents or grandparents bought for £2,530 in 1961 would now be worth 100 times more as today’s average UK house price is £255,000.
Disposable income
Figures estimate that the average income in the UK currently stands at £29,600 per annum after tax – that equates to more than £2,400 per month – and taking into consideration typical monthly expenses that still leaves a considerable amount of disposable income; making the average first-time buyer’s monthly mortgage repayment of £723 seem highly affordable.
In the US, whilst there are huge fluctuations state-by-state, the average income is pegged at around $53,500 per annum (after taxes) providing a monthly wage of more than $4,400 – and even considering the most extravagant of tastes its more than reasonable to assume there would be enough disposable income left to afford an average monthly mortgage repayment of $1,275.
These figures certainly make home ownership look extremely attractive but, be under no illusions, we are not in some sort of ‘golden age’ for property ownership. In the 1960’s, the average value of property was equal to 2.6 times the average annual salary, in 2021 the average value of property is equal to almost 9 times the average annual salary – indicating property prices have increased at a far faster pace than salaries have over the past 60 years. In fact, if the average annual wage from 1961 had increased at the same rate as property prices, the average annual salary in the UK would now be £96,000.
Cash is king!
Despite the fact that salaries haven’t risen at the same rate as property prices, the figures so far seem to point towards it still being affordable to buy a property right now, but only if you’ve got cash in the bank.
Remember when you could get a 100% mortgage? Scratch that… who remembers the crazy 125% loan-to-value (LTV) mortgage deals on offer during the nineties and noughties?? Thankfully, these lending practices no longer exist but this makes it harder for first-time buyers as it means you need to have money in order to borrow money.
Hey, hang on a minute, I hear you say…surely people want to borrow money because they don’t have money?!? Hmm, maybe 100-125% mortgages could return some day?
Up until recently, UK first-time buyers would need a deposit of at least 10% of the value of the property in order to secure a mortgage – meaning they would need to have more than £25k to put towards their property purchase – not including all the other costs associated with buying a property.
Now that’s a big chunk of change for anyone, but again, if you break down the math, the average person in the UK on the average wage with the average outgoings and expenses could theoretically bank that £25k within 2 years.
And in recent years it seems we have become a nation of savers as the current average mortgage LTV for first-time house purchases is 82% - meaning the average first-time buyer has accumulated an 18% deposit or almost £46,000.
Not everyone fits the mould
Up until now we’ve been using very simple rule-of-thumb maths, based on ‘country average’ statistics. In both the UK and US, these average statistics can fluctuate quite drastically between counties and states and given what we know about the wider economic challenges we’re facing, it is safe to say there are a lot of people whose circumstances fall far short of these averages creating insurmountable obstacles to home ownership.
In general, it is younger people who fall short of the statistical ‘average’ as they are not yet at a stage in their careers where they can reap the financial rewards.
This is perhaps also illustrated by the fact that the average first-time buyer in 2021 is aged 33 – a statistic that hasn’t significantly changed during the last decade – however, in 1961, the average age of a first-time buyer was just 23.
There are fewer young homeowners now than there were a decade ago with just 38% of 25-34 year olds owning homes today compared to 55% percent ten years ago. So, will the after-effects of a COVID recovering economy contribute to the continuing decline in homeownership among young people?
COVID has had an impact on every aspect of young peoples’ lives, and the affordability of housing is no exception. With house prices increasing and young people losing their jobs at a higher rate than any other age demographic, their ability to get on the property ladder is becoming more difficult, and here’s why:
Stamp Duty:
Back in 2017, the government announced that first-time buyers wouldn’t have to pay Stamp Duty Land Tax on any property under £500,000. At the time, this provided a huge boost to young first-time buyers and even caused a short-term dip in the average age of first-time buyers.
However, when COVID hit the UK, this relief was extended to everyone, not just first-time buyers. It was said to be something that would help everyone afford new housing, but young first-time buyers didn’t benefit as they already had this tax relief. Instead, it created a surge in house prices due to existing homeowners seeking to take advantage of this new tax benefit.
More young people are losing their jobs:
On top of the stamp duty no longer helping young people afford homes, they have also been losing their jobs at a higher rate than their older peers. More under-25s have lost their jobs during the pandemic than any other age demographic, and once the UK’s furlough scheme ends in September, unemployment figures among young people are likely to get a lot worse.
It goes without saying that it is simply impossible for any young person, who would be reliant upon a mortgage, to buy a property when they’re unemployed. COVID induced unemployment among younger people is bound to have a scarring effect on their income and employment prospects in the years to come, thus extending the doubt in their ability to buy a home for the foreseeable future.
Increasing debt:
On top of the devastating employment prospects faced by young people, they are also more likely to be in debt to their landlords. Rental properties are primarily inhabited by the younger generation and, as with the stamp duty relief, the mortgage holidays scheme has been of no use to them. Instead of introducing an equivalent rental holiday, the UK government imposed an eviction ban.
Presently, this eviction ban has been extended until March 2022, but in the meantime, renters are getting into more and more debt with their landlords.
A study published back in January found that 46 per cent of renters have lost income during the pandemic, and 15 per cent are now in rent arrears. The number of private renters behind on their rent has also doubled since February 2020. Being in debt to your landlord is hardly conducive to buying a property and will only make it more difficult for young people to get on the property ladder.
How long these difficulties will continue for beyond the pandemic remains to be seen. However, the prospect of increased unemployment once the furlough scheme ends, and the debt many will have to pay back to their landlords in next year, the existence of young first-time buyers definitely seems under threat.
But is a decline in young homeowners such a bad thing?
A survey conducted in the US earlier this year found that two thirds of young homeowners had buyer regrets.
By far the biggest regret was not being prepared for maintenance and other costs associated with homeownership. 26% of homeowners aged 25-31 said they thought that the costs of homeownership were too high.
They were also most likely to say that they didn’t get a good mortgage rate, or that they overpaid for property. For example, 12% said their rates were too high, and 13% said they agreed to a sale price that was more than it should have been.
Although mortgage rates are near historic lows, it’s still important to shop around for the best offer. Even a few percentage points difference in interest can mean a saving (or extra cost) of thousands of pounds over the life of a loan.
Millennials were also most likely to be unhappy with their new home’s physical characteristics. According to the survey, 15% of respondents from that generation said they disliked their new property’s location. About 30% thought that the home was not the right size.
It’s relatively safe to assume from the above survey results that the principal factor driving the dissatisfaction of young homeowners in the US is a lack of experience in the housing market and a lack of maturity in decision-making due to their age – maybe this should be a cautionary tale for wanabee young homeowners in the UK.
Computer chip shortage strangling global manufacturing and killing economic recovery
The global chip crisis has arisen from a combination of events, creating a ‘perfect storm’ that is likely to cost the global economy billions of dollars.
As technology continues to advance, computer (or semiconductor) chips are no longer exclusively found in computers and cars — they are now critical components for a staggering number of products. From toothbrushes to toys, and toasters to smart lighting, these chips can be found in virtually every product that requires power.
But a combination of factors has created a lack of these somewhat innocuous but critical components; threatening to stall the economic recovery of more than 169 industries and leading to major shortages of consumer goods.
What has caused the shortage?
The global chip crisis has arisen from a combination of events, creating a ‘perfect storm’ that is likely to cost the global economy billions of dollars.
Top of the culprit list is the current COVID-19 pandemic, as people around the world had to stay at home many purchased or upgraded electronic devices such as webcams, monitors and computers in order to work from home, home school the kids, stay in touch with loved ones, and be entertained. In the fourth quarter of 2020 alone, traditional computer sales saw a 26.1% growth over the previous year.
Last year, as the trade war between the US and China continued to escalate, the US government placed restrictions on the Semiconductor Manufacturing International Corporation (SMIC), China's biggest chip manufacturer, which made it harder for them to sell to companies with American ties. These restrictions forced companies to use other manufacturing plants such as the Taiwan Semiconductor Manufacturing Company Limited (TSMC) and Samsung. However, these companies were already producing at maximum capacity.
This year, Taiwan has experienced its worst drought in more than 50 years, creating a huge problem for chip manufacturers that use large amounts of ultra-pure water in their factory production process. TSMC's chip manufacturing facility alone requires more than 63,000 tons of water a day to keep the operation moving - that’s more than 10 percent of the total supply from two local reservoirs.
Other random events that have held back supply include fires in chip factories, power outages and the widely reported transportation blockage in the Suez Canal caused by the ‘EverGreen’ cargo vessel.
It is, therefore, no surprise that manufacturers are struggling to keep pace, but the pandemic has exposed pressure points in the global chip supply chain, with most chip manufacturing being carried out by just two companies.
Which sectors are affected by the shortage?
We are now in a world where every industry is either enabled by, or dependent upon semiconductors.
Cars: There isn’t a single industry that’s not influenced by semiconductors – and none more so than the automotive industry. Vehicles are more dependent on semiconductors that direct and manage engine performance, safety features, navigation, and entertainment systems. A modern car can have up anywhere from 1,500 to 3,000 chips.
At the start of the pandemic, car manufacturers cancelled chip orders out of concern that the pandemic would hurt sales, but unexpected demand then led to a shortage of chips in stock.
For some car firms, assembly lines have ground to a halt:
Jaguar Land Rover was forced to pause production of vehicles at its UK and Slovakian car factories.
Mini temporarily shut its Oxford plant.
Volkswagen has already built 100,000 fewer cars so far in 2021.
Daimler has dialled back its delivery expectations due to the lack of supplies.
Ford had to park thousands of unfinished vehicles at Kentucky Speedway, waiting for the chips to finish assembling the cars.
It’s been estimated that U.S. automakers alone will make 1 million fewer cars this year because they’re unable to source the computer chips they need. For UK car makers, 311,000 fewer models have come off production lines in the first half of this year. That's down almost 40 per cent on the ten-year average and a loss of more than £8.5billion.
Rental car companies are also feeling the effects as they’re unable to buy the new vehicles they want. Hertz and Enterprise, which have traditionally profited from buying new vehicles in bulk and renting them out, have reportedly resorted to buying used cars at auction instead.
Video game consoles: The COVID-19 pandemic led to a rise in popularity of video game consoles. With the release of the ninth generation of video game consoles, demand increased even more, with Sony warning that short supply of the PlayStation 5 console will last into 2022, while Microsoft expected shortages of the Xbox Series X and Series S to last into at least late-2021.
Phones and tech: Computer giant Apple says the chip shortage is already hurting sales of iPads and Mac computers and will soon impact iPhone production. Another phone maker, China-based electronics company Xiaomi, delayed the shipment of a new device model in India. And Elon Musk recently stated that the chip shortage meant Tesla would only be able to manufacture about half as many Powerwall home batteries as it thinks it can sell.
Domestic appliances: Production of low-margin processors used to weigh clothes in a washing machine or toast bread in a smart toaster have also been hit. While most retailers are still able to get their hands on these products, Whirlpool has admitted that the sparsity of these chips is hampering the manufacture of its domestic appliances.
And it doesn’t stop there – the shortage has affected more random companies such as a US business that makes dog-washing booths, and one San Francisco based sex toy company has been stockpiling microchips to fend of future supply chain problems!
How does this affect the consumer?
First and foremost, the chip shortage is causing an overwhelming lack of supply across all consumer goods that require semiconductors. Huge production delays are being seen across the board and the scarcity of products is driving up prices.
The latest generation of video game consoles are being resold on websites like eBay for 50% to 100% more than their retail prices.
New car prices are increasing due to lack of supply and the used car market is also being affected. Used car values in the US have shot up more than 5% in June/July and 50% in the past year; whilst the UK used car market has seen a 20% increase in the value of used cars sold.
Some products are even destined to be shipped out missing previously planned features. Nissan is leaving navigation systems out of cars that would normally have them, while Renault is no longer putting an oversized digital screen behind the steering wheel of certain models.
What’s being done to resolve the problem?
With demand for semiconductors likely to increase as industries undergo digital transformation, chip makers and governments are working to build more capacity into supply chains.
TSMC is investing $100m in additional capacity over the next three years, while Samsung and SK Hynix, along with the South Korean government, have pledged to make $451bn of investment in capacity and incentives for chip makers.
But there is a recognition that supply chains need to decrease the reliance on Taiwan and South Korea. The US only makes about 10% of the chips it uses and so US president Joe Biden has pledged to support the semiconductor sector. A massive tech funding bill would see $52bn earmarked for US chip production. Intel plans to expand its capacity and is spending $20bn on two new factories in Arizona.
The European Commission also wants to build up its chip manufacturing capacity, which currently accounts for less than 10% of global chip production. It wants to double that figure to 20% and is looking to invest $24-36 billion to make it happen. But the UK government has yet to reveal any plans to help its domestic semiconductor sector. Indeed, the UK’s biggest chip factory, Newport Wafer Fab, is now in the hands of the Chinese after a take-over by Nexperia.
When will the global chip shortage end?
Semiconductor supply had been expected to rebound by the end of 2021, but the global chip shortage now looks set to last into next year - and could remain until 2023, some experts fear.
Stellantis, the world’s fourth biggest car maker, said that the chip shortage had gotten worse in the last quarter. Richard Palmer, the chief financial officer of the firm warned the disruption could last into 2022.
The chief executive of German chipmaker Infineon, Reinhard Ploss, said the semiconductor industry is in unchartered territory. “It is very clear it will take time. I think two years is too long, but we will definitely see it reaching out to 2022,” he said.
The main reason the chip shortage has been prolonged is that it takes a huge amount of time and money to build new semiconductor manufacturing plants. It takes roughly 2.5 years and around $10 billion to build a new plant.
Is this likely to happen again?
Even when the current global chip shortage ends it is likely more supply problems are just around the corner as demand for electronics grows further.
Ongoing global chip production is likely to face a cyclical ‘boom and bust’ effect in the future. The chip-making capacity that is being put into place will likely be enough for the next few years, but as these plants come on stream, we will start to see a glut in supply.
However, give it another five years and we’ll be maxing out capacity again as demand for things like smart homes and electric vehicles increases.
Employment Emergency! Where have all the workers gone?
As economies across the globe begin their journey on the long road to recovery, many businesses are asking the question: “where have all the workers gone?”
As economies across the globe begin their journey on the long road to recovery, many businesses are asking the question: “where have all the workers gone?”
The disappearance of many low-skilled or unskilled staff from multiple industry sectors has been observed across many western economies during recent months, leaving employers struggling to fill vacant positions as they try to open back up for business.
So, what exactly is happening in the job market? Why are employers finding it impossible to fill these job vacancies?
Generally speaking, economists are laying the blame squarely at the door of the current COVID pandemic, framing it as a temporary blip or unforeseeable problem – and certainly not related to any macro-economic factors propagated by specific governments. But can it be that simple?
Jobs that were most affected by individual country lockdowns are arguably those within the hospitality and leisure sectors. Bar, restaurants, beauty salons, etc all received the harshest treatment by being forced to close for the longest – leaving millions of people without employment. So surely one would expect that as these businesses begin to reopen, workers who previously filled these positions would simply slip back into them? Well, that’s exactly what governments and employers alike were expecting, but boy did they get a shock!
Let’s take a quick look at the US where the service worker shortage is clearly evident – US employers are having difficulty recruiting at current wage levels, leading to vast closures of businesses, some of them after every worker quit on the same day, others having tried to keep things going after many didn’t return after shutdowns.
The US has a distinct, but not unique situation – it, like many other westernised nations, has an incredibly stingy social security framework. However, during the COVID crisis, unemployment payments have been considerably topped up – by $300 a week, leaving people who usually have no choice other than to work for even poverty wages with at least some alternative options.
Whilst Biden has made it clear he doesn’t intend to keep the boosted unemployment insurance forever, workers now have a degree of leverage – albeit temporary – to try to get better pay, or to use the time to retrain, upgrade their skills and find better jobs.
The UK’s story however is quite different to that of the rest of the world. Apart from having to deal with the most disruptive pandemic for a hundred years it’s also still adjusting to its new position in the world following the most publicised and hostile of divorce proceedings… Brexit!
The UK has also had a COVID boost to benefits, through universal credit, albeit on a far smaller scale to the US that couldn’t, on its own, come close to explaining the staff shortages that businesses are experiencing. The UK’s current worker shortage is far more broad reaching and is affecting all levels of employment across all corners of industry. Employers are finding it extremely difficult to fill vacant positions at all levels across manufacturing, construction, hospitality, logistics and distribution, health and social care, and agriculture.
Part of the answer is likely to lie in the furlough scheme, which paid people unable to work due to lockdown – or whose employers chose to furlough them – up to 80% of their usual income, while leaving them free to do other work.
The furlough scheme gave service workers in particular time to search for another job and the income to bridge the gap to a new role. While some people love service sector jobs and wouldn’t wish to switch elsewhere, the pandemic highlighted previously unforeseen vulnerabilities and insecurities of working within the sector that spurred many people to retrain or upgrade their skills to find work in other sectors.
Official figures show that, despite the lifting of all pandemic restrictions that previously limited people returning to work, about 1.5 million workers in the UK are still furloughed. At its peak almost 9 million jobs were furloughed during the first wave of the pandemic, with about 5 million in the wave in January this year.
Sounding the alarm over the risks to economic recovery from acute labour shortages, the Recruitment and Employment Confederation (REC) and the accountancy firm KPMG said the number of available workers plunged in June at the fastest rate since 1997.
Firms are reporting hiring challenges across several sectors of the economy, led by shortfalls in areas such as transport and logistics, hospitality, manufacturing, and construction.
As well as the trouble recruiting chefs, kitchen porters, cleaners and warehouse staff recorded in previous months, recent research indicates that issues for employers were spreading to typically higher-paying sectors such as finance, IT, accounting and engineering.
The rush to reopen after pandemic restrictions is leading to bottlenecks. UK employers are finding added complications as fewer EU workers travel to Britain because of COVID border controls and the government’s post-Brexit immigration rules.
An estimated 1.3 million non-UK workers have left the country during the pandemic. There are also far fewer foreign workers seeking employment in the UK, with overseas interest in UK jobs more than halving from before the pandemic; indicating that UK employers can no longer rely on overseas workers to plug employment gaps.
Some business leaders say easing post-Brexit immigration rules could help address shortages, but also called for further investment in skills and training from the government to increase the numbers of domestic candidates. Employment experts believe people are being put off from work in certain sectors that have developed reputations for low pay and poor conditions in recent years, and that concerns over continuing high rates of COVID are also having an impact.
Unemployment in the UK has fallen in recent months as firms scrambled to hire, dropping to 4.7%, or about 1.6 million people. The Bank of England forecasts that unemployment would rise to 5.5% after the furlough ends. However, this is significantly below expectations last year that COVID would drive up job losses at the fastest rate since the 1980s, leading to 12% unemployment.
In a sign of the growing pressure on companies, surveys from the British Chambers of Commerce showed 70% of businesses that had tried to hire staff in the three months to June had struggled to do so.
One of the most seriously affected sectors by the UK’s worker shortage is the haulage industry. It says it is struggling to find enough heavy goods vehicle (HGV) drivers to keep the economy moving. HGVs transport just about everything around the country – around 90-95% of all goods.
But thanks to a combination of COVID, Brexit and other factors, there aren't enough drivers to meet demand. Based on a survey of its members, the Road Haulage Association estimates there is now a shortage of more than 100,000 drivers in the UK.
There are a number of reasons why the shortages have become so severe - COVID is certainly a part of it. As travel became increasingly restricted last year, and large parts of the economy shut down, many European drivers went home. And haulage companies say very few have returned.
The pandemic has also created a large backlog in HGV driver tests, so it's been impossible to get enough new drivers up and running. The haulage industry said that there were 25,000 fewer candidates passing their test in 2020 than in 2019.
However, COVID wasn’t the only reason why many European drivers went back to their home countries or decided to work elsewhere. When the UK was part of the single market, they used to be able to come and go as they pleased, but the additional border bureaucracy after Brexit meant it was too much hassle for many of them to drive into and out of the UK. Many drivers are paid by the mile or kilometre rather than by the hour, so delays cost them money.
Haulage companies also want better conditions for drivers in general, and recognition that they are a vital part of the economy. They say the average age of HGV drivers in the UK is 55, and more needs to be done to attract younger workers. It is not a role that seems to encourage or appeal to enough younger potential employees entering the market and the issue has of course then been exacerbated by Brexit.
So, what is the government doing about shortages? For now, it has slightly relaxed the Drivers' Hours rules, which means drivers will be able to increase their daily driving limit from nine hours to 11 hours twice a week. But this has been criticised as compromising safety standards and the industry says it will do little to ease the problems it is facing.
Instead, haulage companies have been calling for a change in the rules to make it easier for drivers from abroad to get temporary visas to work here. They want foreign drivers to be added to what's known as the Shortage Occupations List, allowing them to qualify for a skilled worker visa.
But the government isn’t keen and argues that progress is already being made in testing and hiring, and it says a big push is also being made towards improving pay, working conditions and diversity.
With many drivers taking time off during the summer holiday season, though, there is real concern that the crunch may be about to come. There are now warnings from companies and hauliers that they can no longer guarantee all pick-ups and deliveries. Retailers are predicting crippling shortages on shop shelves due to the increasing inability to transport their goods. And just this week, KFC has warned customers that it is facing a shortage of some items as it becomes one of many businesses in the UK hit by supply issues.
Another industry notably affected by the UK’s worker shortage is the agriculture sector.
Many farmers breathed a huge sigh of relief when the UK and EU reached a last-gasp post-Brexit trade deal after nine tortuous months of negotiations. The long-awaited trade deal, which came into force when the Brexit transition period ended at the end of 2020, averted a no-deal Brexit – which most agreed would have been a catastrophic development for the agricultural sector.
Although tariffs are no longer a threat, Brexit has meant an end to free movement of labour, leaving food and farming sectors exposed to a huge shortage of seasonal and casual workers which have traditionally been filled by EU nationals.
EU workers who usually come to the UK to carry out jobs such as livestock slaughter and fruit, potato and vegetable picking and packing struggle to meet the criteria required under the Government’s new points-based system, which allows migrant workers to work in the UK.
Whilst the Government has relaxed the rules somewhat for vets, veterinary nurses, butchers, and agricultural engineers - and announced a seasonal workers pilot for 2021, with an increased quota of 30,000 - a shortfall of workers is still likely.
But there’s a double whammy for the farming sector – however successful it may (or may not) be in overcoming its worker shortage to get crops harvested, it now faces a second dilemma of how to get its produce onto supermarket shelves due to the worker shortage in the haulage industry!
A more unusual and unique phenomenon that has temporarily stalled the UK’s road to recovery is the emergence of the ‘Pingdemic’
What’s a ‘Pingdemic’ and why Is the UK having one?
July 19 was meant to mark the end of pandemic lockdown restrictions as progress continued in vaccinating people against COVID. But just as the country relaxed most restrictions, it was still dealing with a third wave of coronavirus infections as the highly contagious delta variant spread across the UK.
A record number of people who had come into contact with an infected person were being asked to self-isolate, most of them having been ‘pinged’ by the National Health Service’s contact-tracing app.
The ‘Pingdemic’, as it has been dubbed, has produced huge disruptions for businesses and critical services that threaten to undermine efforts to revive an economy still recovering from its deepest recession in 300 years.
Some of it is conducted the old-fashioned way, by workers who interview those who test positive for the coronavirus, ask them about recent contacts and then contact those people. But it’s predominantly done via a National Health Service ‘Covid-19 app’ that residents can download onto smartphones.
If a user tests positive for the coronavirus and agrees to it, the app uses Bluetooth technology to identify other users who in previous days came close enough to the infected person for long enough to be at risk.
The app then notifies those people and asks them to self-isolate for 10 days. Isolation is mandatory only in the case of the old-fashioned method, not with the app. In any case, it’s not required to download the app, and since the start of the ‘Pingdemic’, thousands of users have deleted it to avoid having to risk isolation.
There are reports that the app has been overly sensitive, for example identifying neighbours as contacts through house walls. Another complaint is that users were being asked to isolate even if they’re fully vaccinated; however, that rule is set to be lifted on 16th August.
Why did the number of people notified hit a peak?
As of July 20, an estimated 1.73 million people in a country of 67 million were isolating. Almost 690,000 people in England and Wales were told to isolate by the app in the week ended July 21, up 11% from 620,000 the week before.
The peak was driven in its early stages by a combination of rising infections and increased movement of people. The weekend before most restrictions were ended, the UK recorded the highest increase in infections anywhere in the world, with cases topping more than 50,000 per day.
The delta variant makes up approximately 99% of all new cases there. Infections were higher in the UK in early January, but lockdown rules were still in place in many parts of the country, so those who tested positive then likely would have come into contact with fewer people.
What are the consequences of so many people isolating?
British business is being significantly disrupted. Food and logistics companies have warned of critical shortages of workers, and ministers have allowed limited numbers to avoid the 10-day self-isolation to ensure services can keep running.
Retailers were reporting absences of as high as 20% in some areas. Carmakers on July 29 urged Prime Minister Boris Johnson to make their workers exempt from quarantine as labour shortages were hampering production. Automakers in the UK produced 69,097 cars in June, the second-worst total for the month since 1953, according to the Society of Motor Manufacturers and Traders.
Business lobby groups say it’s difficult to make sense of the rules particularly amid conflicting advice from different government departments, for instance about whether it’s essential for people to heed the app’s guidance to isolate, and how businesses might get exemptions. Businesses have pushed for tweaks to the app to account for people’s vaccination status and for staff to be able to return to work after testing negative for the virus.
What does the government say?
Boris Johnson - who confined himself to his country residence after being ‘pinged’ following close contact with Health Minister Sajid Javid, who tested positive - said that while self-isolating is difficult, it is still an important tool for fighting COVID.
He said the country must reopen ‘cautiously’. Key workers who were vaccinated could apply for exemptions, but the government was recommending the majority of workers still self-isolate if ‘pinged’ even though there was no legal obligation to do so.
In a move to ease the Pingdemic, the app was tweaked on 2nd August so that it identified users who had been in close contact with an infected person in the previous two days rather than five.
This recent adjustment to the contact tracing app has seen the number of people being ‘pinged’ reduce by more than half from 690,000 at the height of the Pingdemic in July to 317,000 in the first week of August – but that’s still a sizeable portion of the population unable to work - forcing companies to temporarily close or reduce their opening hours to cope with the reduction in staff.
No matter what your opinions or beliefs are in regard to the current pandemic or your attitude towards specific government’s macroeconomic policies, there can be no doubt that many western economies are facing a colossal labour crisis.
For many countries only time will tell if the economists are right and that this is indeed just a temporary worker shortage blip caused by COVID, or if it is in fact the start of something bigger.
Will we see an awakening within unskilled and low-skilled workers seeking better pay, better conditions, and more workers’ rights? Will this be the start of a modern social revolution?
Sustained labour shortages, for whatever reason, lead to wage increases in order to attract workers. Of course, higher wages for typically low-paid workers is an extremely positive outcome; however, if this in turn leads to rising inflation as companies raise their prices to accommodate higher wage bills then is anyone really benefiting here?
Will the ‘debt of the high street’ cause the ‘death of the high street’?
The Great British High Street has long been a quintessential part of any village, town, or city – the roots of which can be found as early as the mid 17th Century; giving birth to the phrase a ‘nation of shopkeepers’.
The Great British High Street has long been a quintessential part of any village, town, or city – the roots of which can be found in Britain’s era of rural self-sufficiency when, even as early as the mid 17th Century there were an estimated 50,000 independent shopkeepers across the country – a figure which increased to an astonishing 170,000 by the 19th Century; giving birth to the phrase a ‘nation of shopkeepers’.
Scoot forward a few hundred years to the Modern British High Street, and some would say the death knell has been sounding its demise for many years. In fact, early reports can be traced back to the mid 1980’s when the out-of-town shopping experience really began to take off – which was a slow burn considering the first out-of-town retail parks and shopping centres emerged in the mid 1960’s.
I often wonder if the ‘death of the high street’ is simply journalistic hype and that the ‘evolution of the high street’ would be a more accurate turn of phrase. If you think about it logically, many if not all the principal factors that affect today’s high street have been a perpetual seam in the fabric of the retail sector for hundreds of years.
Technology: nowadays, economists endlessly debate the effects of the internet and the explosion of e-commerce on the high street but go back 150 years and it was the technological advances of the industrial revolution and the emergence of mass production that threatened high street retailers – introducing cheaper processes for manufacturing perishable goods at scale - literally making it far harder for the butcher, the baker, and the candlestick maker to thrive.
Global Crises: The global downturn that emerged in 2008 and the many ‘boom and bust’ cycles experienced by major industrialised nations over the past 40 years are neither new or unique occurrences and again, we only need to go back 100 years to see how the stock market crash and the great depression affected the health of the retail sector. And global pandemics... anyone heard of the Spanish Flu that infected one third of the planet’s population and killed upwards of 20 million?
Money: For some it’s the root of all evil, and you either have it or you don’t, but in business it is a critical component for success – and if you don’t have it but you do need it, then you can borrow it! The principle of lending has been around for over 3000 years - in fact interest rates were invented in 1754 BC. Remarkably, payday loans are also not a new concept with the first recorded instance of a payday loan being found in Ancient Greece in 400 BC!
Back to more recent times and it seems barely a month goes by without us hearing of yet another major high street brand signalling its woes and cataloguing its painful path into administration and then ultimate death through liquidation – with no ‘hail Mary’ buyouts on the table or last-minute ‘government support packages’ in the offing - despite the various tantalising media reports of them being on the ‘brink of a deal’.
Debenhams, Cath Kidston, Toys ‘R’ Us, Poundworld, Maplin and TM Lewin are among the high-profile retail chains who have largely disappeared from our high streets in recent years. Many pin the blame on the current pandemic and the rapid rise of online shopping while others point to high business rates and rents.
But, if you take a deeper dive behind these failed brands, as did Channel 4’s Dispatches reporter Antony Barnett, you will discover they all have one thing in common – they were all once owned by private equity firms.
While these types of investors can sometimes be a lifeline for struggling businesses by offering a vital source of cash, some critics accuse them of focusing too much on short-term profits and loading companies with debt. This starves some brands of the crucial investment or funds required to react adequately to shocks such as coronavirus or rapidly changing retail trends.
Dispatches studied the accounts of private equity firms behind 10 well-known high street retailers that floundered in the past three years and found that:
● Their private equity owners made nearly £1bn in profits from their broader portfolio of investments while these failing brands went on to accumulate millions of pounds in crushing debt.
● Together, they owed almost £50million to HMRC at the point of collapse.
● When Cath Kidston went under, the Government’s Insolvency service, a taxpayer funded body, had to pay £1million to cover staff redundancy payments.
● There was also a human cost with tens of thousands of jobs being lost when they entered administration or liquidation.
It’s clear that the debt of these high street retail chains was a key factor in their disappearance, but what’s happening at the other end of the scale? As we know, the traditional high street was born from independent traders – so how are they faring?...
Statistics indicate there are currently 5.9million small businesses in the UK, with approximately 150,000 of these being identified as independent retailers – less than 3% of all small businesses – and if we compare how today’s independent retailers serve the current population with figures from the mid 19th Century, the number of independent retailers per capita today has shrunk by a whopping 80% compared to the 1850’s.
Whilst mathematically speaking this indicates a continuous decline in independent retailers over the past 170 years there are many other factors that influence their existence: population distribution, mobility, urban planning, and a vast array of economic and bureaucratic factors. Taking everything into consideration, the UK’s independent retailers have been winning their battle for survival… so far…
But now, according to a report commissioned by former Iceland chief executive Bill Grimsey, a ‘tsunami of closures’ is set to threaten the UK high street after independent retail debt soars five-fold to £2.4bn because of the current pandemic. Shops, hairdressers, and small bars are all battling to survive after lockdown closures.
The report found that 68,000 small independent retailers have seen their collective debt rise from £250million to £1.23billion since the start of the pandemic. Another 56,000 small independent hospitality firms have increased their debt from £190million to £840million, while borrowings at 20,000 hair and beauty businesses have rocketed from £50million to £300million.
The report stated small businesses were forced to take on debt they could not afford to survive, which is tantamount to irresponsible lending. Grimsey said: “We’ve already seen the carnage of the failure of the bigger companies. Now our independents are struggling to manage a mountain of debt and need help.”
Despite the difficulties faced by high street businesses, with trading hit by staff and customers getting ill or self-isolating after encountering someone with Covid, the first repayments on government-backed loans recently began just as furlough payments also began to reduce. The report estimates at least a third of small businesses are now facing default, with a knock-on effect for high streets and town centres around the country.
And with such catastrophic failures being forecast, one cannot ignore the human side to this - around 200,000 jobs were lost in the retail sector last year, with another 200,000 expected to go this year as 20,000 shops shut for good.
Having digested these devastating facts it’s hard to imagine there could be any winners within the retail sector, but fear not, I bring tidings of joy for local convenience stores!
2020 saw spending at local off-licences, greengrocers and convenience stores rise 40%, according to research. This same research reported that 46% of consumers are more motivated to support local businesses due to the Covid crisis and 65% of people in the UK say they have a newfound appreciation of their local shops. Factors also contributing to this were convenience, less queuing than at bigger supermarkets and shorter travel time.
I began this article pondering the legitimacy of the phrase ‘death of the high street’ - but will the current ‘debt of the high street’ produce the last nail in the coffin for our beloved high street?
Despite their struggles, independent retailers remain the lifeblood of UK high streets, offering specialist products and services, knowledge, and passion for their community. Shopping at an independent retailer supports local traders and in turn, the local economy, enabling local businesses to prosper and grow.
Not only do people want their high streets to be places where they can go to find a uniqueness that can only be offered by independent retailers, they want to shop in a way that supports local communities.
For every £1 spent with a local, independent business, between 50p-70p circulates back into that local economy. Shopping online or in corporate, out of town retailers only generates around 5p back into the local community.
In the past, the government has moved heaven and earth to rescue some industries, but independent retailers are being driven towards failure. So, what can the government do now to stop the death of the high street by tackling the debt of the high street?...
Many of the UK’s large retailers received unprecedented levels of government support during the pandemic, and with many of these retailers being classified as ‘essential’ they were not hugely impacted by lockdown. This led to some of these retailers including Tesco, Sainsbury’s, and B&M handing back to the government £2bn in business rates relief funds.
This figure alone could be used by the government to write-off 80% of independent retailers’ current loan debt – a massively significant lifeline for the sector. They could further boost independent retailers’ prospects by giving those businesses that had previously been classed as ‘non-essential’ a business-rates holiday and allow them to defer both VAT and employment tax payments to survive.
The solutions are simple and, whilst they may be costly in the short term to the government’s coffers, the long-term benefits cannot be ignored.
The government needs to act now – debt breeds debt and whilst we are also seeing numerous reports of how the high street is ‘bouncing back’, consumer spending is not set to reach 2019 levels until the end of 2022.
Consumer spending alone will not enable independent retailers to dig themselves out of the cavernous debt hole they are currently sitting in. Without government support to remove the burden of debt many independent retailers will continue to struggle and fail.
‘Death of the high street’ or ‘evolution of the high street’, no matter what you call it, if we don’t tackle the ‘debt of the high street’ then the debate will turn from “what can we do” to “what should we have done” - at which time it will simply be too late for this Great British institution.
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