The Econmist - USA (2021-10-30)

The Economist October 30th 2021 Britain 35

Earnings

Pay up

O

ne of thepre­budget leaks—designed

to  ensure  positive  press  in  advance  of

the  big  event—was  that  the  minimum

wage  would  rise  from  £8.91  ($12.23)  to

£9.50. This will lift the pre­tax pay of a full­

time  worker  by  £1,000  a  year  from  next

April,  in  keeping  with  the  government’s

promise  to  deliver  a  high­wage  economy.

Yet  if  the  politics  of  the  move  were  obvi­

ous, the economics were less so.

The Low Pay Commission (lpc), a group

of  economists,  employer  representatives

and  trade  unionists,  has  advised  the  gov­

ernment on the minimum wage since 1997.

In recent years the government has given it

increasingly  ambitious  goals.  The  latest,

which it received in 2020, was to work out

how  to  put  an  end  to  low  pay  altogether,

defined as earning below two­thirds of the

median hourly wage. 

Previous  changes  have  yielded  results.

The share of people on low pay fell sharply

from  around  23%  in  the  2000s  and  early

2010s, to just 15% in 2019. But it is uncertain

whether  further  climbs  will  be  as  easy.

Across  the  oecd,  a  club  mostly  of  rich

countries, only Chile, Colombia, Costa Ri­

ca and Turkey have minimum wages with a

sharper bite. 

Worries about the new target paled into

insignificance when the covid­19 pandem­

ic struck. The quality of the data available

to  the  lpcplummeted,  and  the  furlough

scheme muddled average earnings figures

by  replacing  80%  of  people’s  pay.  A  year

ago the commission’s best guess suggested

that  staying  on  track  to  meet  the  target

would have implied raising the minimum

wage to £9.06. Given the extent of the un­

certainty, they instead advised the govern­

ment to apply an “emergency brake” and to

raise it to just £8.91. 

The impact the minimum wage had on

the labour market during the pandemic is

still unclear (when asked, businesses told

the  lpcthey  had  no  idea).  A  glance  at  the

data  suggests  the  commission  was  maybe

too pessimistic about employers’ capacity

to  absorb  higher  wages,  as  its  latest  esti­

mates show the number and share of work­

ers  paid  the  minimum  wage  have  fallen

slightly. But that same observation may al­

so suggest they were correct to be cautious,

since it could be that the lowest­paid work­

ers were more likely to lose their jobs.

The lpc’s latest estimate is that achiev­

ing the government’s goal means the mini­

mum  wage  will  need  to  reach  £10.70  in

Britain’s minimum wage is catching up

with pre-pandemic ambitions

Industry

Battery bonanza

F

rom 2030 , thegovernmentsays,every

oneofthe2.3mnewcarssoldinBritain

eachyearmustbeelectric.Allwillneed

batteries,themostcomplexcomponentin

electricvehiclesandthefulcrumaround

whichtheiremergingsupplychainsturn.

InNovemberlastyearthegovernmentset

aside£2.8bn($3.9bn)tosupportthetransi­

tion,andtohelpensurethatthosesupply

chainsrunthroughBritain.

Theresultisa floweringofnewbattery

factorieswhichhaveemergedtomeetthe

demand—andtotakeadvantageofthesub­

sidies.One,inNorthumberland,underde­

velopmentbya two­year­oldstartupcalled

Britishvolt,iscourtingthegovernmentfor

hundreds of millions of pounds. Another,

in Sunderland, is being developed by a lit­

tle­known Chinese battery company called

Envision,  which  is  expanding  the  plant

that  now  supplies  Nissan,  a  Japanese  car­

maker. Coventry City Council wants a fac­

tory of its own, and has filed for planning

permission to build one. The local author­

ity  has  yet  to  decide  which  company

should operate it.

The  stakes  are  high.  This  is  thanks,  in

part, to the terms under which Britain left

the  eu.  The  rules­of­origin  requirements

in  the  withdrawal  agreement  mean  that

40% of the components of cars exported to

the eu must be of British or European ori­

gin. By 2027 this rises to 55%. Because the

battery  is  such  a  large  proportion  of  an

electric  vehicle’s  cost,  if  Britain  cannot

build  battery­manufacturing  capacity,  the

resultant  lack  of  access  to  the  European

market will mean it loses car manufactur­

ers,  which  would  be  costly.  The  manufac­

turing  of  internal­combustion  vehicles

currently supports around 180,000 jobs.  

The new battery facilities, and any that

come  after  them,  face  several  challenges.

Electric vehicles, by their nature, contain a

higher  proportion  of  electronic  compo­

nents  than  their  fuel­burning  counter­

parts. The manufacturing of these compo­

nents,  and  particularly  batteries,  which

alone make up some 30% of the value of an

electric  vehicle,  is  dominated  by  Chinese

firms.  This  means  that  the  government  is

subsidising  the  operation  of  factories  not

only with much higher labour costs, but al­

so with a technological handicap.

An  alternative  is  to  attract  Chinese

firms  to  British  shores.  So  far  Envision  is

the  only  one  with  such  plans.  Contempo­

rary  Amperex  Technology,  by  a  long  way

thebiggestandmostimportantoftheChi­

nese  operators,  has  no  public  plans  for  a

British plant, but does have plans for them

in  Indonesia  and  Germany.  byd,  a  Shenz­

hen­based  maker  of  electric  vehicles  and

batteries,  may  be  an  option.  Whereas  at­

tracting  Chinese  manufacturers  to  British

soil probably offers the best value for mon­

ey,  it  comes  with  political  baggage.  Chi­

nese investment in Britain is unpopular. 

In  favour  of  Britain’s  aspirations  is  the

fact  that  batteries  are  heavy,  bulky  and

flammable—and thus relatively expensive

to  ship.  Willy  Shih  of  Harvard  Business

School  says  this  means  batteries  will  not

follow exactly the same path as solar pan­

els and flat­screen displays, two high­tech

items  whose  production  is  dominated  by

China.  Instead  it  will  make  more  sense  to

produce them close to their markets.

How well this works out depends on the

route that the industry ends up taking. Tu

Le,  an  automotive  analyst  in  Beijing,  ex­

plains  that  there  are  broadly  two  possible

paths.  One  is  that  Chinese  firms  set  up

manufacturing  hubs  around  the  world,

like  Envision’s  in  Sunderland,  but  keep

their  intellectual  property,  research  and

development  in  China,  rather  as  Apple

does with smartphone manufacturing and

design.  The  other  is  a  more  traditional

model  whereby  car  manufacturers  drive

innovation  in  batteries  and  electric­vehi­

cle power electronics, and the Chinese bat­

tery companies become mere suppliers. 

If  the  traditional  model  prevails,  then

Britain’s battery investments may well pan

out. But if the future is one in which Chi­

nese manufacturers control the advancing

technology which underpins electric vehi­

cles,  then  Britain’s  batteryfactories  will

end  up  expensive,  behind  thetechnologi­

cal curve and a waste of money.n

Explaining a rush of gigafactories

Plenty more where that came from