December 19, 2022

Eight months of strike action to have cost the UK economy at least £1.7bn, adding to existing recessionary pressures

The rising cost of living has been the dominant economic subject in the UK over 2022. Data from the Office for National Statistics (ONS) released this week show that employees are currently experiencing the sharpest real earnings contraction in 13 years.

As such, with earnings falling short of inflation for many, a secondary theme of 2022 has been industrial action. This has especially been the case in the second half the year, when the incidence of action has been the most significant at least since the 1980s. The recent wave started in the rail sector in June, when the National Union of Rail, Maritime and Transport Workers (RMT) walked out as part of a dispute over pay, pensions, job security, and working conditions.

Since then, a growing number of industries have seen increased industrial action, culminating in an intensification during the current winter period. During December, alongside at least four days of action by RMT members, other strikes among Royal Mail staff, NHS nurses, airport and border force staff, road maintenance workers, and driving examiners, among others, have made for a ‘winter of discontent’ of industrial action.

In June, our Forecasting Eye report estimated the impact of rail strikes in preventing individuals from making it to their place of work. [1] Factoring in regional estimates of the share of workers who are unable to work from home and who rely on transport infrastructure, we estimated that such indirect work absences resulting from the initial three-day June period cost the economy £91.0 million in lost output (GVA). Extending our analysis to capture the national rail strikes seen in the subsequent months, we now expect a total of £289.0 million to have been lost from UK economic output due to resultant worker absences between June and November. Moreover, the period of heightened action between December and January is expected to see a total cost of £219.0 million in two months alone. As such, by January, the eight-month period of strike action is expected to have seen a £0.5 billion blow to the UK economy as a result of indirect worker absences during rail strikes.

Data published by the ONS since our June report allow a further element of the cost of industrial action to be inspected: the direct loss of output among those who themselves are striking.  The data, collection for which was recently resumed after being discontinued during the pandemic, show that 93,000 days of work were directly lost to industrial action in June. More than 92% of these days resulted from action by workers in transport, storage and communication, dominated by the rail sector. Following an upward trend over the subsequent months, figures released this week show that 417,000 days of work were directly lost to industrial action in October. Accordingly, October saw the highest monthly number of days directly lost due to strike action since the public sector strikes of November 2011.

Using data on the average output per worker hour and working days lost by industry, we are able to estimate the direct cost of strikes per month in monetary terms. Assuming a working day of eight hours, our modelling suggests that strikes directly cost the economy £30.2 million in June, a figure rising sharply to £146.5 million in October. In total, in the five months to October, this direct cost of strikes is expected to have stood at £393.0 million. While data are not yet available, a relative lull in rail strike action during November is expected to have seen the direct cost fall back to £89.1 million.

Looking ahead, accounting for the significant uptick in industrial action on the railway, as well as Royal Mail and NHS strikes, alongside others, Cebr expects the monthly direct cost to explode to £524.9 million in December. Following this, an expected easing of activity in January is forecast to see a lower direct cost for the month, at £191.1 million. As such, over the eight months to January, a total direct cost of £1.2 billion is expected as a result of industrial action, 60% of which is anticipated during the ‘winter of discontent’ itself in December and January. This comes as the number of working days lost to action in December is set to exceed one million for the first time since July 1989, over 33 years ago.

Adding together the forecasted direct cost of all strikes and the indirect cost of worker absences due to rail strikes puts a lower bound estimate of £1.7 billion on the total cost over the eight-month period to January 2023. For comparison, Cebr expects that the current-price value of the whole UK economy stood at £2.5 trillion. While Cebr’s estimated lower bound cost of strikes stands at a moderate 0.1% of expected GDP over this period, unresolved industrial disputes are having an adverse impact on growth at a time when recession is already expected imminently.

This analysis has focused on the direct cost of failing to resolve disputes, while also capturing a core knock-on impact of the dominant rail strikes via commuting behaviour. Given that there are broader indirect costs of industrial action, not least when multiple strikes coexist and interact, the estimated figures represent lower bounds. Such costs include the hit to retail, hospitality, and leisure spending at an important time for such businesses, a dent to confidence, supply chain disruptions and higher business costs, and a hit to the public coffers. More broadly, there is also a reputational cost for the UK, where positive headlines have already been scant for quite some time. This becomes an economic cost in light of the importance that attracting talent and investment will have for the UK economy in the years ahead. Identifying routes to resolve and avoid further industrial action will therefore be an important step in moderating the recession in 2023 and avoiding a low-growth doom loop in the subsequent years.

[1] https://cebr.com/reports/rail-and-tube-strikes-to-cause-hit-of-at-least-91m-to-the-uk-economy-with-london-set-to-suffer-the-biggest-output-loss/

For more information contact:

Author: Karl Thompson, Economist

Email: kthompson@cebr.com, Tel: 0207 324 2866

Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.

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