The Going Rate

Why aren't I driving a train?

As I trundle round the busier bits of the M25 in my 44 ton truck I’m constantly scanning the signal gantries for messages and the road ahead for signs of trouble while anticipating the antics of seemingly suicidal drivers who can’t use indicators and assume that I can stop on a sixpence. I also have to listen to the satnav to get into the correct lanes, wonder about whether I’m on time and where my next mandatory rest break will be. Finally, of course, I pay attention to my mirrors as I’m almost always passing or being passed by another truck or having to get round a small car travelling at 50 in the slow lane for reasons I can’t fathom. All of which keeps me busy and confident that this job isn’t going to get computerised any time soon.

I do wonder whether I’m being paid enough for all this stress. As a novice trucker I get paid around £37,000 a year – well above the average truck driver salary of £31,000 because I drive an articulated one, which requires an additional license (Cat E). If I were driving a train all I would have to do is monitor signals and adjust speed. No pedestrians, white vans, tippers or tricky parking manoeuvres to worry about. Plus a smoother ride and a guard to talk to. That seems to be a far less demanding job and yet the average train driver starting salary is £47,000.

Why?

One of the axioms of free market economics is that pricing is driven by supply and  demand. If there is a shortage of HGV drivers then employers will pay higher rates, more people will become HGV drivers, demand will be met and rates of pay stabilise until the next shortage. Similarly, should there be a glut of HGV drivers some will find other jobs and others be willing to work for less pay (possibly a better option than not having an income while they spend money on retraining).

There are other factors. For example if the cost of living in London is higher than in the midlands drivers based in London will demand more pay. They’ll get it, up to the point where it makes economic sense for a midlands based driver to work in London. This process should, in theory, play itself out in myriad iterations until a viable rate is reached. Moreover more skilled people will get more rewarding jobs and more demanding jobs will have to pay more to get more highly skilled workers.

Moreover, better performing companies pay more to attract and retain better, more experienced drivers. These companies tend to be smaller and family owned – finding experienced drivers is hard and without them making a good profit on an expensive to run truck is challenging enough without the addition overhead to pay for extensive head offices. The corollary of this is that novice drivers like me tend to end up driving for big companies for lower rewards.

There’s also the subset of owner drivers who have typically invested in a three to fiver year old truck and from that lower cost base are able to compete on price while trousering more dosh at the end of every week than they would if they were simply an employed driver; more commercial risk and hassle generates more reward.

In short at first glance the HGV market is one that should be close to perfect – with multiple players in competition for multiple loads. And yet in 2021 the House of Lords was considering the UK’s HGV driver shortage. It attributed this to a pre-existing decline form 2016, Brexit (of course), covid and an aging workforce. HGV driver’s pay increased dramatically, albeit not quickly enough to get new drivers  in sufficient quantities quickly – the bureaucracy of getting HGV licenses is tiresome and the courses expensive.

The government therefore funded intense training courses and similar schemes to increase the supply of drivers. It also changed the Cabotage rules. To explain cabotage, a truck from the EU delivering goods to the UK will invariably seek a return load. If the pickup point for the return load is some distance from the outbound load’s destination the EU truck is allowed to take another load from drop off to pick up, under a scheme called cabotage. It’s likely that the EU truck will be able to undercut a UK haulier as EU drivers are paid less and fuel in the EU costs less. Until 2021 trucks from EU were allowed to make one cabotage journey per trip, which is still the rule across the EU. This limit was removed in the UK by the then minister of transport, Grant Shapps. Instead EU trucks were allowed to operate unconstrained in the UK for 14 days. In 2023 a limit was re-imposed at the level of two cabotage trips per visit to the UK – twice the EU rate.

The government says that cabotage trips have not increased much. Apparently they account for about 1.4% of HGV ton kilometres and that the change is not significant. Perhaps, but almost all EU truck movement in the UK are by articulated lorries. OF the 486,000 or so trucks on British roads just 20% are artic like mine. So that unrestricted cabotage is disproportionately falling into my sub-sector. Certainly I see plenty EU artic on the roads, at the depots where I drop and collect as well as the rest areas. I would guess that 25% to 50% of the articulated lorries I see are EU ones. Logically around half of them will be hauling cabotage loads.

The government has also set the threshold level for work visas at about my pay rate. This encourages EU HGV drivers to move to UK and work for UK firms. This too keeps pay rates down. I’ll come back to the impact of the government rigging the HGV driver market. First let’s consider why train drivers are paid so much more than me.

For a start there are fewer train drivers (21,000 or so) compared to 270,000 or so HGV drivers. The railway market is barely fragmented; the train operators are now more or less nationalised, and they are highly unionised. Like his predecessors their current general secretary, Mick Whelan, has done a grand job of forcing the government to pay his members more.  The rail industry still acts as if it were a closed shop – for one in which union membership is mandatory. Hapless governments (or the train operating  companies) are unable or unwilling to take the necessary steps to defeat or circumvent industrial action. There is therefore no free movement of labour; the train driver market is rigged and they’re paid disproportionately large salaries. Against whom? The customer and the taxpayer.

At least the train driver is a British national, spending most of their salary in the UK, thereby further adding to GDP, the revenues of other UK companies and the tax take. The trickledown effect is working. Even though you and I are paying over the odds for someone to drive our train at least part of our largesse is going back into the rest of the UK economy.

Now let’s consider EU HGV driver. His (or her, but mostly his) company wins the cabotage business and is paid by the UK company. The company benefits from paying a lower price, but the entire price goes out of the UK. Some of it goes to the driver, who will spend a little of it in the UK on food and drink (he’ll be sleeping in the cab). Most goes to his boss the EU truck owner. He’ll try to avoid filling up his truck as the UK has some of the most expensive road diesel in Europe - EU trucks tend to have very large fuel tanks. The UK economy has lost the transport charge, most of the driver’s spending and probably the diesel cost and tax thereon too. Sure, the UK company and its customers has benefitted from marginally lower prices, but that’s it.

This worries me as I have been a libertarian free market capitalist all my life. The old school unionised route seeks better for the workers and the economy, but not the customer. The globalist route seems better for the customer but supresses worker pay and reduces the economy’s size.

It’s not just trucks.  Any migrant worker, by which I mean a foreign national working in the UK with no intent to settle permanently in the UK, extracts wealth from the economy. Sure, migrant workers are preforming jobs that might not otherwise be filled at that rate of pay, thereby adding value and contributing to growth. But if they are sending pay home, or saving it in cash to take home later, they are not fully contributing to growth and trickle down is reduced. We used to fret about the balance of payments (i.e. exports minus imports), but noone is considering the loss of tax revenue and wealth that comes from employing migrant workers who don’t spend or hold all their salaries in the UK. The migrant workers are also supressing salaries for UK nationals, native or immigrant, doing the same job.

Why can say Romanian drivers and companies undercut the UK ones? Simples; it costs less to operate trucks from Romania than it does in the UK. There are multiple reasons for this, but a key indicator is that according to Trading Economics Romanian government spending  is 40% of GDP compared to 45% in the UK. (I’m making the simplification that government spending more or less equates to total taxation; both UK and Romania spend more than they take in taxation so it’s reasonable. )

Poland, Hungary and Romania are also large recipients of EU aid in amount of funding (which we thankfully no longer contribute to). It’s surely not a coincidence that many of the EU trucks in the UK come from those countries. Many come from Lithuania, which gets a staggering 3% of its GNI from the EU. (GNI is effectively GDP plus foreign income).

What we have, therefore, is a vital service that the government is determined to keep running. Rather than sit back and let the market work it out – which might have led to rising transport costs, inflation and possibly shortages of some items in some shops it sought to manipulate the market by deliberately sourcing lower cost migrant labour. Of course,  ensuring a supply of drivers is vital to keeping the economy moving. (The tanker driver’s strike of 2000 brought Tony Blair to his knees . Subsequent governments rightly live in fear of a repeat).

The government may have been correct to extending supply at the behest of the Road Haulage Association (RHA), which represents transport operators and lobbied hard for the driver gap for be filled at short notice. However keeping pay rates low deters people from joining the industry and drivers from working on at the end of their careers. It would, perhaps, have been better for it to trust to the market and let pay rates, and thus freight charges, rise. Whether that would have been more economically damaging than the use of migrant labour depends upon which economist you ask. The RHA opposed an extension to the 14 day scheme.

A recent parliamentary report concludes that the UK’s labour market is tight, and that this is a constraint on the political nirvana of growth. Perhaps. But why is the market so tight? Stating the obvious, it’s due to a shortage of workers. One place to look before turning to migrant labour is what’s keeping people out of work. I find the graph below utterly shocking.(Data from ONS)

2.5 million of the UK’s 37.5million workers are off work near permanently due to long term illness. That’s one in 15. It’s been growing at 5% a year since 2019; last year it grew by a staggering 10%. Whether we are that unhealthy, or there is widescale fraud or the NHS is that bad is a question for another day. I suspect in an election year few politicians will be brave enough to ask it.

Back in my cab none of this is hopeful. I have given up trying to get onto a train driving course and the government is still rigging the market. EU drivers are still permitted to take one more cabotage journey in UK than UK or EU drivers are in the EU. Am I wrong to believe in free market capitalism and the small state?

If Friedrich Hayek was right in the Road to Serfdom and that being a little bit socialist leads inevitably to becoming a totalitarian communist it might be instructive to look at how the Soviet Union addressed wages. The state just told everyone what they were worth. In a country where you could live comfortably on 100 Roubles a month, street cleaners and factory workers got 60 to 100, managers  and academics and bureaucrats 200 to 300. I’m told that being a truck driver was far more lucrative than driving a train as the opportunities for parts of the load “disappearing” were legion and lucrative, if illegal. It’s fair to say that the Soviet System failed abjectly despite multiple revisions, the last one being part of the perestroika that led to the collapse of the USSR. That doesn’t bode well for a government that insists on meddling in the employment market.

The government’s action in the HGV driver market, at best, delivered a short term solution at a long term economic cost. It may well have turned what would have been a temporary problem into an endemic one. It has not yet addressed the primary cause of the labour shortage and show no sign of doing so.

Worse, the government’s suppression of free market operation in once sector suggests that there may well be problems in other sectors where the government is involved.

I’ve been thinking about that too and will share my thoughts in another post.